Originally published by Forbes | View Story
By Ed Leefeldt and Amy Danise
The once humble roofing contractors who nail up the shingles that protect your home from wind and weather are now some of the most important—and controversial—people in Florida.
But that will change if Gov. Ron DeSantis signs Senate Bill 76, which was passed by the Florida legislature on April 30. This bill restricts the ability of roofers to solicit homeowners door-to-door and slaps legal and financial handcuffs on attorneys who work with these contractors, frequently filing lawsuits on their behalf.
If this sounds insignificant, it isn’t in Florida. The Sunshine State is insurance-poor and insurers are losing more money each year. Property insurers suffered an operating loss of $1.6 billion in 2020—the fifth year of losses since 2015—and it’s likely to increase to $2 billion or more next year, according to state legislators.
“Florida’s insurance market is spiraling toward collapse,” said Guy Fraker in a report commissioned by the Florida Senate’s Banking and Insurance Committee.
Insurers aren’t taking these losses lying down. Instead, they are demanding premium increases from homeowners, often 25% to 30% yearly, according to Florida Rep. Bob Rommel. Some homeowners could see their insurance rates double in two years. And that’s without being pelted by another of the state’s devastating hurricanes.
No one, not even supporters of Senate Bill 76, says that rates will drop in a state where property insurance is already about $700 a year more than the national average, according to data from the National Association of Insurance Commissioners.
“There were more than 100,000 lawsuits filed against insurers in 2020 and the pace is continuing in 2021,” says Mark Friedlander, a Florida-based spokesperson for the Insurance Information Institute, which represents the industry. “It will take years for the insurance market to stabilize.”
$500 More For Homeowners Insurance Each Year
According to Fraker’s report, an average Florida homeowner paid almost $500 in hidden litigation costs in home insurance in 2019, and those costs were rising by about 25% a year.
Critics of Senate Bill 76 worry that “this bill does nothing to protect consumers from the predatory practices of insurance carriers that we’ve been complaining about for years,” says Florida attorney Lee Jacobson, who represents insured clients whose claims have been minimized or denied.
Florida’s insurance dilemma stems back to the 21st century’s early years when tropical cyclones devastated the state and caused huge insurance losses. And it was compounded by hurricanes Irma and Michael in 2017 and 2018. By then, major home insurance companies had vacated the state, leaving just small start-ups with little capital to pay claims. Their only backup was “reinsurance,” often from Wall Street’s private equity and hedge funds.
Major rating agencies, such as Standard & Poor’s and A.M Best, refused to analyze these start-ups, leaving it to another start-up called Demotech, which says Florida is “the most difficult” insurance market in the U.S.
Already reeling insurers were dealt a major legal setback with the 2016 Florida Supreme Court decision on “mandatory replacement costs for residential roofs.” This ruling says that if 25% or more of a roof is damaged by a problem covered by the policy, the entire roof must be replaced and the insurer must pay for it.
The situation sent roofing companies knocking on local residents’ doors to point out loose shingles and offer “assignment of benefits” contracts—sometimes with a $500 gift card,” says Friedlander of the Insurance Information Institute. An “assignment of benefits,” called an AOB, allows the contractor to take control of the claim and deal directly with the insurance company.
Another state law is called “one-way attorney’s fees.” It says if the contractor plaintiff can win even “one penny more” than the insurer’s initial offer, the insurance company must pay the legal fees for both sides. According to Florida’s Office of Insurance Regulation (OIR), once a homeowner signs on to an AOB, the contractor turns to a receptive attorney who’ll file suit against the insurance company if the contractor’s initial claim—no matter how high—isn’t immediately accepted by the insurer.
In one case cited by Rep. Rommel, a homeowner was awarded $35,000 while the attorneys netted $756,000. “The money is not going to clients,” said Rommel in an article in Florida Politics. “It’s going to attorneys.”
Last year the Florida Supreme Court suspended a Coral Gables attorney who filed nearly 9,000 lawsuits against property insurers in the previous six years.
Data compiled by the Florida OIR shows the imbalance between what homeowners are likely to receive and what the attorneys will collect. Florida accounted for just over 8% nationally of homeowners insurance claims in 2019. By contrast, Florida lawyers filed more than 76% of the homeowners’ suits against insurance companies in the entire U.S., according to the National Association of Insurance Commissioners.
The Director of the Center for Economic Justice, Birny Birnbaum, disputes the conclusion that Florida’s attorneys are in the wrong. “The cause of Florida’s problem is weak market regulation and the slow payment of insurance claims,” says Birnbaum. “In 2019 the overall average of claims paid beyond 60 days was twice as high in Florida as in other states I surveyed, including California.”
Florida’s insurers disagree with Birnbaum’s charge that they delay paying claims. But with their financial difficulties growing it could soon become a question of whether they can pay at all, go under, or be bought by another start-up, as some already have.
The Insurer of Last Resort
One alternative is state-run Citizens Property, the insurer of last resort. The number of Florida residents forced into the program grew by more than 23% last year to more than half a million customers.
Both sides in the roofing dispute agree that Gov. DeSantis will likely sign the Senate bill into law. A possible future presidential candidate, DeSantis has already said that “the contractor-attorney alliance has degenerated into a racket.”