AOB cases shrinking; bad faith targeted
From talking with Hurricane Michael victims at recent insurance villages in Florida’s Panhandle, I know that Assignment of Benefits (AOB) abuse is one of the reasons for delays in getting needed repairs. There is encouraging news from Citizens Insurance that the AOB reform passed last spring is already having a positive impact on the carrier’s litigation caseload.
Citizens on AOB: Citizens reports that its typical 800-900 AOB claims per month has slowly shrunk since HB 7065 took effect on July 1, dwindling to 375 such claims in October. And because AOB cases have represented about 25% of its total litigation, Citizens reports the total number of new monthly lawsuits has fallen as well.
We know that the thousands of AOB cases in the Florida court system filed before the reform took effect will take upwards of two years to make their way through to final judgement. With the one-way attorney fee eliminated, the incentive for filing lawsuits has greatly diminished. But the new law has also produced additional benefits, according to Citizens, in creating clear rights and responsibilities with specific timelines on all parties to determine which AOB contracts are qualified to proceed in the future.
Cause of Loss: An AOB case is at the center of a Lexology article that should be instructive to insurance defense counsel. In Emergency Flood Restoration Services, Inc. v. Chubb Custom Insurance Company, Florida’s federal middle district court held that “conclusory allegations that the loss is covered under the Policy without details regarding the circumstances of the loss is not sufficient to meet pleading standards.”
Author Joseph Kovecses points out that allowing a plaintiff to get by with simply pleading that a covered loss occurred during the policy period is a recipe for expansive discovery. That, in turn, can lead to expert opinions that create overly broad causation that fits the vague pleading. Before you know it, the case has morphed into a much different claim and thus exposure, for the insurance company.
Bad Faith: Reforming AOB abuse took care of part of the problem. Reforming Florida’s Bad Faith law will take care of the other part, in the view of many in the insurance industry. Senator Jeff Brandes (R-Pinellas) has filed SB 924 that aims to do just that. The barely four-page bill requires that policyholders and claimants in third-party bad faith actions against insurance companies must prove that the company acted with reckless disregard.
The bill also limits an insurance company’s liability to third-party claimants under certain circumstances, if it files an interpleader action within a certain time period. The bill is similar to one the Senator filed last session in response to a bill that would have repealed Florida’s Personal Injury Protection (PIP) no-fault auto insurance law, but didn’t address bad faith. A similar PIP bill has also been filed this session.
LMA Newsletter of 12-2-19