Second Week of Session Brisk 
This past week’s legislative activity has been brisk for the 2nd full week of session. Bills were on committee agendas in the House and Senate on assignment of benefits (with the Wall Street Journal weighing in this past week), transportation network companies (fancy name for Lyft and Uber), workers’ compensation (three hours of testimony), and one that would eliminate Florida’s premium tax credit for insurance companies.We will report more below but the most surprising committee outcome was the delay of debate about Senate Bill 378 which would repeal a $435 million salary tax credit for insurers (the tax credit is to incentivize insurance companies to hire high wage Florida employees) to finance a nearly $231 million tax break on communications services (currently cable and cell phone companies don’t get a tax break).

While this bad idea was postponed this past week, it is poised to be heard this next week but we must ask ourselves the questions one insurance company CEO asked, “Does the bill bring jobs to Florida?” and “Does the bill reduce insurance rates and/or provide consumer protections to Floridians?” Both answers are “No,” so we left the committee meeting with cautious optimism that perhaps this delay will give senators time to think through this decision.

To say that this past week’s debate on issues affecting the insurance industry were “high dollar” is an understatement. All of the decisions being made should be made with the two questions above in mind, and trust us, we will be reminding legislators of these every day. Up next is our weekly assortment of tidbits for you!

Bill Watch
The second week in the Florida Legislature was lively with action on many fronts.  Not the least of which was the temporary postponement of a bill that would remove the insurance industry’s incentive to hire high wage employees and create jobs in Florida (Senate Bill 378, by Senator Flores).For many, many years, the insurance industry has been a “clean” industry of top jobs and good corporate participation in the economy to the tune of billions of dollars contributing to Florida’s economic engine.  Insurance companies can deduct salary costs from their premium tax calculation in the form of a credit against their tax liability.  The Senate for the past few years has attempted to repeal this job creation incentive and “swap” the credit for other purposes, with this year’s attempt to reduce cable and cell phone bills by a few dollars annually.

We fail to see the logic in this idea but we can only encourage policymakers to consider the consequences of this repeal.  The bill will be reconsidered in a Senate Committee this week.  If you want to follow it, go to www.TheFloridaChannel.org tomorrow (Tuesday) and choose “Live Streams” and select the Senate Finance and Tax Appropriations committee at 9 am.

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) was heard last week.  Rep. Grant did an outstanding job of attempting to move Florida’s one way attorney fees for assignees to a “loser pay” system or some would call it a two-way attorney fee provision.  Insurance Commissioner David Altmaier spoke to the committee in an attempt to persuade its members to not support a more complex version of the bill that Rep. Grant filed the day before the hearing.  One of the speakers in fact was asked, “will the amendment reduce rates,” and the speaker said no.  The amendment failed but the underlying, original bill passed the committee and is a much better solution to assignment of benefits abuse. Of course, the best solution is the passage of the much simpler Senate bill, SB 1038 by Senator Hukill. HB 1421 will now go to the Commerce Committee.  There has been no corresponding Senate action on an assignment of benefits bill and the Senate Banking and Insurance Committee chair chose not to hold a committee meeting this past week, which is the first time in many years that the committee hasn’t met during a week of regular session.  In most cases, the 8-week session has at least five committee meetings of the Senate Banking and Insurance Committee.

Diligent EffortHB 191  (Beshears) and related SB 208 (Passidomo/Mayfield) eliminates an insurance agent’s legally required diligent effort to find and place a commercial residential (condo) policy with an admitted carrier before going to the Surplus Lines market.  This bill would eliminate consumer protections as Surplus Lines in Florida are not regulated by rate, form, or coverage. Proponents argument of “greater choice” would lead to “predatory pricing” instead, say opponents.   This bill was not heard last week and is not scheduled for a hearing this week. 

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 passed their first committee stop and are awaiting hearings in their next committee of reference.

HealthcareSB 262 (Stuebe)/HB 675 (Byrd) expands vicarious liability of HMOs and commercial health plans, while specifying they are not liable for other medical negligence except under certain circumstances. It also creates a bad faith cause of action for HMOs and specifies persons authorized to bring civil actions against HMOs for certain violations. The bills are supported by the trial bar and doctors. The Senate version has passed the Banking and Insurance Committee but was postponed from a vote last week for the second time by the Judiciary Committee.  It is scheduled again this week and the House version hasn’t been heard since it was filed.

Insurance Fraud SB 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, 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.  These bills did not have a hearing last week and are not scheduled this week.   

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 version didn’t make it past its committee hearing the first week of session and hasn’t been scheduled since.  The House bill isn’t progressing either.  This bill, sponsored by Senator Greg Steube, is a priority of the Senate President  according to sources familiar with the bill. The House version is much stricter in its provisions than the senate version. The only supporter of this bill was the Florida Justice Association/trial bar. All other groups to speak opposed it.

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 to the state will go to pay for a 2% reduction in the Communications Services Tax paid by almost all Floridians on cellular phone, cable, and satellite television services. The bill will be reconsidered tomorrow (Tuesday) before the Senate Appropriations Subcommittee on Finance and Tax.  (See opening of this Bill Watch for details.)

Medical MarijuanaThere is a Senate workshop on Wednesday at 1 pm in the Senate Health Policy Committee. The Legislature is attempting to imlement last fall’s state constitutional Amendment 2 that approved marijuana for anyone deemed to have a “debilitating medical condition.” SB 406 (Bradley) 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.   The 90-day treatment requirement under previous Department of Health rules would go away, but written 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 last week, includes a sales tax exemption for medical marijuana.

The House’s single bill is different than any other in the Senate and each of the Senate bills represent a different regulatory scheme so the negotiation between the chambers on this issue will be key. Our readers will remember that the constitutional amendment passed in November 2016 with 71% of Floridian’s vote, the highest margin of any constitutional amendment ballot initiative in the state. 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) repeals the Florida Motor Vehicle No-Fault Law & eliminates the requirements for PIP coverage, along with a series of self-insurance provisions. In lieu of PIP, SB 156 (Brandes) requires auto policies to provide certain property damage liability and bodily injury liability coverage, to replace PIP coverage. Florida has been a no-fault 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.  Neither bill is moving through the legislature.

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. SB 1582 (Bradley), based on a proposal from Associated Industries of Florida, 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. The House Insurance and Banking Committee meanwhile passed a bill (PCB IBS 17-01) onto the next committee stop that has provisions to control some of the worker’s comp litigation abuse but both the house and senate have a long way to go to get worker’s compensation insurance to a better place in our state.  Also of note, SB 1684 (Farmer) disallows attorney fees and costs from being figured into workers’ comp rate requests.

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. Both of these bills are moving and have passed committees with the Senate bill in a better posture for passage first.  We expect to see more in the next two weeks.

Florida Condo Associations Targeted This Session    
This session there are at least 17 bills that directly impact condominium and homeowner associations, which govern multi-family units that are home to millions of Floridians. Here are some of the key bills:Fire Sprinkler Systems

In 2002, the legislature declared that any residential building over 75 feet high was a high-rise building and ordered retrofit of automatic fire sprinkler systems. After public protest, the legislature subsequently allowed high-rises to opt out of the requirement by this past December. Many did. But in the meantime, fire marshals decreed that those buildings that opted-out must instead install “Engineered Life Safety Systems” (ELSS) involving a combination of sprinklers, fire proof doors and other retardant systems.   These have proven to be just as, or more expensive, than retrofitting the entire high-rise.  HB 653 by Rep. Moraitis (R-Ft. Lauderdale) comes to the rescue by allowing older high-rises to opt-out of ELSS as well and for those that do not or cannot, extends the current 2019 deadline. The bill also clarifies that low- and mid-rises are not required to retrofit. Given most condominiums are of block concrete construction, the risk of spreading fire is considered minimal.

Former Senator Ellyn Bogdanoff, who represents several condo associations, brought home the point in a recent op-editorial in the Sun-Sentinel: “We promised more than a million Floridians living in older multifamily buildings that were code-compliant at the time they were constructed that they would not have to undergo the financial or operational rigors of retrofitting their buildings. Call it a full sprinkler system, an ELSS, or something else entirely, the fact remains that our condominium residents should not be facing a deadline they thought was in their rear view mirror.”

Short-term Rentals 

With the advent of websites such as Airbnb, condo owners are more easily able to rent their units short-term while they are away, contrary to many condo associations’ rules. The condos rely on the muscle of local ordinances that prohibit this type of short-term renting. SB 188 by Senator Steube (R-Sarasota) adopts a free-market approach by limiting local towns and counties from passing short-term rental restrictions. If it passes, look for condo boards to shift their covenants to instead prohibit the advertising of short-term rentals, which is easier to prove occurred than the actual rentals themselves.

Condominium Boards

SB 1682 by Senator Garcia (R-Hialeah) tightens the rules on Condo boards and places new responsibilities – some involving criminal offenses – on the volunteers who sit on those boards. It sets term limits on board members, requires digital record-keeping, and creates a list of activities that constitute voting fraud when electing board members. It requires at least 20% of the eligible voters must cast a ballot in order to have a valid election, imposes criminal charges for managers or directors who change or attempt to change votes or engage in other fraudulent activity, and includes criminal penalties for failing to provide access to certain official records and financial reports.

A recent Miami-Dade County grand jury report confirmed there is election and financial fraud in many of the county’s condo communities. It recommends that directors be held personally liable for certain acts, as well as certain omissions, regardless of whether there was willful conduct.

Texting While Driving   
Texting while driving is already illegal in Florida, but under SB 144 by Senator Garcia (R-Hialeah) and the Senate’s Communications, Energy, and Public Utilities Committee, it would become a primary offense, meaning a police officer could pull you over just for texting, rather than citing you during a stop for another offense.   The fine for texting would remain at $30 and talking on a cellphone would remain legal.Distracted driving, the broader category under which texting and other acts fall, was responsible for 45,000 crashes last year in Florida, with 214 deaths. The bill aims at reducing these numbers.

Look for an uphill battle though, as legal advocates cite difficulties abound proving whether someone’s keystroke actions are the result of texting versus using the internet or emailing. A 2014 U.S. Supreme Court ruling also requires a search warrant in most cases before police may search a cellphone.

A recent study showed crash-related hospitalizations fell by 7% in those states that have passed texting bans. Florida is one of 11 states that doesn’t make it a primary offense. HB 69 would make texting while driving illegal only for drivers under the age of 18.

Report: America’s Infrastructure is Failing   
Another distraction on the road are potholes, rough shoulders and other roadway components in need of repair – and it’s getting worse. Our road infrastructure in America received a near failing grade in the newly released 2017 Infrastructure Report Card from the American Society of Civil Engineers (ASCE). The report reviewed 16 major infrastructure categories, grading each from “A” to “F”. The overall U.S. infrastructure received a “D+” and the roads segment even worse: a grade of “D”. The report says a “D” grade means our roads are in fair to poor condition, mostly below standard, with a large portion exhibiting significant deterioration and a strong risk of failure.With Americans driving more, traffic congestion is getting worse, with one of every five miles of highway in poor condition. Urban roads are in worse shape than rural routes, with 32% in poor condition compared to just 14% of rural roads. The report noted the backlog of rehabilitation needs is significant and growing. In all there is an $836 billion backlog of highway and bridge investment needs, with highway repair ($420 billion) the largest component.

Those poor road conditions, together with underfunding for expansion and enhancement, are costing drivers lives and money. After several years of decline, traffic fatalities are increasing again, up 7% from 2014 to 2015, with fatalities up 8% in the first three quarters of 2016. Pedestrian and bicyclist deaths in crashes were also up 9.5% and 12.2% respectively.

Motorists spent $112 billion in extra vehicle repairs and operating costs in 2014 (due in some measure to people driving more). Traffic delays from congested roadways wastes fuel and time, to the tune of $160 billion in 2014 according to the report. On average, Americans spend the equivalent of more than one workweek a year (42 hours) stuck in traffic!

Dry Fall & Winter Bring Wildfire Fear to NE Florida 
With the official start of spring this week comes the unofficial start of wildfire season in Florida and this one could be a big worry for the insurance market. Low rainfall amounts in Northeast Florida have dried out the woods and prompted officials to declare a water shortage warning and ask residents and businesses to reduce consumption.The St. Johns Water Management District says that its 18 county area has a 9.1 inch rain deficit. Rain totals in Baker, Clay, Nassau, Putnam, and Flagler Counties are all at least 10 inches below normal from this time last year. Noting the link between reduced rainfall and fire hazard, the district board has asked residents in those counties, as well as farther south in Marion and Lake Counties, to reduce their water use voluntarily, but didn’t issue any restrictions.

Existing rules prohibit lawn irrigation between 10am-4pm, which is traditionally when water evaporation is highest. The warning states that golf courses should be watered only between midnight-8am. Nearby Jacksonville and Duval County, which are behind in rainfall by just a bit more than an inch, are not subject to the warning.

The $43.9 Million E-Mail Mistake  
A Broward County Circuit Court recently awarded just that amount of money to a condominium development group (made up of no less than the Huizenga’s, Maroone’s and Dan Marino) that ended up being unexpectedly bargained down by investors during the height of the real estate slump several years ago.   The case was based on information the investors never should have received, but did by accident from the developer’s bank, due to a careless carbon copy of a single email.The development group, West City Realty Advisors, had pre-sold about 95% of their Veranda Condominium project’s 200 units in 2006, when they contracted with Wachovia to become the preferred lender for the project. The next year, after the housing market had begun its rapid decline, a Wachovia employee sending a routine email reminder to a purchaser about a closing date, CC’d the email addresses of more than 100 other purchasers.

Can you imagine what happened next? If you think those 100 pre-purchasers committed to a higher sales price pre-market bust than the latest email recipient a year later, you would be correct.  The email “spilled the beans.”

All heck broke out, according to the civil suit, which accused Wachovia of violating its confidentiality agreement with the development group. According to the complaint, “Almost immediately after the Blast E-Mail was transmitted, the recipient of the Blast E-Mail replied to every buyer…and invited the buyers to reconsider their decision of whether to close on their purchase contracts, emphasizing that the purchase prices for their condominium units were ‘overpriced’ in the current market.”

The purchasers got together and presented a united front against Veranda to get their deposits back and renegotiate their deals based on current market pricing. In the end, Veranda returned nearly $1.6 million in deposits for 80 units worth originally $32.5 million. The project finished its first phase with just 71 of the original purchasers paying the full contracted price; phase two ended up in foreclosure.

The $43.9 million verdict represents the development group’s total loss, according to its lawyer, who is now pursuing an additional $21 million in pre-judgement interest.

The lesson here? Please remember to email safely!

“Use It and Lose It” a Problem Among Policyholders  
Honest mistakes aside, we all know (or should!) that good customer service is the key to long-term business success. Encouraging that behavior in the insurance industry is the stated goal of the Rutgers Center for Risk and Responsibility at the Rutgers University School of Law in Camden, New Jersey. But in its latest report, the school finds 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.“Homeowners shouldn’t be penalized by their insurance companies because they actually use their insurance,” said Jay Feinman, co-director of the Rutgers center and a professor at the law school, in a press release.

The report, State Rankings of Homeowners Insurance Protections: Use It and Lose It is part of the Essential Protections for Policyholders project in cooperation with United Policyholders and offers recommendations to state insurance commissioners and lawmakers on insurance claims issues. The project goes beyond the claims paperwork to interviews with consumers on what they are disappointed or surprised by in dealings with their insurers.

The report calls “Use It and Lost It” a huge problem for homeowners in this age of datamining, noting that if a policyholder is dropped by one insurance company, it can be hard to find comparable coverage at an affordable price. As homeowners become aware of the practice, they are deterred from filing claims even if the losses would be covered under their policies.

Insurance companies legitimately can use some elements of policyholders’ claims experience in deciding whether to renew policies and how to price them, the report acknowledges. But companies “should not be able to engage in practices that punish policyholders just for asking a simple question or getting the coverage their insurance policies promise and that discourage legitimate claims.”

The report, sent to all the insurance commissioners, says that states should prohibit insurance companies from surcharging, increasing premiums, or refusing to renew policies because policyholders have made inquiries about coverage or have filed a single claim. The report specifically recommends against doing so based on a single claim within three years; a claim that results in no payment by the company; an inquiry by a policyholder that does not result in a claim; or a single claim for loss caused by weather or a natural disaster.

The report also ranks states on how well they protect insurance consumers, noting there’s a dramatic difference. Only two states-Rhode Island and Texas-earned a five-star rating for protecting consumers from improper rate increases and non-renewals for inquiries, claims closed without any payment, and a single claim. Eighteen states have no explicit protection at all from Use It and Lose It. Florida ranked 17th.

Editor’s note:  Our team at LMA works very closely with insurance company executives who believe the policyholder comes first and would not, for unsubstantiated reasons, simply cancel a policyholder for filing a claim.  In fact, Florida’s insurance code provides guidance as to cancellation provisions.  We, however, wanted to provide our readers this input to stay abreast of what the current “talk” is among those who may not necessarily have a balanced approach to understanding proper underwriting and insurance company operations.

J.D. Power: Property Insurers Earn Record High Satisfaction  
Lest you are feeling badly after reading the previous story, there is very encouraging news on the state of the P&C insurance industry. The latest J.D. Power study is out and shows insurers gained a record high level of satisfaction among surveyed consumers who filed claims in 2016. The report noted this occurred in a year when losses and LAE were up 7.6% in the first nine months compared to the same period the prior year.The J.D. Power 2017 U.S. Property Claims Satisfaction Study gives homeowners insurers a record score of 859 on a scale of 1000, compared to last year’s score of 846. The survey considers five factors: settlement, first notice of loss, estimation process, service interaction, and repair process.

“Following the significant declines in customer satisfaction found in the 2016 study, property and casualty insurers have redoubled their efforts to improve the settlement process and fine-tune their customer interactions, efforts that have been clearly recognized and appreciated by homeowners who experienced significant losses this past year,” said Greg Hoeg, vice president of U.S. insurance operations at J.D. Power, in the company’s press release.

“Still, despite the overall improvement, problem areas are evident, most notably in water-related and other complex claims that take a long time to settle and that cause significant lifestyle disruption. Insurers that manage to get the settlement process and customer interaction equation right in these types of disruptive and often catastrophic scenarios are those that raise the bar for the industry,” said Hoeg.

The report is being used by some to call into question whether there is really an unfulfilled niche market of the unsatisfied to be filled by the newfangled high tech online insurance startups. Regardless, as we always say here at LMA, customer satisfaction is first and final!

The Tough Questions in Reform…  
Throughout this session, we will hear debate about how frivolous lawsuits and the attorney fees demands resulting from these suits are the number one cause for insurance rate increases. Legislators are grappling with balancing how to preserve insurance policyholders access to the court system while eliminating outrageous attorney fee judgments.In the Workers’ Comp arena for example, this line of business is the only form of insurance law on the books that doesn’t have a bad faith remedy and it’s one of only two lines of coverage in our state that has “administered pricing” which means the same rate is charged by every company for every policyholder, which can lead to an anti-competitive market.  So the question is: does competition in an insurance market have any bearing on an increase (or decrease) of questionable lawsuit activity? There doesn’t appear to be a direct correlation, but perhaps an indirect one, meaning that ensuring robust competition can’t hurt! Ending one set price for all and injecting competitive pricing can only be beneficial for all involved. And if nothing else, eliminating an anti-competitive rate structure takes the argument off the table about outdated insurance company pricing and anti-consumer discussions.

Will the legislature make the tough decisions to limit attorney fee payouts and reform workers’ comp rate making? Will we see reforms in the explosive costs of assignment of benefits and attorney fees abuse? And can we be sure we ask ourselves the two public policy questions we asked in the opening of our newsletter? Stay tuned!

Lisa and the team