Back to the real world

Castles in the Sand

We’re well into January, so it’s time to get back to the real world and one of the real world’s less exciting topics is homeowner’s insurance. Most of us want to go kicking and screaming away from the topic of insurance, especially in Florida which has the highest insurance premium rates in the country, but with the new year, we have some new legislation likely putting you in a much better mood.

Last month, the governor signed legislation to prevent the state’s property insurance market from collapsing under a tidal wave of lawsuits. Not only does this significantly help the state’s budget, but it may also help every homeowner’s budget in Florida as well.

Previously, Florida law has allowed policyholders who want to avoid dealing directly with their insurance companies to assign their claim benefits to contractors who work with trial lawyers. The contractors would often inflate fees, resulting in rejections by insurance companies. Then the attorneys would sue insurers to obtain what they say are legitimate charges, put- ting the insurers in the position to pay the attorneys’ costs if they lose a case. This resulted in insurers being inundated with frivolous lawsuits and passing this cost on to their customers to cover legal costs and risks. Florida insurers had more than 100,000 lawsuits last year, compared to the other 49 states totaling only 24,700.

Many insurance companies have failed and left the state recently and others are also leaving the market because they can’t obtain reinsurance. The new legislation eliminates the assignment of benefits and the requirement that insurers pay plaintiffs’ attorney’s fees if they lose. It also sets up a $1 billion state reinsurance fund to help insurers. The state-backed Citizens Property Insurance Corporation, the “insurer of last resort,” will also benefit from the legislation. Homeowners with Citizens policies will be required to accept private coverage from an insurer that offers premiums within 20% of their current Citizens policy. Overall, it could take a while, but the legislation could result in more private companies entering the Florida market with competitive rates benefiting homeowners.

None of this new legislation, however, will help homeowners who are going to war with both their homeowner’s insurance company and their flood insurance carriers in the wake of Hurricane Ian. Floods and the resulting insurance claims are not as clear-cut as they may sound. The definition of flood damage as opposed to wind damage can be interpreted differently by different insurers. This is already resulting in litigation from homeowners who say their carriers aren’t honoring their claims and the insurance carriers saying they aren’t legally obligated to cover the claims.

Trying to distinguish between flood and hurricane damage is more of a challenge than homeowners ever expected. Homeowners are stuck in the middle while insurance companies try and parse what exactly their responsibility is. Measuring how high water rose on the walls of an existing house is one thing but what if the house was built on a slab and it’s gone? Was it the flood or was it the wind?

The fact that just over 40% of the Florida homes in the two coastal counties hardest hit by Hurricane Ian are covered by flood policies doesn’t make it any easier for anyone since these homeowners may be looking to their homeowner’s insurance carriers for compensation. I guarantee a lot of this will end up in court and no one will be happy with the outcome.

Remember when living on the coast in Florida felt like you weren’t actually living in the real world? Well, the real world has invaded us, and its name is insurance.