Reining in runaway lawsuits and attorney fees to protect Florida consumers
The Florida property insurance market faces an explosion of questionable litigation – and it is directly harming consumers in the form of higher insurance rates and fewer insurers to choose from. The Consumer Protection Coalition (CPC) is committed to supporting reforms that swiftly and effectively address this growing problem.
What is fueling the firestorm of lawsuits? It’s the legal community’s version of “Florida Man.” Florida’s wild west litigation environment and runaway attorney fees, all of which incentivizes billboard trial lawyers to file as many lawsuits as they can to pad their pockets at the expense of the state’s hard-working families.
The litigation frenzy is destabilizing Florida’s domestic property insurance marketplace. During 2020, about 60 home-grown insurers recorded combined net underwriting losses of more than $1.2 billion. One domestic insurer has seen lawsuits skyrocket by nearly 150 percent in just three years, from 275 suits in 2016 to 684 in 2019.
As a result, dozens of domestic insurers have been forced to seek double-digit rate hikes from state insurance regulators to cover their growing losses. That translates into higher premiums for homeowners, due to the greedy behavior of some attorneys. Many insurers are limiting the number of policies they will write in Florida or no longer insuring properties at all in certain parts of the state because of the high risk of lawsuits, which reduces the number of choices for consumers shopping in the marketplace.
Bad lawyer behavior and sketchy roofer solicitations
In 2020, one South Florida lawyer – Scot Strems of Strems Law Firm – was suspended from practice after court documents and testimony found his firm had repeatedly abused consumers and systematically violated court orders. One Strems lawyer, for example, negotiated a higher settlement with an insurer and kept the money rather than informing his client, the homeowner. Another consumer said Strems signed them up for legal representation without their knowledge or consent. Evidence showed that at any given time, Strems and his approximately 25 lawyers statewide had about 10,000 lawsuits underway in Florida courts – some attorneys were handling 750 lawsuits each!
Additionally, Florida’s top insurance regulator recently told Florida legislators that there is a growing problem with questionable roofing company solicitations that can lead to lawsuits. One solicitation lured homeowners with a promise that: “1 Broken Shingle or Tile = 1 New Roof – Here’s How!” Another promised consumers a $500 Amazon gift card if they signed up for representation for a new roof. Claims related to these types of solicitations are often rightfully contested by insurers and ultimately drive up costs for consumers.
Contingency fee multipliers are unnecessarily driving up attorney fees
Reining in the out-of-control use of something called contingency fee multipliers is one area that elected leaders can focus on to reform this litigation problem. Typically, courts calculate attorney fees by simply multiplying the number of hours reasonably spent by an attorney on a case by a reasonable hourly rate. However, in certain circumstances, the court may adjust that amount based on a “contingency risk” factor, which can result in a doubling or even tripling of the attorney fee awards.
The contingency fee multiplier was originally created in early civil rights litigation and intended to correct a shortage in the market for competent representation in complex legal cases. Thus, it was used only in rare and exceptional circumstances. However, a 2017 Florida Supreme Court ruling rejected that notion and authorized the use of multipliers in even run-of-the-mill insurance cases. As a result, attorney fees are now increased substantially in many routine cases, regardless of whether the attorney was already reasonably compensated for their work through their base fee or whether the case was a relatively simple one in which legal counsel was easy to find.
The CPC is urging state legislators to address Florida’s runaway attorney fees, excessive litigation, and questionable solicitations that prey on consumers. Sound public policy reforms in these areas will help to stabilize the state’s currently struggling property insurance marketplace and lead to more insurance choices and greater affordability for consumers.
Florida’s insurance litigation frenzy and the “hidden tax” on consumers
The frequency and severity of litigation represents an additional expense of 17% (and rising) on all earned premiums for property insurers in Florida compared with other catastrophe-prone states.
The fees paid to attorneys by Florida property insurers far exceed the damages paid to the policyholders.
In 2019 alone, Florida insurers paid almost $3 billion in lawsuit costs that translated into higher premiums for insureds.
Although the volume of claims after storms is a factor in costs, claims unrelated to catastrophes account for approximately 60% of all litigation.
Florida consumers are paying a “hidden tax” to fund the litigation that averaged about $680 per family in 2020.
Sources: Report: “Florida’s P+C Market Spiraling Toward Collapse,” by Guy Fraker, Adjunct Scholar at James Madison Institute