Legislative Roller Coaster

Because so many of you have been following the legislative session with LMA, you know this last week has been a roller coaster.  We reported a couple of weeks ago that the House Appropriations Committee met and passed a “continuation budget” which has never occurred in recent legislative history and proved to be a strategic maneuver by the House to push the Senate to the negotiating table.  It worked!  Within 24 hours of that meeting and budget concept, the Senate signaled they wanted to begin budget talks.

The roller coaster ride since talks commenced has been a wild one with all of the major policy issues tied to the budget. In other words, when the “horse trading” meetings occurred, included in the bargaining about the $83 billion spending plan discussions were talks about medical marijuana, tax cuts, gambling and slot machines, the environment and Lake Okeechobee’s…aka “Lake O”…water woes, K-12 and higher education and many more issues facing Florida.

What shook out of all that (and it’s still not final as the session has been extended through today, May 8) is an additional $25k property tax homestead exemption initiative for next year’s ballot, and $1.5 billion aimed at cleaning up Lake O. ‎Gambling negotiations stalled with no resolution and many other policy issues didn’t make it.  The House and Senate adjourned on Friday evening to take a breath to presumably read the budget deal struck earlier in the day (that is what the 72-hour waiting period is supposed to be for) and are back in session today to take a formal budget vote and wind things up.‎ Most major insurance-related bills that we have been following were unsuccessful‎ as you will see up next in Bill Watch.

Bill Watch

Around 9:30 Friday night, the House and Senate adjourned and will return today to pass the next state budget.  The budget is the only order of business the Legislature will consider today.  All bills that did not pass Friday are dead…including assignment of benefits, workers’ compensation, and medical marijuana, along with other public policy initiatives that many thought were “must pass” legislation.  Please continue reading for all the details in our final Bill Watch of 2017 on the major legislation we followed this session:

Assignment of Benefits (AOB) – DID NOT PASS:   Rep. Jamie Grant’s assignment of benefits (AOB) abuse reform bill (HB 1421) passed the full House but never was heard in the Senate. For those of you who don’t know this young gun house member, he is tireless, a master of debate and a brilliant entrepreneur. His bill had 3 main components: data collection aimed at having concrete evidence of attorney fees and claim costs; parameters around when attorney fees would be paid vs the current “wild, wild west”; and consumer disclosure language so the consumer is fully aware of the consequences when executing an assignment of benefits document.  Rep. Grant’s commitment to finding balance in AOB abuse reform was evident in his opening remarks several weeks ago when he said he had a two-tier criteria for the bill – one to reduce rates and the other to ensure nothing is done to harm those with an actual loss.

On Friday of last week, Rep. Grant left his office to head to the House floor with every intention of finding a way to pass this much needed legislation. I met with him before he departed for the House chambers and saw the fire in his eyes.  His father, former Senator John Grant, was an incredible Senator over 20 years ago and had the same passion for good insurance public policy, so Rep. Grant comes by it honestly.   In the end, the Senate’s refusal to hear this balanced and measured reform bill will mean consumer rates will increase as the abusive AOB tactics continue.

Flood Insurance – PASSED:  SB 420 (by Senator Jeff Brandes) and its companion, HB 813 (by Representative Larry Lee) 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 Diligent Effort requirement until 2019.  The bill is short and sweet and is an effort to keep a private flood insurance “top of mind” as Congress debates this summer the renewal of the National Flood Insurance Program (NFIP).

Insurance Fraud – PASSED:  SB 1012 & SB 1014 (Brandes) and HB 1007 & HB 1009 (Raschein) were the subject of bills supported by outgoing CFO Atwater as providing needed tools to help DFS stay ahead of criminals who seek to defraud Floridians.  The original bills had measures that would create a dedicated Insurance Fraud Prosecutor grant funding program but those provisions were not successful.  The final version of these bills were finalized in HB 1007 and requires insurers to adopt an anti-fraud plan,  designate primary anti-fraud employees, and require that those plans and statistics be submitted to DFS annuallyOther bills were amended onto HB 1007 dealing with viatical settlement companies and provide insurance agents a way to give gifts to insureds similar to rewards programs in other industries. HB 1009 is a companion measure to HB 1007 that passed both chambers and protects a consumer or insurance company who sends information to DFS insurance fraud authorities by shielding that information from public record.  HB 1009 addresses the concerns of those who report insurance fraud practices from being a target of retaliation from parties interested in “getting back at” the person or entity who made the effort to report the fraud or abuse.

Insurance Premium Tax – DID NOT PASS: SB 378 (Flores) would have repealed 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 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 later was designated to reducing the Business Rent Tax on building leases by 1% (from 6% to 5%).

Medical Marijuana – DID NOT PASS:  SB 406 by Sen. Rob Bradley and HB 1397 by Sen. Rodrigues went back and forth between the House and Senate at least 4 times in less than 48 hours (which is very unusual for that type of bouncing back and forth) but in the end, the disagreement between the two chambers boiled down to two main points:  1) the number of dispensaries the state should have – unlimited or a limited number and 2) whether to tax medical marijuana sales.  Our readers will recall that in November, voters passed a constitutional amendment by over 70% in favor of medical marijuana sales for debilitating conditions in Florida.  With the legislature failing to come to an agreement, it is now up to the Department of Health to implement the amendment and most certainly, the courts will be weighing-in on what happens next.  The seven current licensees, also known as the cartel, will continue to operate while many have observed this creates a monopoly for this group.  Marijuana crusaders admitted afterward they “worked long and hard, but couldn’t overcome the influence of money on the process.” We will report more about this issue as it develops.

Personal Injury Protection (PIP), also called No Fault Insurance – DID NOT PASS:  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 25% in 2015.   HB 1063 (Grall) would have repealed the Florida Motor Vehicle No-Fault Law & eliminated the requirements for PIP coverage, along with a series of other provisions.  Rep. Grall’s bill passed the entire House but was never considered by the Senate so the issue is dead this year. 

Workers’ Compensation – DID NOT PASS:  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.  Two weeks ago, the full Florida House approved changes to the state’s workers’ compensation insurance system with the passage of HB 7085 (Burgess).  There were major differences between the House and Senate bills including what to pay attorneys who represent injured workers. The House wanted fees capped at $150 an hour, while the Senate wanted a cap of $250 an hour.  In the final hours of the session, the House agreed to $180 per hour but the Senate would not concur so the bill died.  House Insurance and Banking Chairman Burgess said in those final hours, “Every small business, every business owner in the state is watching what we do,” but that was not enough to get the bill across the finish line.  Recall that two 2016 Florida Supreme Court decisions ruled parts of the current work comp law invalid causing an almost 15% rate increase because parts of the law simply “went away,” as one observer noted.  “Poof – in two court opinions, the worker’s comp system was turned on its head,” according to a former regulator.   The hourly attorney fee maximum caused angst during the committee meetings and the Senate in particular didn’t like the way the bill cut hospital reimbursements for outpatient services to injured workers.

General Insurance Bills – PASSED: On the last day of session, these bills passed the legislature with many of us hoping that assignment of benefits reform would be tacked on but in the end, SB 454 (Brandes)/HB 359 (Santiago) remained insurance “catchall” bills, also called “omnibus” bills that made mostly technical changes to certain statutory provisions.  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 specify procedures for insurance companies to send documents electronically to policyholders.

Construction Defects – PASSED:  HB 377 (by Rep. Leek), a compromise between plaintiff attorneys and the construction industry, was filed because the courts ruled that a construction contract is finalized on the date of final payment. The date of final payment is the date the clock starts for any construction defect statute of limitations and statute of repose. (A statute of limitation pertains to the time since the alleged injury, while a statute of repose pertains to the time since a certain event.)

According to the staff analysis of the bill, under current law, a cause of action founded on the design or construction of a building is subject to a four year statute of limitations and a 10 year statute of repose. The statute of limitations and the statute of repose start at the latest date of the following: the date of actual possession; the date a certificate of occupancy is issued; the date construction, if not completed, is abandoned; or the date the contract is completed or terminated. The statute of limitations for a latent defect begins when the defect was or should have been discovered, but the statute of limitations may not extend beyond the statute of repose. The statute of repose thus may limit a cause of action for a latent defect even if the injured party has no knowledge of the latent defect. A recent court decision found that a construction contract is complete when the final payment is made. For the purposes of both the statute of limitations and the statute of repose, this bill provides that a construction contract is considered complete on the later of the date of final performance of all the contracted services or the date that final payment for such services becomes due without regard to the date final payment is made. The bill applies to causes of action that accrue on or after July 1, 2017.

Insurance Adjusters – PASSED:  HB 911 (by Rep. Shaw) revises current insurance adjuster law, including public adjuster and public adjuster apprentice licensing and regulation. The bill was supported by the Department of Financial Services’ Agent and Agency Services Division and the Florida Association of Public Insurance Adjusters. The bill places certain restrictions on public adjusters and its primary focus is aimed at stopping a growing trend with unregulated “loss consultants.”  The bill also contains changes to other adjuster licensing and regulation.  One noteworthy change allows employees of insurers to handle residential property insurance claims with coverage limits of $500 or less.

Building Code – PASSED:  HB 1021 eliminates the International-Codes (I-Codes) as the sole source for adopting changes to Florida’s building code and allows “other nationally adopted model codes and standards for updates to the Florida Building Code,” according to a staff analysis.  If amendments or modifications are made to the Florida Building Code, those amendments and modifications will be carried forward until the next edition of the Florida Building Code. Earlier versions of the bill extended the timeframe between building code editions to six years, but the final bill retained the three-year cycle.  The Florida Homebuilders Association made changes to the building code adoption process a priority but many in the insurance industry opposed the changes saying they will contribute to building vulnerabilities.

Drones – PASSED:  HB 1027 vests authority to regulate the ownership or operation of unmanned aircraft systems with the state by creating the Unmanned Aircraft Systems Act.  It regulates commercial uses of drones and also addresses passenger/personal delivery drones (PDD), and local ordinances relating to them.  PDD operators are now required to maintain general liability coverage of at least $100,000 for damages arising from operation of a PDD. The bill stipulates that the regulation of unmanned aircraft must be construed in accordance with federal statutes, regulations, and guidance issued through the Federal Aviation Administration (FAA), which is still evolving.

Bills We Monitored But Had No further Action –  SB 1746 (Flores) Comprehensive reform of insurance regulation and practices; HB 1271 (Trumbull) “Right to Repair” construction defect claims law; SB 614 (Brandes), SB 1388 (Artiles), and SB 1472 (Galvano) all medical marijuana regulation;  HB 191 (Beshears) and related SB 208 (Passidomo/Mayfield) on diligent effort; and HB 469 (Harrison)/SB 334 (Steube) Insurance Litigation/Prejudgment Interest.

New Directives for Condo Associations & Owners

Two of the three bills in the legislature that would affect condominium associations passed and are on their way to the Governor:

Fire Sprinkler Systems – Passed
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) will allow high-rises, upon approval of two-thirds of unit owners, to opt-out of ELSS and for those that do not or cannot, extends the current 2019 deadline to 2022.  The bill also clarifies current law 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.  The new measures do not apply to timeshare condo associations.

Condominium Boards – Passed
CS/CS/HB 1237 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 for associations of 150+ units, and creates a list of activities that constitute voting fraud when electing board members.  It imposes felony criminal charges – eligible for prison terms – 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 condo owners of certain official records and financial reports. Condo board directors would be term-limited to eight years, unless they receive a super-majority vote in later elections.  Directors cannot hire relatives nor receive payments from their condo association.

Short-term Vacation Rentals – Did Not Pass
A growing number of municipalities have been bumping heads with online accommodation giant Airbnb and its local hosts who rent their condos and houses short-term, contrary in some cases to condo rules and local laws, which have been expanding.  Legislators expressed concern those local laws have gone too far and infringe on property rights. So CS/HB 425  set up state regulation instead, including requirements for owners to submit a copy of their vacation rental license and certificate of registration to local authorities, as required by state law, but prohibits local governments from charging fees to do so. While the House passed it, the Senate did not.

The Fire Sprinkler Systems and Condominium Boards bills, if signed into law by the Governor, become effective this July 1.

We have been following this condo legislation in particular because of our concern about the surplus lines market encroaching on admitted insurance companies who are readily available to write commercial residential insurance policies. The trend recently of surplus lines companies dropping their prices to dangerously low levels to secure commercial residential business puts condo associations and their board members in precarious positions.

As most of our readers know, admitted companies cannot simply drop their prices or change their policy forms in an instant like surplus lines.  There’s a place for surplus lines and there are strong advocates that they “stay in their swim lane” as one former regulator explained.  We will do some more research to determine if this legislation might speak to condo board member liability exposure for their choice of commercial residential insurers.

Governor Declares Public Health Emergency on Opioids

Following our April 17 newsletter edition stosry about Governor Scott holding opioid addiction hearings around the state, the Governor last week declared Florida’s opioid epidemic a public health emergency.  Almost at the same time, the Florida Senate unanimously passed legislation to create tougher penalties for those convicted of trafficking in fentanyl and related opioid drugs and sent it to the Governor for his signature.

The bill (HB 477) would require a minimum of three years in prison and a $50,000 fine for people who have between four and 14 grams of fentanyl; a minimum of 15 years in prison and a $100,000 fine for people who have 14 to 28 grams; and a minimum of 25 years in prison and a $500,000 fine for 28 grams or more.  Read the Governor’s Press Release here.

Justices Clear Way for Miami Lawsuit Against Banks

Last week, the U.S. Supreme Court confirmed the 11th Circuit Court of Appeals decision to allow Miami to sue Bank of America and Wells Fargo for alleged “predatory” lending in heavily African-American and Hispanic neighborhoods. In a 5-3 ruling, the Justices, cited the federal Fair Housing Act had been violated causing a disproportionate number of property foreclosures and vacancies, lowering property-tax revenues and increasing police and fire services’ needs.  Cities can now seek to recoup the lost tax revenues and increased costs of maintaining foreclosed properties that the banks didn’t attend to.

The Supremes said Miami’s complaints are arguably within the “zone of interests” of the Fair Housing Act.   Justice Clarence Thomas who wrote the dissent, said that the Act’s “zone of interests is not so expansive as to include” the types of injuries claimed by Miami.  You can read the Supreme Court decision here.  We will be following this case closely.

Dodd-Frank Dismantling Begins

There is news on a number of fronts about the on-going examination, adjustment, and dismantling of the Dodd-Frank Act that Congress passed nearly a decade ago.  Federal financial regulators are meeting this week to begin examining the process that’s been used to determine which companies are “too big to fail”, more formally known as Systemically Important Financial Institutions.

The meeting is part of President Trump’s directive last month to Treasury Secretary Steven Mnuchin to review the performance of the Financial Stability Oversight Council (FSOC) created by Dodd-Frank, with regard to its processes and report back within 180 days on findings and recommendations.  Pending the review and recommendations, a moratorium is in place for non-emergency determinations or designations.  Mnuchin chairs the FSOC.

Meanwhile, last week the House Financial Services Committee and its Chairman, Jeb Hensarling’s (R-Texas), heard debate about the Republican-led Financial Choice Act, a 600-page bill designed to reform some of the provisions in Dodd-Frank.  The bill aims to end taxpayer-funded bailouts for banks, while lifting many of the current restrictions on banks.  Subsequent meetings after the hearing were held to “markup” the bill with over 100 amendments filed by Democrats.  The Choice Act includes a number of regulatory relief provisions.  In particular, the bill would reform the Consumer Financial Protection Bureau, renaming it the Consumer Law Enforcement Agency.  You can read more about the effort here.  We will follow the developments of this legislation and as of now, none of the insurance provisions are included in the discussion but we anticipate that to be the case as the bill progresses.

U.S. Senators Release Flood Insurance Reauthorization Bill

Another challenge before Congress is fixing the National Flood Insurance Program (NFIP).  Congress has begun the journey it must take to reauthorize the National Flood Insurance Program due to expire at the end of September.  Senators Bill Cassidy, MD (R-LA) and Kristen Gillibrand (D-NY) released draft legislation that they say promises to address flood insurance affordability, coverage limits, and solvency issues while encouraging increased mitigation and gradual private sector involvement. It also seeks to strengthen flood mapping and claims handling.

The Flood Insurance Affordability & Sustainability Act of 2017 would extend the NFIP until 2027 which Cassidy-Gillibrand say is a 10-year timeframe needed to avoid the stops and starts of the program in years past that caused major real estate market disruptions.  LMA will be heavily involved in these discussions and welcomes your comments so that we can pass them onto our congressional counterparts working on the bill.

Read the discussion draft of the bill here.

Read a bullet point summary of what the bill seeks to accomplish here.

Shaking Our Heads

For the past couple of months, every day, day in and day out, LMA has been in the trenches talking about the important issues facing the insurance industry, including topics that indirectly or directly affect our industry like medical marijuana, personal vacation rentals‎, Florida’s building code, and the many others.

Some of you have come to Tallahassee to watch and listen to the debate and that support has meant a great deal. Others called or sent a text to “check in” and wanted to know how to help.  As LMA winds up yet another session, the word for this one is “bizarre”!  Being a veteran of the process, observing some of the verbal attacks among legislators, among lobbyists, and among citizens reflected the heightened tensions we are seeing nationally.  This session saw everything from a state senator resigning for exercising poor judgment to the Speaker of the House during a floor session abruptly walking from the dais to a house member standing at his seat on the House floor and scolding him for saying too much…we all kept shaking our heads.

As we continue our work this summer, we will be preparing for the 2018 session which convenes in January!  Perhaps the 2018 session will have a key word and let’s hope it’s “Service above self”.