At the end of May the Florida Legislature was called into a special session by the Governor to address the property insurance crisis in Florida which is creating havoc for homeowners. Monthly, homeowners across the state are being dropped by insurance companies which are pulling completely out of the state, or they are seeing premiums skyrocket for the same coverage, or they cannot find coverage for their home’s roof which was installed more than 15 years ago.
Homeowners are being forced to either self-insure which means they have no private insurance and must be diligent about setting aside money on their own to pay for any storm damage, replace older roofs that are in good condition, or get insurance through the Citizens Property Insurance Corporation, a quasi-public private program, which is known as the insurance of last resort. The problem with the Citizens Property Insurance Program is that many legislators and experts contend the program’s $3 billion in reserves is not adequate for potential liabilities in the event of a major hurricane which could leave homeowners or the taxpayers helpless in the aftermath of a disastrous storm.
The bill approved by the Florida Legislature and Governor addressed long-term issues which may, in time, provide help to homeowners, but most agree, immediate help is not eminent or certain. The bill attempts to reel in bad faith litigation by limiting assignment of benefits, allowing for potential different deductible options for older roofs, and creating a reinsurance program to encourage companies not to leave the state. Plus, the legislation restricts insurance companies from arbitrarily requiring roof replacements and it provides homeowners an opportunity through independent inspections to prove their roofs are in good shape. These measures, if not overturned by the courts in the long term, should help to ease rates, but overall, they provide marginal relief to the current crisis
Assignment of Benefits claims have been a huge part of the issue in the state. This is a process wherein a roofer or contractor performs work for a homeowner for insurance repairs and then the homeowner gives that contractor the right to collect the money they are owed from the insurance company. Many times, these contractors would have a lawyer file a lawsuit against the insurance company to collect, and in many cases, the insurance company would settle rather than fight the claim and be responsible for the contractor’s attorney fees.
Under this new law, the homeowner or the insurance beneficiary are the only parties that can file suit against an insurance company with the prospect of collecting attorney fees, and they cannot assign their benefits to another party. By having the actual insured party filing the suit, many believe this will stop those who are committing insurance fraud. Included in this bill are rules regarding the time for noticing and filing claims, setting amounts for fees, and other prescriptive legal guidelines which should stem bad faith litigation.
The new bill also allows for private insurance companies to have a separate roof deductible which can be either 2% of the home’s value or 50% of the roof’s value. This deductible would not apply to hurricanes or tree damage, but something like a hailstorm would no longer mean a free roof at a low deductible. As policies get updated, many homeowners will see a huge change in this area especially if they have an older roof. The bill restricts an insurance company from refusing to write or renew a policy based on the age of a roof, if the roof is less than 15 years old or an inspection determines the roof’s lifespan is greater than 5 years.
The state is setting up a $2 billion reinsurance program to encourage property insurance companies to stay in the state. This is not a long-term program, and many are concerned the money will be used by companies who do not have the financial wherewithal to remain in business. The savings from the reinsurance program are to be passed directly to Florida homeowners and some are skeptical that will occur given the nature of the program.
The bill does not do one important thing which is stopping the abuse of the system by professional plaintiffs. Many are concerned the bill will bail out marginal insurance companies and allow professional plaintiffs with the help of aggressive lawyers to do the same thing but in a different way. Plus, a couple of trade industries have already filed suits against the bill and are challenging the constitutionality of the fee limitations on the assignment of benefits. The bill also establishes a $150 million My Safe Florida Home Program which is a grant program that can be used by Florida homeowners with properties valued less than $500,000 to fortify their homes against hurricanes. The belief is these improvements should help homeowners and lower future insurance costs.
What could really make things worse? A bad hurricane season in the state of Florida could cause the Citizens Property Insurance Company to be faced with liabilities it can’t pay.
In time the new legislation may help property owners, but right now, little will probably change.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.