Bad faith laws are in desperate need of reform, expert says; Plaintiff attorneys seek to extract settlements from insurers

By Vimbai Chikomo | Mar 31, 2016

TALLAHASSEE – Florida has developed a reputation of having an unfair legal system that does not favor businesses, partly because of the state’s bad faith laws, which many legal experts agree need reform. 

This was highlighted in the 2015-2016 Judicial Hellholes report by the American Tort Reform Foundation (ATRF). 

“For years the Florida Legislature has failed to adopt reforms to address clear abuses of the state’s ‘bad faith’ insurance laws,” the report stated. “These laws were originally intended to protect insureds and the public from misconduct by insurers, but they have since been transformed by plaintiffs’ attorneys into a litigation tool for extracting money from insurers that act responsibly and in good faith while trying to settle claims fairly and efficiently.”

A third-party claim is filed when an insurer fails to settle a third party’s claim against the insured party within the applicable limits of the insurance policy, which leaves the insured susceptible to a judgment exceeding the policy limits.

“The third party bad faith reform issue is a problem that exists when there is low insurance policy limits, clear liability and extraordinary damages,” William Large, president of the Florida Justice Reform Institute, told the Florida Record recently. 

Large used an example of an insured individual who causes an accident, and as a result, severely injures or kills another motorist.

“In that case, there is clear liability; there (are) extraordinary damages,” he said. “But if that individual has a policy limit like $10,000 or $25,000, what often happens is the plaintiff attorney is incentivized to bring a lawsuit on the liability case, get a big verdict and then bring a third-party bad faith action against the insurance company for failing to quickly settle the liability case.”

Large said there are many cases where limits are offered very quickly and they are rejected because how quickly an insurance company tenders those limits can be used against the company in a bad faith lawsuit.

“So one of the things we are trying to do is to advocate for a clear time frame,” Large said. “If you offer the limits within 45 days, the insurance company cannot be held in bad faith.”

Florida is one of just a few states that allows an individual who is not a direct party to an insurance contract to sue another person’s insurer, alleging the insurer acted in bad faith by failing to settle a claim. A third-party claimant can initiate a lawsuit under state common law or statute, which can give a claimant a second opportunity to revive a failed lawsuit.

Unfortunately, some key reform legislation sponsored by state Rep. Kathleen Passidomo and introduced to the Florida Legislature with the hope of creating reform have been killed during the state’s legislative session year after year.

“(Passidomo) has been a strong advocate for civil justice reform and she is including the third party bad faith bill,” Large said. “She is an extraordinary leader. I cannot say enough good things about Rep. Kathleen Passidomo. She is brilliant. She is a hard worker; she understands these issues; she understands what this means for consumers in terms of increased costs, increased litigation. She has been a strong advocate for civil justice reform measures.”

Since Florida’s legislative session ended earlier this month without much action on legal reform, any hope of reform will have to wait until next year.

“I am disappointed that no meaningful civil justice reform measures passed in 2016,” Large said. “We’ll work again on these issues next year including assignment of benefit reform, accuracy in damages reform and third party bad faith reform.”

https://flarecord.com/stories/510704775-bad-faith-laws-are-in-desperate-need-of-reform-expert-says-plaintiff-attorneys-seek-to-extract-settlements-from-insurers

FJRI advocates for Assignment of Benefits reform to improve state’s lawsuit climate

by Vimbai Chikomo | Mar. 30, 2016, 2:48pm

TALLAHASSEE – In its ongoing efforts to improve the state’s poor lawsuit climate, the Florida Justice Reform Institute is calling for changes to the Assignment of Benefits law, which allows a third party to collect insurance proceeds owed to a policyholder directly from an insurance company.

Under the current law, the policyholder loses control of the litigation process once an assignment of benefits clause kicks in.

“So just to keep it simple, if I had an insurance policy with XYZ insurance company and there was property damage…, I might file a claim against my insurance company.” William Large, president of Florida Justice Reform Institute, told the Florida Record recently. “In Florida, to protect the rights of the insured, we have something called the one-way attorney’s fee. If the insured wins (a lawsuit against the insurance company), not only do they recover their damages, but they recover their attorney’s fees, and that makes all the sense in the world.”

That benefit is given to the policyholder unless the policyholder signs a contract with a vendor hired to repair the damage and the contract includes an assignment of benefits clause. In that case, the vendor can not only get its attorney fees paid by the insurer but also bill the insurance company for the repair.

“What is occurring in Florida is vendors are asking to have the rights of that insurance company assigned to them, and those vendors are themselves corporations and they are working with attorneys and they are charging sometimes three-fold, four-fold, five-fold greater for market prices to do a repair, and they are doing it not by charging the insured but by only asking for an assignment of the contract,” Large said. “The reason they are doing it is not just to get the three-fold, four-fold, five-fold more on whatever the repair is but because with that assignment comes the one-way attorney’s fees.”

The attorneys then litigate whether or not that repair was the market price, but do so knowing they are the beneficiary of the one-way attorney’s fee that has now been assigned to the third-party vendor, Large said.

Recent bills introduced to Florida’s House and Senate have attempted to reform the Assignment of Benefits law.

House Bill 1097 was filed in January. The bill prohibits an assignment, except for emergency repairs, until the policyholder has notified the insurer of any loss or damage, and gives the policyholder the right to cancel the agreement assigning benefits to vendors. It also “requires notice to the insured of the right to cancel; requires the assignee to accept duties of the policy relevant to the claim; and prohibits an assignee from attempting to recover payment from an insured for work that is covered by the insurance policy.”

In addition, the bill would give insurers authority to require notice of loss to be reported as soon as practicable after the loss, and to “limit the scope of repairs that may be undertaken before the insurer inspects the property.”

The bill was halted in the House Regulatory Affairs Committee on March 11.

A similar bill, Senate Bill 0596, was introduced into the Senate by Sen. Dorothy Hukill last October, but suffered a similar fate to HB 1097 and died in the judiciary committee.

Since the state’s legislative session ended earlier this month without much action on legal reform, any hope of reform will have to wait until next year.

 http://flarecord.com/stories/510704485-florida-justice-reform-institute-advocates-for-assignment-of-benefits-reform-to-improve-state-s-lawsuit-climate