Florida Passes ‘Catch All’ Insurance Bill Impacting Surplus Lines, Catastrophe Fund
By Amy O'Connor | May 13, 2019
A Florida bill that the insurance industry says will help modernize the state’s surplus lines system, as well as impact property insurer contracts under the Florida Hurricane Catastrophe Fund and reduce “bad faith” lawsuits, is now awaiting the governor’s signature after being passed by state lawmakers.
House Bill 301, sponsored by Representative David Santiago, was dubbed an omnibus bill because it included several insurance-related provisions, including:
• Increasing reimbursement from the Florida Hurricane Catastrophe Fund for loss adjustment expenses from 5 percent to 10 percent of reimbursed losses beginning with contracts issued after June 1, 2019
Many in the surplus lines industry praised other parts of the bill that they say will give the state’s Florida surplus lines industry a much-needed update. The bill eliminates a prescriptive cap on surplus lines agent policy fees and replaces it with the requirement that the fee be “reasonable” and separately disclosed to the customer, according to the Wholesale & Specialty Insurance Association (WSIA), which worked with the Florida Surplus Lines Association (FSLA) to support the legislative reform effort.
The law previously stated surplus lines agents could not charge more than $35 for filing surplus lines policies.
“Currently, Florida is one of the few states that caps the surplus lines broker policy fee. Once this legislation is signed into law by the governor, Florida will join a majority of states that permit reasonable fees to be charged in a surplus lines transaction,” WSIA said in a statement. “This simple revision not only modernizes Florida’s laws, but it promotes increased options for consumers and a prosperous Florida economy.”
The provision also impacts surplus lines export eligibility by decreasing the residential structure dwelling replacement cost to $700,000 from $1 million as it relates to “diligent effort” procedures. Agents must currently make a “diligent effort” and have been rejected by at least three authorized admitted insurers before seeking coverage from the surplus lines market for a policy. However residential structures with a value of $1 million or more need only be rejected by one insurer. The new provision reduces the dwelling replacement cost threshold from $1 million to $700,000.
FSLA President Elect Michael Franzese of R-T Specialty in Tampa called the passage of HB301 “great news for the surplus lines insurance industry and ultimately Florida businesses of every size.”
“As our industry has modernized over the years, keeping up with technology and new industries, the laws surrounding us had not. These changes will help us operate efficiently and promote a growing Florida economy,” he said.
FSLA, which supported the legislation and lobbied for other surplus lines changes this session that were not passed, said Florida is one of the top three consumers of surplus lines insurance in the country, with the industry writing more than $2 billion in premium for commercial property in the state annually. FSLA said there are currently 1,079 surplus lines agents in Florida actively writing policies, according to the Florida Surplus Lines Service Office.
Surplus lines insurance is “important to Florida consumers, businesses and the health of Florida’s economy,” said Joel Cavaness, WSIA president.
But not everyone in Florida agreed the surplus lines changes were positive for the state. Lisa Miller, a former Florida Deputy Insurance Commissioner and current advocate for the state’s admitted market, said the changes in HB 301 make it easier for surplus lines insurers to compete with Florida’s admitted market for high value personal residential homes and called it “bad public policy and ultimately bad for consumers.”
“…It’s the consumers who will lose, not at the time of policy issuance where prices may be artificially lower by surplus lines carriers but at the time of a claim when past history shows their poor claim handling performance simply because surplus lines answers to no one,” said Miller.
FSLSO said it is still analyzing the bills that passed and failed and will have more information in the coming week on what impacts the surplus lines community.
The Florida Office of Insurance Regulation said it had no comment on HB 301.
Florida Hurricane Catastrophe Fund
The FHCF was established in 1993 after Hurricane Andrew to operate as a form of reinsurance for residential property losses. Property insurers in Florida are currently reimbursed by the state-administered tax-exempt trust fund for a selected percentage of hurricane losses to residential property above the insurer’s deductible. According to the bill’s analysis, property insurers doing business in the state are required to enter into reimbursement contracts with FHCF to “protect and advance the state’s interest in maintaining insurance capacity in Florida by providing reimbursements to insurers for a portion of their catastrophic hurricane losses.”
Insurers are charged the “actuarily indicated premium” for the coverage FHCF provides based on the insurer’s relative exposure to hurricane losses. FHCF also is required to reimburse insurers for adjustment expenses (LAE) at a current rate of 5 percent. Under HB 301 that rate increases to 10 percent beginning with contracts issued after Jan. 1, 2020.
Civil Remedies Against Insurers
HB 301 also contained a provision designed to reduce “bad faith” litigation by saying a civil remedy notice may not be filed within 60 days after appraisal is invoked by any party in a residential property insurance claim. It was included to address a decision in the case of Cammarata v. State Farm.
In this case, a Florida Fourth District Court of Appeals held that the insurer’s liability for coverage and the extent of damages, and not the insurer’s liability for breach of contract, must be determined before a bad faith action became ripe.
The Florida Justice Reform Institute praised the passage of the provision in HB 301.
“By giving appraisal time to work, and removing simple valuation as an issue in dispute, the bill should reduce the likelihood of a claimant subsequently moving forward with a claim of bad faith,” said William Large, president of the FJRI.
Correction: This story has been updated from an earlier version that incorrectly stated the effective date for changes to the Florida Hurricane Catastrophe Fund reimbursement for loss adjustment expenses. The correct date is for contracts issued after June 1, 2019.