Vastly Different – Just Sayin’  As the legislative session enters “hump week,” i.e., the 5th week of a 9 week session, I keep hearing all of my colleagues who live in the capitol this time of year say, “I haven’t seen anything like this.”  News reports released late last week that the House and Senate are $2 billion apart in their budget proposals underscored the sentiment.  Sure, House and Senate budgets in the past (we have almost 30 years of legislative and regulatory experience so have seen a lot) have had slightly different bottom lines, but when the Senate’s budget is $83.2 billion and the House says they only see their way at $81.2 billion, I’d say the two chambers are vastly different, wouldn’t you?

So what else is vastly different between the two bodies that make up the legislature?

Budget Philosophy: For starters, the House believes there is a budget deficit.  The Senate says there isn’t.

Medical Marijuana:The House believes that the implementation of the medical marijuana constitutional amendment should be very restrictive, listening to Drug Free America advocates.  The Senate has taken a more open approach to expand the number of medical marijuana grower licenses and allow for competition.

Gambling:The Senate has approved a bill inclusive of the pari-mutuel industry that expands gambling with relaxed rules. The House proposal is more status quo with the expired Seminole Tribe compact, prompting expected 2018 Senate President Galvano to note the state’s gambling policy is in an “ambiguous, unpredictable state of flux out there that needs to be wrangled in.”

Lake Okeechobee:The Senate believes the state needs to bond $2 billion to purchase 60,000 acres of land to create a reservoir for clean water.  The House? Nope.

Jobs and Tourism:The House eliminated the Governor’s jobs incentive program and severely cut the tourism advertising budget.  The Senate is saying no to that idea.

Higher Education:The Senate wants to significantly increase higher education funding.  The House does not.

That’s just a few of the major public policy decisions where the House and Senate are vastly different. Some believe that the House and Senate are on a collision course between the two chambers which could prevent them from ending the 9 week session on time.  Sitting from my chair? It’s going to be a long summer!  Next up?  Bill Watch!


Bill Watch
The fourth week in the Florida Legislature had some abbreviated insurance committee meetings in the House and Senate.  The liveliest debate occurred in the House Insurance and Banking Subcommittee around whether Florida should eliminate personal injury protection (PIP) insurance and mandate bodily injury liability coverage instead.  In essence, every car accident could ultimately lead to a lawsuit.  Those supporting the bill said PIP abuse and fraud is so rampant that it’s time to get rid of this coverage forever.  Those concerned about the bill said that each of the lawsuits that could occur post-car accident could potentially turn into a bad faith suit even when the insurance company has the best intentions.

The Senate Banking and Insurance Committee had an agenda this past week that dealt with life and health insurance issues and banking/financial institutions.  There was no discussion of the weighty issues centered around property insurance and workers’ compensation although today’s committee agenda is packed full of bills we are following.  We are also watching a building code bill that many fear could water down Florida’s building code and supporters say will streamline building code updates.   See former FEMA Director Craig Fugate’s comments about these bills here .

Here’s our weekly update of Bill Watch on the major legislation we’re following so far:

Assignment of Benefits (AOB)HB 1421(Grant/Plasencia) has received a hearing but sits unscheduled in the Commerce Committee as of this writing. Today’s Senate Banking and Insurance Committee agenda has two bills (SB 1684 and  SB 1218) that are tied together, both sponsored by Senator Farmer.  The senator contends that if his attempt is successful to have the Department of Business and Professional Regulation license and oversee water extraction companies, then the entire litigation-for-profit scheme that is driving rate increases will ratchet down.  Meanwhile, at its board meeting last week, Citizens Insurance announced more dire news about its financial losses attributable to AOB abuse – a net loss of $27.1 million in 2016 – the first loss since 2006.  Read more here.

Flood InsuranceSB 420 (Brandes) extends rate deregulation from 2019 to 2025 and relaxes eligibility requirements to write flood lines.  It allows commercial lines coverage (residential & nonresidential), excess flood coverage, and more surplus lines participation by removing the capital/surplus requirement in favor of a stronger financial strength rating.  Note that this and Diligent Effort represent a strong push this year by the unregulated lines to gain a stronger foothold in Florida’s currently stable P&C market.  HB 813 (Lee) contains elements of both the Flood and Diligent Effort bills.  Both bills still await hearings in their next committee of reference.

Insurance FraudSB 1012 & SB 1014 (Brandes) and HB 1007 & HB 1009 (Raschein) are being pushed by outgoing CFO Atwater as providing needed tools to help DFS stay ahead of criminals who seek to defraud Floridians.  The measures would create a dedicated Insurance Fraud Prosecutor grant funding program, require insurers to adopt an anti-fraud plan and designate primary anti-fraud employees, and require that those plans and statistics be submitted to DFS annually.  The House bills are scheduled today before the Insurance and Banking Subcommittee.

Insurance Litigation/Prejudgment InterestHB 469 (Harrison)/SB 334 (Steube) establish a requirement for an insurer’s interest payment and the timeline those monies are due.  The Senate bill, sponsored by Senator Greg Steube, is a priority of the Senate President’s according to sources familiar with the bill.  The primary supporter of this bill is the Florida Justice Association/trial bar.   SB 334 has passed its two committees of reference and is ready to be heard on the Senate floor but the House bill has one more committee stop before it is heard by the full House. SB 334 is only two pages with the gist of the bill reprinted here:  (1) In any action in which a plaintiff recovers economic or noneconomic damages, the court shall include interest on each component of damages in the final judgment. (a) For economic damages, interest accrues from the date of the loss of an economic benefit to the plaintiff.  (b) For noneconomic damages, interest accrues from the date the defendant received notice of a claim from the plaintiff. (2) If the plaintiff recovers attorney fees or costs, the court shall include in the final judgment interest on such fees or costs beginning on the date the entitlement to attorney fees is fixed through an agreement, an arbitration award, or a court.  LMA will closely watch these bills.

Insurance Premium TaxSB 378 (Flores) repeals the insurance premium tax credit of up to 15% on the salaries that insurers pay to their Florida-based full-time employees. This is a long-standing priority of the Senate President who has stated the credit was a good jobs incentive when enacted 30 years ago but is unnecessary now.  The $297 million in resulting savings was originally going to go to pay for a 2% reduction in the Communications Services Tax but instead would now go to reducing the Business Rent Tax on building leases by 1% (from 6% to 5%).  The bill passed the Senate Appropriations Subcommittee on Finance and Tax this past week and now goes to the full Senate Appropriations Committee, which is scheduled to meet on April 5 & 6 but this bill is NOT on the agenda for either day, at this writing.

Medical MarijuanaThe House Health Quality Subcommittee held a hearing this past week to hear HB 1397 by Rep. Ray Rodrigues.  This bill has more restrictions than any of the Senate bills and is supported by those like Drug Free America who opposed the passage of the medical marijuana constitutional amendment and commented in a news report, “I’m pleased to see that [the bill] has incorporated many of our recommendations,” said Calvina Fay, executive director of Drug Free America.  At this point, the House and Senate are diametrically opposed on how to implement this issue.

The Legislature is attempting to implement last fall’s state constitutional Amendment 2 that approved marijuana for anyone deemed to have a “debilitating medical condition.”  SB 406 (Bradley), scheduled to be heard today in Senate Health Quality Committee, has 8 amendments filed as of this writing.  The original version of the bill would allow the number of growers/dispensaries to grow to 27 once the patient registry has 500,000 names and those facilities could also operate as “medical marijuana treatment centers” as defined in Amendment 2.  He admitted to the committee this week that his bill isn’t inclusive enough.  The 90-day treatment requirement under previous Department of Health rules would go away, but writt en parental consent for minors would be required and the bill would ban edible marijuana products “in a format designed to be attractive to children.”  Meanwhile, the Department of Health is in the process of promulgating its own rules to meet a fall deadline, as the Amendment is self-executing.   Among the rest:

SB 614 (Brandes) is the most free market approach allowing organizations who meet high financial, medical quality, and organizational standards entrance into the market with little to no oversight except in the medical quality arena.

SB 1388 (Artiles) allows both an edible and smokeable version of marijuana be prescribed and provide quality control.

SB 1472 (Galvano) establishes a Coalition for Medicinal Cannabis Research and Education within the H. Lee Moffitt Cancer Center and Research Institute in Tampa to serve in a future advising role for state policymakers.

HB 1397 (Rodrigues), the latest bill released, which in addition to the above, also includes a sales tax exemption for medical marijuana.

Regardless of what happens in the legislature, the amendment is “self -executing” meaning if the legislature doesn’t agree on a bill when it adjourns, all details of how medical marijuana will be grown, cultivated and distributed in this state must be launched on October 1, 2017.

Personal Injury Protection (PIP)HB 461 (Hager) and  HB 1063 (Grall) repeal the Florida Motor Vehicle No-Fault Law & eliminate the requirements for PIP coverage, along with a series of self-insurance provisions.  Rep. Grall’s bill was passed last week in the House Insurance and Banking Subcommittee.  Florida has been a no-fault (PIP) state since 1972, yet despite significant reforms in 2001, 2003, and most recently under 2012’s HB 119 intended to reduce fraud, rates keep rising – up 13% in 2015.  Michael Grant, a Republican from Port Charlotte, summed up the mood among many committee members at the conclusion of Rep. Grall’s bill presentation. “This isn’t a perfect bill,” he said. “But I can’t continue to vote for or sustain a PIP environment that is just completely broken.” The Senate version of Grall’s bill, SB 1766 (Lee) requiring mandatory Bodily Injury coverage in place of PIP, but without a Bad Faith remedy, is scheduled before today’s Senate Banking & Insurance Committee.

Workers’ Compensation – By far one of the most contentious – and by court rulings, most immediate – issues facing the legislature after the state Supreme Court last year ruled our workers’ comp system unconstitutional.  Chairman Burgess of the House Insurance and Banking Subcommittee passed a bill last month (HB 7085) that has provisions to control some of the worker’s comp litigation abuse.   The bill was scheduled on the House Commerce Committee agenda last week but was removed so that the parties could continue working on the bill’s provisions and we expect it to be heard this week.  In today’s Senate Banking and Insurance Committee, committee members will hear SB 1582 (Bradley) that is based on a proposal from Associated Industries of Florida. It addresses the Court’s attorney fee cap issue by keeping the current fee schedule but allowing a judge to decrease or increase attorney fees to a maximum hourly rate of $250.  The bill also increases temporary total disability benefits and temporary partial disability benefits from two years to five years, the Court’s other point of contention.  It also converts Florida to a loss cost state to encourage greater competition among carriers, following a recent 14.5% average rate increase.

General Insurance BillsSB 454 (Brandes)/ HB 359 (Santiago) are insurance “catchall” bills, also called “omnibus” bills.  They provide insurers a $15 insufficient funds fee when a customer’s electronic payments bounce with some exceptions and add electronic checks and drafts to the list of allowable e-premium payments; allow medical malpractice insurers flexibility on their annual rate filings and a permanent exemption from having to pay assessments into the Florida Hurricane Cat Fund; and specifies procedures for insurance companies to send documents electronically to policyholders.  The House version of this bill is slightly different.  HB 359 passed unanimously out of the House Insurance & Banking Subcommittee this past Monday and now goes to the House Commerce Committee.  SB 454 is on the Senate Appropriations Agenda for this week and then will head to the Senate floor.

HB 1271 (Trumbull) deals with construction defect claims also known as Florida’s “Right to Repair” law.  The bill is moving through the House with no movement of its Senate companion SB 1164 (Passidomo). The House bill encourages all potential responsible parties to participate in pre-suit mediation or arbitration with the cost born by the builder. Current law requires a property owner to notify the contractor or design professional of the defect so it can be inspected and after inspection, they have an opportunity to offer to fix the problem, or pay damages, before suit is filed.  The bill has two more committee stops before it gets to the floor so chances of full passage are dim but we will continue to watch.

SB 1746 (Flores) There was no action this past week and none is expected this week.  As of now, there is no House companion to the bill, although parts may appear in other bills.  The Senate President Pro-Tem and Chair of the Banking and Insurance Committee sent shockwaves through the P&C industry the weekend leading into session with this proposed comprehensive reform of insurance regulation and practices in the Sunshine State:

Rates & Coverage

  • Dis-incentivizes “underwriting after the claim” practices by essentially eliminating all exclusions (including misrepresentation) that would allow an insurer to deny a claim on policies that are already 120 days old
  • Disallows attorney fees and costs from being figured into residential rate requests
  • Requires all MGAs to be examined by OIR regardless of whether they represent a single insurer
  • Requires replacement cost payments without reservation or depreciation holdback in counties declared in a state of emergency.

Hurricanes & Cat Fund

  • Repeals the 25% Rapid Cash Buildup Factor in the CAT fund
  • Extends from 3 years to 5 years the statute of limitation for filing a windstorm or hurricane claim

Citizens Insurance

  • Allows a policyholder to stay in Citizens Property Insurance Corporation, even after receiving an offer of coverage from a private insurer that  is equal to or less than the premium charged by Citizens
  • Considers take-out offers as automatically declined if the consumer or agent fails to respond
  • Requires a zero rate increase in a county without a reasonable degree of competition and where one model indicates a decrease in windstorm risk rate (this would create a rate freeze in Monroe County/Florida Keys)

Insurance Advocate

  • Allows the state Insurance Advocate to directly initiate proceedings against insurers
  • Allows the Insurance Advocate to intervene in actions involving insurers in cases before an administrative law judge (DOAH)
  • Allows the Insurance Advocate to directly appeal final orders issued by OIR in rate increases

The bill also changes the venue of Surplus Lines civil suits to the county court where the property is located.


Florida Personal Income Growth Third in Nation      
There is encouraging news that verifies Florida is shaking off the rest of the cobwebs on its economic engine spun during the dismal Great Recession. A new U.S. Commerce Department study out last week shows growth in personal income in Florida was up 4.9% last year over 2015, third only to Utah and Nevada. The growth in the wage earnings component of that number was even more significant – up 6.2% in 2016 over the prior year – trailing only Washington, Utah, and Nevada.

Nationally, average wages grew 3.6% in 2016 after a more robust 4.6% increase in 2015, showing Florida is catching up.

Topping the sectors with the greatest wage growth in the Sunshine State was construction, up 13.5%, followed by mining, oil, and gas (10.4%); administrative and waste management (9%); utilities (8.5%); and the professional, scientific, and technical sector (8.5%).

These numbers put Florida’s per capita income last year at $45,819, ranking 27th among the other states and therefore below the national per capita average of $49,571.   Of note, that makes Florida’s per capita income 92% of the national per capita income average, a lagging gap that’s remained consistent over the years, in both good and bad times.


Florida Leads the Nation in New Construction Jobs 
The 13.5% growth in wage earnings last year by Florida construction workers is of course a sign of a booming building industry – one that over the past decade has been either feast or famine. Construction workers are now flocking back to Florida. In fact, Florida hired far more construction workers than any other state in the 12 months ending February 28.

A new study by the Associated General Contractors of America (AGCA) based on Labor Department data shows that of the 43 states adding construction jobs in the past 12 months, Florida added the most at 34,700 – up 7.5% over the previous 12 month period. The others aren’t even close: California (16,500 jobs, up 2.2%), Texas (14,200 jobs, up 2%), and Louisiana (13,500 jobs, up 9.6%). Among the job losers: Mississippi (-4,000 jobs, down 8.7%) and D.C. (-1,100 jobs, down 6.9%).

Despite the employment gains in the construction sector, Florida is still well below peak employment levels of the past, with demand exceeding the tight supply of skilled labor.  And we’re not alone. The AGCA is urging federal, state and local officials to act on measures outlined in the association’s Workforce Development plan to increase career and technical education opportunities, especially for high school students.

“More high school students should know that there are multiple paths to successful careers, and often those paths lead to construction,” said Stephen E. Sandherr, the association’s chief executive officer, in a press release. “If we want construction firms to continue expanding, we need to make sure there are enough qualified workers available to do the job.”

Here’s AGC’s state construction employment data over the years.


Florida and the U.S. in a “Housing Drought”     
Among the downside to demand exceeding the supply of construction workers here is that not enough new homes are being built as a result. It’s reflected nationally. The National Association of Realtors revealed this past week that the number of homes for sale is at its lowest level on record, which goes back 18 years.   Not only are there too few new homes, there are also too many low-end homes owned by investors still cornering the market – all while buyer demand is the strongest it’s been in years.

The lack of new home construction is but one reason for diminished listings. Housing starts are lagging – at only 75% of their historical average as builders instead focus on pricier segments of move-up buyers. As a result, there’s a void in the number of new lower-cost homes that appeal to first-time home buyers. Builders say higher costs for land, labor and materials are prompting them instead to focus on the higher end of the market.

Builders aren’t the only ones to blame, however, say the Realtors. Investors purchased about 4 million distressed properties – mostly in the lower-priced starter home segment – during the housing crash. They have been holding onto these properties, continuing to rent them out rather than selling. Rents keep rising and that price appreciation also may be curtailing home supplies. The more a local market has recovered, the larger the drop in inventory it’s experiencing, according to a new survey by Trulia.


Clarification in Defective Construction Lawsuits  
Sometimes new homes have construction defects. Assigning responsibility for who should pay to fix the defect itself – and the resulting damage the defect caused – often involves finger pointing between the general contractor and the subcontractors and of course, their insurance companies and sometimes the developer. Whose commercial general liability policy will pay for the loss and damages?

In the Chicago case of Allied Property & Casualty Insurance Company v. Metro North Condominium Association the developer had become insolvent, so the condo association went after the subcontractors whose shoddy workmanship in installing the condo building’s windows caused significant water damage to the building and personal property damage in several units during a 2006 rain storm.

The association claimed breach of implied warranty of habitability and eventually reached a settlement with the subcontractor CSC, in which the association dismissed its pending lawsuit. The two sides agreed in exchange, that CSC would assign rights to payment, if any, of up to $700,000 of insurance coverage from its insurer, Allied Property & Casualty Insurance Company. But there was a catch (actually two): any claim against the insurance had to be based on the underlying lawsuit (meaning breach of implied warranty of habitability) and that the claim was not intended to compensate the association for the cost of repairing or replacing the actual windows, just the resulting damage.

The insurance company balked at paying anything, claiming in U.S. District Court, that coverage exclusions applied in this case, specifically so-called “your work” exclusions, that pertained not only to repairing or replacing CSC’s own defective work (which the association had already agreed it wouldn’t get), but also for any “contractual liability.” Although it was argued there was indeed contractual liability – damages that CSC become obligated to pay by reason of its agreement with the association – it turned out the insurer’s exclusion applied only if CSC would not have been liable “in the absence of the contract or agreement” with the association.

That last part was key to the insurer prevailing in district court and in the Seventh Circuit Court of Appeals, which upheld the lower court decision last week. In Illinois, an insurer has a duty to indemnify “when the insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy.” But “only if the insured’s activity and the resulting loss or damage actually fall within the Commercial General Liability Coverage. In this case, it didn’t, given the only claim was for breach of the implied warranty of habitability. In Illinois law, the only measure of damages that apply under that claim are for the cost of repairing the defectively installed windows – something the association didn’t pursue.


Another Perspective on “Use It and Lose It” 
I knew we would spark some discussion about the March 20th newsletter article

“Use It and Lose It” a Problem Among Policyholdersand we certainly did! The story was about a report out by the Rutgers Center for Risk and Responsibility at the Rutgers University School of Law in Camden, New Jersey. In it, the school said it found that many times when a homeowner suffers a loss and files a claim, the insurance company responds by raising the homeowners premiums or declining to renew the policy. The story included a quote from Rutgers Center Co-Director Jay Feinman: “Homeowners shouldn’t be penalized by their insurance companies because they actually use their insurance.”

Well a seasoned insurance company executive here in Florida who is an avid reader of the LMA newsletter responded back to us in a very nice email, with what Paul Harvey coined “the rest of the story.” Here it is:

As always, appreciate your newsletter. Back in the “ole days”, I probably could agree with your comments contained in the “Use It and Lose It” article.

Unfortunately much of the AOB and contractor abuse we are seeing is related to the risk having an old worn out roof, now claiming the damage is the result of an alleged storm or weather event. Contractors are walking the street, soliciting without a permit, and telling folks they can get them a new roof, free of charge. They then check the weather report, find an event, and claim the storm on that particular date caused the damage.

We are finding some insureds are honest and will tell the truth: the roof has been missing shingles over years, every time the wind blows; yet others buy into the “free roof” and expect coverage. Sometime Google Earth will show the missing shingles well prior to the alleged event.

The bottom line is that many of the so called “acts of god” or “weather events” are pure fraud. So not sure the “one time weather” event is as wholesome as you reported.

Thank you sir, we appreciate you writing, and good points! We are seeing this very story being played out right now in Pinellas County. Police and local regulators are investigating and we’ll keep you updated on the story – and the broader policy issue that has to be addressed with such AOB fraud.


Change in Death Certificate Rules in Gay Marriages 
Gay and lesbian couples have been pursuing more legal rights for many years and now their same-sex marriages in Florida must be recognized retroactively upon request after death. U.S. District Judge Robert Hinkle, who struck down Florida’s voter-approved ban on gay marriage in his famous 2014 ruling, recently ruled that those couples who were together prior to the U.S. Supreme Court decision in June 2015 legalizing gay marriage nationwide should be recognized as married on death certificates without the need of a special court order.

At issue are legal standing and financial and health benefits for the surviving spouse after the death of their loved one. The state of Florida has required that a surviving spouses get a court order to change an official death certificate to reflect pre-2015 marriages and the identity of the surviving spouse. Two gay couples filed suit against the state arguing that to do so, amounted to discrimination.

Judge Hinkle agreed, writing “as a matter of federal constitutional law, a state cannot properly refuse to correct a federal constitutional violation going forward, even if the violation arose before the dispute over the constitutional issue was settled. If the law were otherwise, the schools might still be segregated.” As part of the order, a surviving spouse must provide an affidavit or other documentation showing that the marriage wasn’t recognized or that the deceased partner wasn’t identified.


An Invitation to Engage    
We hope you have enjoyed this edition of the LMA newsletter.  One thought for each of our readers.  If you would like to make a trip to Tallahassee and work with us on these important issues, we would love to host you and feed you a great meal and laugh/work together.  Thanks for all you do and let us hear from you!
On the trail,