Florida Property Insurance Special Session Analysis of SB 2-D

Citing frivolous lawsuits and other adverse conditions contributing to instability in the Florida property insurance market, Florida Governor Ron DeSantis issued a proclamation on April 26, 2022 calling on the Florida Legislature to convene a special session regarding property insurance starting Monday, May 23, 2022. The Florida Senate convened on May 23rd, and the Florida House of Representatives convened on May 24th.

On May 20, 2022, Representative Trumbull and Senator Boyd filed HB 1-D and SB 2-D, respectively. These bills, as amended, are substantially identical and contain several property insurance reform measures, including:

• Creation of a new “Reinsurance to Assist Policyholders” or “RAP” program that will provide up to $2 billion of reinsurance coverage under the existing retention of the Florida Hurricane Catastrophe Fund (FHCF) to be funded by appropriations from general revenue and requiring insurers to make rate filings to reflect savings attributed to this program;
• Appropriations to expand the My Safe Florida Home Program to assist homeowners with hardening their homes;
• Requiring roofing contractors to provide disclosures in their advertisements to consumers and prohibiting the contractors from waiving or paying for insurance deductibles;
• Amending the first party bad faith civil remedy statute;
• Requiring the Office of Insurance Regulation (OIR) to publish various reports;
• Prohibiting the right to assignment of attorney fees;
• Authorizing separate roof deductibles, subject to various restrictions and conditions;
• Requiring insurers to complete certain inspections within 45 days after proof of loss is received and to provide copies of the inspection reports to the policyholders;
• Creating a presumption that a lodestar fee is sufficient and reasonable and that attorney fee multipliers should only be allowed in rare and exceptional circumstances;
• Eliminating the ability of assignees to obtain attorney fees except for frivolous claims or defenses under Section 57.105, Florida Statutes;
• Creating a “Property Insurance Stability Unit” within the OIR to provide enhanced surveillance of troubled property insurers; and
• Requiring the Department of Financial Services to issue reports regarding insolvent property insurers.

A more detailed section-by-section analysis of SB 2-D is set forth here. The Senate passed SB 2-D on May 24th by a vote of 30 to 9. The House passed the bill on May 25th by a 95-14 vote.

Section-by-Section Summary of SB 2-D

Section 1 creates the “Reinsurance to Assist Policyholders” or “RAP” Program. 

The bill authorizes $2 billion for a new RAP program for insurers. The reimbursement layer of $2 billion is below the FHCF retention prior to the third event dropdown of the FHCF retention set forth in section 215.555(2)(e), Florida Statutes.

This reinsurance coverage is provided at no cost to the insurer. Each RAP insurer must obtain coverage under the program and the contract must be executed by July 15, 2022. A RAP insurer that has  obtained private reinsurance that duplicates RAP coverage such insurer would receive for the 2022-2023 contract year may defer participation until the 2023-2024 contract year. That contract must be executed by March 1, 2023.

The Reimbursement Contract 

The bill explains the contract as follows:

For the two covered events with the largest losses, the reimbursement contract must contain a promise by the State Board of Administration (“SBA”) to reimburse the RAP insurer for 90 percent of its losses from each covered event in excess of the insurer’s RAP retention, plus 10 percent of the reimbursed losses to cover loss adjustment expenses. The sum of the losses and 10 percent loss adjustment expense allocation from the RAP layer may not exceed the RAP limit.

The RAP reimbursement contract must provide that reimbursement amounts are not reduced by reinsurance paid or payable to the insurer from other sources excluding the FHCF.

RAP Payout Multiples

The SBA shall calculate and report to each RAP insurer the RAP payout multiples as the ratio of the RAP industry limit of $2 billion for the 2022-2023 contract year, or the deferred limit for the 2022-2023 contract year, to the mandatory FHCF retention multiplied by the mandatory FHCF retention multiples divided by the RAP qualification ratio. The RAP payout multiple for an insurer is multiplied by the RAP insurer’s FHCF premium to calculate its RAP maximum payout. RAP payout multiples are calculated for 45 percent, 75 percent, and 90 percent FHCF mandatory coverage selections.

Calculation of RAP Retention

A RAP insurer’s RAP retention is calculated as follows:

• The SBA shall calculate and report to each RAP insurer the RAP retention multiples for each FHCF coverage selection as the FHCF retention multiple minus the RAP payout multiple. The RAP retention multiple for an insurer is multiplied by the RAP insurer’s FHCF premium to calculate its RAP retention. RAP retention multiples are calculated for 45 percent, 75 percent, and 90 percent FHCF mandatory coverage selections.
• The RAP industry retention for the 2022-2023 contract year is the FHCF’s industry retention minus $2 billion, prior to allocation to qualifying RAP insurers. The RAP industry retention for the 2023-2024 contract year is the FHCF’s industry retention for the 2023-2024 contract year minus the total deferred RAP limit, prior to allocation to qualifying RAP insurers.
• A RAP insurer determines its actual RAP retention by multiplying its actual mandatory reimbursement FHCF premium by the RAP retention multiple.

Insurer Qualification

The bill provides that an insurer is not eligible to participate in the RAP program if the SBA receives a notice from the Insurance Commissioner that the insurer is in an unsound financial condition no later than June 15, 2022, for RAP insurers that participate during the 2022-2023 contract year or February 1, 2023, for RAP insurers subject to participation deferral until the 2023-2024 contract year.

The OIR must make the determination based on:

• The insurers compliance with the requirements to qualify and hold a certificate of authority.
• The insurer’s compliance with applicable surplus requirements, applicable risk-based capital requirements, and applicable premium to surplus requirements.
• An analysis of quarterly and annual statements, including an actuarial opinion summary, and other information submitted to the OIR.

Expiration Date

With 60 days of a covered event, the SBA shall initiate the process of obtaining RAP funds. If no funds have been transferred for the RAP program under by June 30, 2025, this program expires on July 1, 2025. If funds have been transferred for the RAP program by June 30, 2025, the program expires on July 1, 2029, and all unencumbered RAP program funds shall be transferred back to the General Revenue Fund.

Emergency Rulemaking

The bill gives the SBA the authority to adopt emergency rules to implement the RAP Program. It removes the requirement that the SBA make specified statutory findings before adopting emergency rules and removes the requirement that emergency rules are only effective for 90 days. The emergency rules adopted will remain in effect until rules are adopted under the nonemergency rulemaking process. Such rules must be adopted by July 1, 2023.

Section 2 – Required Rate Filings Related to the RAP Program

The bill requires each insurer that participates in the RAP program during the 2022-2023 contract year to reduce its rates to reflect the cost savings realized by participating in the program. This must be done by a rate filing with the OIR or by amending a pending rate filing. The insurer shall make no other changes to its rates in the filing.

The bill requires each insurer that defers participation in the RAP program until the 2023-2024 year to reduce its rates to reflect the cost savings realized by participating in the program through a rate filing with the OIR or by amending a pending rate filing. This rate reduction must take place no later than May 1, 2023. The insurer shall make no other changes to its rates in the filing.

Sections 3 and 4 – My Safe Florida Home Program

The bill provides a $150 million appropriation for the My Safe Florida Home Program. The funds are allocated as follows:

• $25 million for hurricane mitigation inspections.
• $115 million for mitigation grants.
• $4 million for education and consumer awareness.
• $1 million for public outreach.
• $5 million for administrative costs.

To be eligible for a grant, the home must be a dwelling with an insured value of $500,000 or less and the home must have undergone a hurricane mitigation inspection after July 1, 2008. The building permit application for initial construction must have been made before January 1, 2008.

Grants will be matched on the basis of $1 provided by the applicant for $2 provided by the state. The maximum state contribution toward a mitigation project is $10,000.

The bill gives similar emergency rulemaking authority to DFS in order to implement changes to the My Safe Florida Program that it gives to the SBA relating to the RAP Program.

This section is effective July 1, 2022. The section expires on October 1, 2024.

Section 5 – Contractor Advertising

The bill amends the definition of “prohibited advertisement” in section 489.147, Florida Statues, to require that advertising by a contractor which that encourages, instructs, or induces a consumer to contact a contractor or public adjuster for the purpose of making an insurance claim for roof damage to state:

• The consumer is responsible for payment of any insurance deductible.
• It is insurance fraud for a contractor to pay, waive, or rebate all or part of an insurance deductible applicable to payment to the contractor for repairs to a property covered by a property insurance policy.
• It is insurance fraud punishable as a felony of the third degree to intentionally file an insurance claim containing any false, incomplete, or misleading information.

Section 6 – Civil Remedies

The bill provides that a claimant must establish that the property insurer breached the insurance contract to prevail in a claim for bad faith damages under s. 624.155(1)(b), Florida Statutes.

Section 7 – OIR Reports

The bill requires the OIR to publish on its website in a timely fashion:

• All Orders.
• Data Required by section 627.915(2), Florida Statutes (information related to premium written, loss reserves, loss adjustment expenses, losses paid, underwriting income or losses, commissions, taxes, and other fees).
• Reports required by section 627.7154, Florida Statutes (reports created by the new property insurance stability unit).
• All Reports That Are Not Confidential and Exempt.

Section 8 – OIR Reports

The bill amends section 624.313, Florida Statutes, to require the OIR to include an analysis of the availability of reinsurance to domestic insurers selling homeowners’ and condominium unit owners insurance in its yearly statistical report. 

Section 9 – OIR Reports

The bill amends section 624.315, Florida Statutes, to require the OIR to include specified information about insurer delinquencies in its annual report to the Legislature. The report must include information such as:

• Names of insurers against which delinquency proceedings were instituted.
• The date that each insurer was deemed impaired or insolvent.
• A statement of the circumstances that led to each insurer’s delinquency.
• A summary of the actions taken by the insurer and the OIR to avoid delinquency.

Section 10 – QUASR Reports

The bill requires the OIR to aggregate, on a statewide basis, the QUASR data submitted by each insurer or insurer group and make such data publicly available by publishing such data on the OIR website within 1 month after each quarterly and annual filing.

The bill provides that QUASR data, when aggregated on a statewide basis as to an individual insurer or insurer group, is not a trade secret and is not subject to the public records exemption for trade secrets.

The bill is silent on whether companies can continue to claim county-by-county data is trade secret.

Sections 11 and 12 – No Assignments of the Right to Attorney Fees

The bill amends ss. 627.428 and 626.9373, Florida Statutes, to provide that the right to attorney fees under those sections may not be transferred to, assigned to, or acquired in any other manner by anyone other than a named or omnibus insured or a named beneficiary in suits arising under residential or commercial property insurance policies.

Section 13 – Roof Deductibles

Requirements for Separate Roof Deductibles

The bill allows an insurer to include a separate roof deductible in a personal lines residential property insurance policy subject to the following requirements:

• The insurer has complied with the offer requirements regarding a deductible applicable to losses from perils other than a hurricane.
• The roof deductible may not exceed the lesser of 2 percent of the coverage A limit of the policy or 50 percent of the cost to replace the roof.
• The premium that a policyholder is charged for the policy includes an actuarially sound credit or premium discount for the roof deductible.
• The roof deductible applies only to a claim adjusted on a replacement cost basis.
• The roof deductible does not apply to any of the following events:
  • A total loss to a primary structure in accordance with the valued policy law which is caused by a covered peril.
  • A roof loss resulting from a hurricane.
  • A roof loss resulting from a tree fall or other hazard that damages the roof and punctures the roof deck.
  • A roof loss requiring the repair of less than 50 percent of the roof.

The OIR must determine that a deductible which applies solely to a roof loss must be clear and unambiguous pursuant to section 627.701, Florida Statutes.

Required Notice to Policyholders

The bill requires that a personal lines residential property insurance policy that contains a separate roof deductible must include the following statement:

“YOU ARE ELECTING TO PURCHASE COVERAGE ON YOUR HOME WHICH CONTAINS A SEPARATE DEDUCTIBLE FOR ROOF LOSSES. BE ADVISED THAT THIS MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU. PLEASE DISCUSS WITH YOUR INSURANCE AGENT.”

This notice must be on the page immediately behind the declarations page in boldfaced type no smaller than 18 point. No other policy language may be on the page.

A personal lines residential property insurance policy containing a separate roof deductible, the insurer shall compute and prominently display on the declarations page of the policy or on the premium renewal notice the actual dollar value of the roof deductible of the policy at issuance and renewal.

Policyholder May Opt-Out of the Separate Roof Deductible

The bill allows an insurer to offer the policyholder a separate roof deductible with the ability to opt-out and reject the separate roof deductible at the time of initial issuance of a personal lines residential property insurance policy. The policyholder must sign a form approved by the OIR to reject a separate roof deductible.

The bill allows the insurer to add a separate roof deductible to a personal lines residential property insurance policy at renewal if the insurer provides a notice of change in policy terms pursuant to section 627.43141, Florida Statutes. However, the insurer must also offer the policyholder the ability to opt-out and reject the separate roof deductible. To reject a separate roof deductible, the policyholder must sign a form approved by the OIR.

The bill requires the OIR to expedite the review of any filing of insurance forms that only contain a separate roof deductible and allows the adoption of model forms or guidelines that provide options for roof deductible language. If an insurer makes a filing pursuant to a model form or guideline issued by the OIR, the OIR must review the filing within the initial 30-day review period and the roof deductible portion of the filing is not subject to the 15-day extension for review.

Section 14 – Roof Inspections and Payment of Roof Deductibles

Roof Inspections and Limitations Relating to Roofs Less than 15 Years Old

The bill provides that an insurer may not refuse to issue or refuse to renew a homeowner’s policy insuring a residential structure with a roof that is less than 15 years old solely because of the age of the roof.

If a roof that is at least 15 years old, an insurer must allow a homeowner to have a roof inspection performed by an authorized inspector at the homeowner’s expense before requiring the replacement of the roof of a residential structure as a condition of issuing or renewing a homeowner’s insurance policy. The insurer may not refuse to issue or refuse to renew a homeowner’s insurance policy solely because of roof age if an inspection of the roof of the residential structure performed by an authorized inspector indicates that the roof has 5 years or more of useful life remaining.

The bill provides that a roof’s age shall be calculated using the last date on which 100 percent of the roof’s surface area was built or replaced in accordance with the building code in effect at that time or the initial date of a partial roof replacement when subsequent partial roof builds or replacements were completed that resulted in 100 percent of the roof’s surface area being built or replaced.

The bill provides that a roof’s age shall be calculated using the last date on which 100 percent of the roof’s surface area was built or replaced in accordance with the building code in effect at that time or the initial date of a partial roof replacement when subsequent partial roof builds or replacements were completed that resulted in 100 percent of the roof’s surface area being built or replaced.The provisions relating to issuance of policies or nonrenewal of policies due to the age of the roof apply to homeowners’ insurance policies issued or renewed on or after July 1, 2022.

Payment of Roof Deductibles

The bill allows an insurer to limit the claim payment as to the roof to the actual cash value of the loss to the roof until the insurer receives reasonable proof of payment by the policyholder of the roof deductible. The bill provides that “reasonable proof of payment” includes a canceled check, money order receipt, credit card statement, or copy of an executed installment plan contract or other financing arrangement that requires full payment of the deductible over time.

Section 15 – Insurer Duties After a Loss

This section is effective January 1, 2023.

Current law requires an insurer to begin a claims investigation within 14 days after receiving the proof of loss in most cases. If the investigation includes a physical inspection, the bill requires that, for claims other than those subject to a hurricane deductible, an insurer must conduct any such physical inspection within 45 days after its receipt of the proof of loss statements.

The bill requires an insurer, within 7 days after the insurer’s assignment of an adjuster to the claim, to notify the policyholder that he or she may request a copy of any detailed estimate of the amount of the loss generated by an insurer’s adjuster. After receiving such a request from the policyholder, the insurer must send any such detailed estimate to the policyholder within the later of 7 days after the insurer received the request or 7 days after the detailed estimate of the amount of the loss is completed. An insurer is not required to create a detailed estimate of the amount of the loss if such estimate is not reasonably necessary as part of the claim investigation.

The bill requires the insurer to provide a reasonable explanation in writing to the policyholder of the basis for the payment, denial, or partial denial of a claim. If the insurer’s claim payment is less than specified in any insurer’s detailed estimate of the amount of the loss, the insurer must provide a reasonable explanation in writing of the difference to the policyholder.

Section 16 – Attorney Fees and Attorney Fee Multipliers

The bill amends section 627.70152, Florida Statutes, to allow an insurer to recover reasonable attorney fees and costs if a suit is dismissed for failure to comply with presuit notice provisions.

The bill creates a strong presumption that a lodestar fee is sufficient and reasonable in suits arising under residential or commercial property insurance policies. The presumption may be rebutted only in a rare and exceptional circumstance with evidence that competent counsel could not be retained in a reasonable manner. This provision should limit the ability of courts to apply attorney fee multipliers.

Section 17 – Conforming Change to Section 627.7142, Florida Statutes.

Section 18 – Assignment of Benefits

The bill provides that an assignee can only recover attorney fees in a suit related to an assignment agreement for post-loss claims arising under a residential or commercial property insurance policy pursuant to section 57.105, Florida Statutes (statute providing for recovery of fees against a party raising frivolous claims or defenses). The bill repeals language allowing for recovery of fees by assignees.

The bill amends the definition of “assignment agreement” to include instruments assigning post-loss benefits to persons providing inspection services.

Section 19 – Property Insurance Stability Unit Within the OIR

The bill creates a “Property Insurance Stability Unit” within the OIR to aid in the detection and prevention of insurer insolvencies in the homeowners’ and condominium unit owners’ insurance market. The unit is required to:

• Conduct a target market exam when there is reason to believe that an insurer’s claims practices, rate requirements, investment activities, or financial statements suggest that the insurer may be in an unsound financial condition.
• Monitor all risk-based capital reports, own-risk solvency assessments, reinsurance agreements, and financial statements filed by insurers selling homeowners’ and condominium unit owners’ insurance policies.
• Have primary responsibility to conduct annual catastrophe stress tests of all domestic insurers and insurers that are commercially domiciled in Florida.
• Update wind mitigation credits.
• Review the causes of insolvency and business practices of insurers that have been referred to the DFS and make recommendations to prevent similar failures in the future.

The following events trigger a referral to the insurer stability unit:

• Consumer complaints related to homeowners’ insurance or condominium unit owners’ insurance if the complaints, in the aggregate, suggest a trend within the marketplace and are not an isolated incident.
• There is reason to believe that an insurer who is authorized to sell homeowners’ or condominium unit owners’ insurance in this state has engaged in an unfair trade practice.
• A market conduct examination determines that an insurer has exhibited a pattern or practice of willful violations of an unfair insurance trade practice related to claims-handling which caused harm to policyholders.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance requests a rate increase that exceeds 15 percent.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance violates the statutory ratio of actual or projected annual written premiums.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance files a notice advising the office that it intends to nonrenew more than 10,000 residential property insurance policies in Florida within a 12-month period.
• A quarterly or annual financial statement demonstrates that an insurer authorized to sell homeowners’ or condominium unit owners’ insurance is in an unsound condition, is impaired, or is insolvent.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance files a quarterly or annual financial which is misleading or contains material errors.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance fails to timely file a quarterly or annual financial statement.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance files a risk-based capital report that triggers a company action level event, regulatory action level event, authorized control level event, or mandatory control level event.
• An insurer selling homeowners’ or condominium unit owners’ insurance that is subject to own-risk solvency assessment requirements and fails to timely file the own-risk solvency assessment.
• A reinsurance agreement creates a substantial risk of insolvency for an insurer authorized to sell homeowners’ or condominium unit owners’ insurance.
• An insurer authorized to sell homeowners’ or condominium unit owners’ insurance is party to a reinsurance agreement that does not create a meaningful transfer of risk of loss to the reinsurer.
• Citizens is required to absorb policies from an insurer that participated in a depopulation program within 3 years after the insurer takes policies out of Citizens.

If the unit recommends that a market conduct exam or targeted market exam be conducted, the reasonable cost of the examination shall be paid by the person examined.

The unit is required to provide two reports per year to the Governor and legislative leadership on the status of the homeowners’ and condominium unit owners’ insurance market.

The responsibilities of the property insurance stability unit are limited only to matters related to homeowners’ and condominium unit owners’ insurance.

Section 20 – Initiation and Commencement of Delinquency Proceedings

Section 631.031, Florida Statutes, requires the OIR to notify the DFS when delinquency proceedings must be initiated. The bill provides specific notice requirements. The bill requires the OIR to include in the notice:

• An affidavit that identifies the grounds for rehabilitation.
• The date that each insurer was deemed impaired of capital or surplus or insolvent.
• A statement of the circumstances that led to the insurer’s delinquency.
• A summary of the actions taken by the insurer and the OIR to avoid delinquency.

Section 21 – Reports by DFS Relating to Insurer Insolvencies

Section 631.398, Florida Statutes, requires the DFS to prepare of summary report about the history and causes of the insolvency of a domestic insurer. The bill creates new requirements for the report relating to the insolvency of a domestic property insurer. The bill requires the DFS to:

• Begin an analysis of the history and causes of the insolvency once the DFS is appointed as receiver.
• Submit an initial report analyzing the history and causes of the insolvency to the Governor, legislative leadership, and the OIR. 
• Provide a special report to the Governor, legislative leadership, and the OIR within 10 days upon identifying any condition or practice that may lead to insolvency in the property insurance marketplace.
• Submit a final report analyzing the history and causes of the insolvency and the review of the OIR’s regulatory oversight of the insurer to the Governor, legislative leadership, and the OIR within 30 days of the conclusion of the insolvency proceeding.
• Review the OIR’s regulatory oversight of the insurer.

Section 22 provides that if any law amended by this bill was also amended by a law enacted during the 2022 Regular Session, such laws shall be construed as if enacted during the same session of the Legislature, and full effect shall be given to each if possible.

Section 23 provides that the bill shall take effect upon becoming a law unless otherwise noted.