Lawsuits against Florida’s top property insurers decline. Is it a sign reforms are beginning to work?

Lawsuits against top Florida property insurers declined overall between 2022 and 2023 and insurers say they would have declined even more if Hurricane Ian had not struck the state in September 2022.

Insurers say it’s a clear sign that the legislative reforms enacted in 2022 are starting to work even if premiums have not yet followed suit.

The South Florida Sun Sentinel analyzed data from a state website that records lawsuits served to insurance companies, including those that sell property and casualty, auto and health coverage.

The analysis omitted data from Florida-based property insurers that are also licensed to sell auto insurance because there is no simple way to identify which lawsuits in the database are auto- or property-related.

The sum of lawsuits against 25 top insurers included in the Sun Sentinel’s analysis shows a decrease from 44,550 in 2022 to 38,678 in 2023 — a difference of 13.2%.

That decrease followed a 7.3% decline between 2021 and 2022. Between 2021 and 2023, the number of lawsuits declined 19.5%.

Litigation against the state’s three largest insurers all declined significantly.

State-owned Citizens Property Insurance Corp., despite growing to more than 1 million policies in late 2022, saw lawsuits decline from 12,234 in 2022 to 9,716 in 2023. That’s a 20.6% drop.

Lawsuits against State Farm Florida dropped 18.2% — from 4,787 in 2022 to 3,918 in 2023.

And the data shows that lawsuits against Universal Property & Casualty declined by 46.8% — from 10,314 to 5,483 — during the same period.

While 13 of the 25 companies in the analysis experienced declines, 12 others saw increases.

But several of those companies were new to Florida, such as Kin Interinsurance Network, Truck Insurance Exchange, Homesite Insurance Company, and Slide Insurance Company, that would have seen litigation increase as policy counts grew whether or not reforms had been enacted.

Declines show reforms are working

Sen. Jim Boyd, who sponsored key reforms in 2022, said the declines of lawsuits show that the legislation is working.

“While there are some companies that are realizing a drop in those suits, not all are yet, but that should follow,” Boyd said by email.

He noted other positive signs, including a half-dozen new companies entering the Florida marketplace with more expected, and national carriers “showing an interest in Florida again.”

A report on property claims and litigation released in early January by the Florida Office of Insurance Regulation stated that the reforms have created a “strengthening market.”

The report tallied 58,395 litigated claims and 534,738 non-litigated reported by 180 insurers from 2022, prior to enactment of most of the reforms.

The tricounty South Florida region had the largest percentage of litigated claims in the state — 27.5%, compared with 9.9% in Seminole, Orange, Lake and Osceola counties and 5.4% in all other counties.

Litigated claims cost insurers an average of $9,934 in loss-adjustment expenses compared to non-litigated claims, which cost an average $1,576, the report showed.

Litigated claims also result in much higher payouts for damages. Policyholders who sued received an average $31,862 for non-weather water claims compared to $14,035 for those who did not sue, according to the report.

These claims are triggered by failures inside of homes, such as broken household pipes, hot water tank malfunctions and appliance leaks.

The state’s report also showed that litigated hurricane claims resulted in an average payout of $67,862 compared to $14,154 for non-litigated hurricane claims. Payouts for damages from windstorms or hailstorms averaged $37,910 when policyholders sued and $10,961 when they didn’t sue.

Future reports will enable the state to compare results of the reforms, the office said.

When enacted in 2022, critics called the reforms a giveaway to insurance companies and complained that the state did not require insurers to reduce their rates for property owners.

Supporters of the reforms countered that a price-reduction mandate would be counterproductive and cause private market insurers to abandon the state.

They said the reforms would take at least 18 months to begin to work. Policies written under the old rules needed to expire and be replaced by new ones reflecting policy language barring attorneys from seeking so-called “one-way attorney fees,” barring most assignments of benefits, and making it more difficult to force insurance companies to pay to replace roofs.

“While we cautioned that the reforms will take some time to take full effect, we are pleased and optimistic good things in the property market are starting to happen,” Boyd said.

Reforms also hurting homeowners, attorney says

Joe Ligman, a plaintiff attorney who used to work in Miami before moving to Panama City, said the reforms are causing him to file fewer lawsuits.

One reason is that policyholders must pay their attorneys out of their own pockets or forego 30% of what they recover. Prior to the reforms, attorneys collected fees from insurers if they settled for any amount more than the insurers’ original offer. The so-called “one-way attorney fee” provision had been established in Florida case law for more than a century.

But it was exploited by attorneys and fueled frivolous claims, insurers said.

Insurers have also capped the amount of money they’re willing to pay to replace floors and roofs when just a portion is damaged, he said.

Lawsuits have also been reduced by new pre-suit notification laws that allow insurers to force disputes into alternative resolution processes like mediation and arbitration, he said.

The reforms, Ligman said, “hurt a lot of people — insureds, attorneys and public adjusters.”

He added, “If insurance companies paid claims honestly, policyholders wouldn’t have to hire attorneys to sue them.”

Paresh Patel, CEO of HCI Group, owner of Homeowners Choice and TypTap, said that many insurers are experiencing declines in non-weather-related water claims, which historically have fueled the lawsuits insurers have complained loudest about.

Prior to the reforms, insurers said that contractors would commence demolition and file lawsuits in homeowners’ names before letting insurers know about the claims.

The result would often be litigated claims that cost tens of thousands of dollars more than they would have otherwise cost to make repairs, they said.

“People were generating claims so they could file lawsuits,” he said. The reforms “took away the profit motive.”

The excess litigation — combined with increased claims from hurricanes and other severe weather events — caused most insurers to report net operating losses over the past five years while doubling premiums charged to Florida homeowners.

In 2023, Florida’s insurance industry as a whole reported a net income for the first time since 2016, according to a July report by the Florida Office of Insurance Regulation.

Hurricane Ian claims slowing decline

Meanwhile, while the number of lawsuits decreased 13.2% between 2022 and 2023 for insurers in the Sun Sentinel analysis, the decline slowed to 5.9% for the same companies in the fourth quarter.

A look at where those lawsuits are coming from suggests that many are being filed by victims of Hurricane Ian in Southwest Florida.

In the fourth quarter of 2023, Lee, Charlotte and Sarasota counties generated 2,016 lawsuits compared to 2,881 from Miami-Dade, Broward and Palm Beach counties.

And the state’s new First Notice of Loss website shows a 27.3% increase in proposed lawsuits recorded by insurance customers in the fourth quarter of 2023 compared to the same period in 2022.

Five of the top 11 cities where claims originated suffered direct impacts from Hurricane Ian: Cape Coral, Fort Myers, Port Charlotte, Lehigh Acres and Punta Gorda.

Patel said litigation would have decreased even more in 2023 if Hurricane Ian hadn’t struck Southwest Florida with near-Category 5 strength.

Insurance premiums, meanwhile, have leveled off for customers of Security First Insurance Co., founder and CEO Locke Burt said.

In November, his company filed a notice with the state saying it wasn’t seeking a rate increase for its single-family homeowners. And in February, the company plans to seek a 2% rate decrease for property owners who purchase dwelling/fire coverage.

Prior to enactment of the reforms, “I said that litigation is responsible for 20% of every dollar of insurance premium,” Burt said. “When the reforms passed, I said litigation would be reduced by 50%. So that 20 cents will probably go to 10 cents per dollar.”

Whether reductions in litigation will cause premiums to decline remains to be seen, he said.

“Why are rates so high?” he said. “The number one factor is inflation. It’s responsible for 75% of increases. While customers think of rate as the premium they spend for coverage, insurance companies see rate as the cost per $1,000 of coverage. That cost can stay the same, but it costs customers more to insure homes when costs for materials and labor keep increasing.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.