United States: 2006 Florida Legislative Preview

This article is part of the FOCUS on the Insurance Industry, Spring 2006 Newsletter .

The Florida Legislature is poised to consider several high-profile insurance issues when its 60-day session convenes on March 7. Plans to address the state's continuing property insurance crisis will be most prominent. Lawmakers also are expected to address the state's no-fault auto insurance law, which is subject to "sunset" repeal if it is not reenacted in 2006. In the tort reform arena, repeal of the doctrine of joint and several liability is in a position to reach the Florida House floor early in the session.

For more than a decade, Florida's residential property insurance market has been in crisis, and the means of assuring available, affordable coverage has been at the top of legislators' agendas. The crisis has deepened as a result of the unprecedented hurricane losses from 2004 and 2005. The state's total reported residential hurricane losses from the 2004 storms were $15.8 billion, and total modeled residential hurricane losses from the 2005 season were $8.8 billion.¹

Homeowners continue to have difficulties obtaining coverage in hazardous areas, as evidenced by the 810,000 properties, with a total insured value of $210.6 billion, that were covered as of the end of 2005 by Florida's residual market entity, Citizens Property Insurance Corp. (Citizens).² The 2004 storms caused Citizens to sustain a $515.5 million deficit, for which it levied assessments on all Florida property insurers.³ Citizens' estimated deficit for 2005 is $1.4 billion.⁴ The Florida Hurricane Catastrophe Fund (Cat Fund) sustained losses of $3.7 billion from the 2004 season and estimates its 2005 losses to be $3.1 billion, with the result that the fund will have a zero balance or a small deficit at the start of its 2006 contract year.⁵ These losses and deficits have placed increased pressures on insurers and consumers alike.

One set of recommendations for legislative solutions to the crisis will come from the statutorily-created Task Force on Long-Term Solutions for Florida's Hurricane Insurance Market. As of this writing, the task force has not issued its final recommendations; however, on January 31, 2006, the task force voted to recommend several changes to Citizens and the Cat Fund. These proposals to the legislature include removing single-family properties valued at $1 million or more from eligibility for any form of coverage by Citizens, delaying implementation of an existing statutory requirement that would reduce the geographic area in which Citizens writes windstorm-only policies and insurers are allowed to exclude the peril of windstorm,⁶ requiring the Cat Fund reimbursement premium formula to include a "rapid cash buildup" factor, and support for a state constitutional amendment to limit the legislature's ability to make appropriations from the Cat Fund. Other proposals that the task force will consider at its final meeting in late February include raising the cap on Cat Fund payouts, increased flexibility in rate regulation, and repeal of the statutory provision allowing a Citizens policyholder to reject an offer from the admitted market and remain in Citizens.⁷

Florida's elected Chief Financial Officer (CFO), who also sits on the board that governs the state Office of Insurance Regulation (OIR), is recommending that the legislature use the increase in state sales tax revenues attributable to hurricane recovery to cover part or all of the Citizens deficit in lieu of assessments, cap Citizens coverage at $1 million or less, and adopt a series of reforms to Citizens' governance.⁸ The CFO is not alone in proposing the use of sales tax revenues to offset residual market deficits; bills have been filed in both chambers that would use sales tax windfalls to offset future deficits.⁹ The CFO also is recommending legislation that would require insurers to "immediately" pay claims directly to the policyholder for additional living expenses, personal property, and 20 percent of the damage to the structure.¹⁰

On February 13, members of the Florida House leadership announced the most extensive property insurance reform proposal seen thus far in the run-up to the legislative session.¹¹ The bill restructures Citizens to provide separate treatment of homestead property (i.e., primary residences) and non-homestead property such as vacation homes, investment property, and commercial property. Shortfalls in the pool covering homestead properties would continue to be funded by assessments of all property insurance policyholders, but non-homestead properties would be covered by a self-supporting pool. Other changes to the residual market include making residences valued at $1 million or more ineligible for Citizens coverage and new rate standards that would require rates in the homestead portion of Citizens to support a 50-year probable maximum loss and rates in the non-homestead portion to support a 250-year probable maximum loss. The bill proposes to increase Cat Fund premiums to include a 25 percent risk load, and would allow property insurers substantially more flexibility in ratemaking than is currently allowed under the rating law. The bill also sets up a $100 million hurricane loss prevention endowment to fund interest-free loans for residential property owners and matching grants to local governments and nonprofit organizations.

An alternative plan has been proposed by the House Democratic Caucus.¹² Under HB 1209, the Cat Fund would be converted from a reinsurance fund into a residential hurricane insurance program modeled on the National Flood Insurance Program (NFIP). The new program would provide up to $500,000 of coverage for hurricanes for any residential property, and insurers would be required to service the policies.

Money in the Cat Fund may be used only to pay reimbursement to participating insurers for hurricane losses, with this exception: the Cat Fund statute also requires the annual appropriation of $10 million from the fund for hurricane loss mitigation projects, and allows larger appropriations for that purpose.¹³ Joint resolutions¹⁴ have been filed to place before the electorate a state constitutional amendment requiring an extraordinary vote of both chambers for an appropriation of Cat Fund money in excess of the $10 million minimum.

Legislative committee activity on property insurance during the run-up to the session has been limited to receiving status reports on Citizens and the Cat Fund. From the comments made by committee members during these meetings, there appears to be a willingness to consider reforms that go well beyond the recommendations they have thus far received once the committees begin addressing substantive issues.

In 2003, the legislature provided for "sunset" repeal of Florida's automobile no-fault law,¹⁵ effective October 1, 2007, unless it was reenacted before the end of the 2006 regular legislative session.¹⁶ Legislative committees have held several hearings on the subject.

A Florida Senate staff report issued in November 2005,¹⁷ concluded that Florida's automobile insurance system has serious, but not crisis-level, problems, including personal injury protection and bodily injury liability loss costs that are higher than most no-fault states. Florida Senate staff recommended reenactment of the no-fault law, with the addition of a medical fee schedule and with the repeal of the contingency risk multiplier for attorney fee awards. The Senate Banking & Insurance committee has introduced a bill implementing these recommendations.¹⁸

In presentations to Florida House and Senate committees, a coalition consisting of plaintiffs' lawyers and medical providers argued for reenactment of the current no-fault law with no significant change, while insurers and insurance trade associations advocated a range of positions from major reform to outright appeal, including fee schedules, elimination of the contingency risk multiplier, and strengthening the tort threshold.¹⁹

As of this writing, approximately four weeks before the start of the legislative session, the only filed legislation that addresses the no-fault sunset issue would enact a series of anti-fraud measures and reenact the no-fault law without adding fee schedules, eliminating the contingency risk multiplier, or changing the tort threshold.²⁰

In 2005, tort reform advocates sought broad-based liability reform as well as narrowly crafted measures specifically addressing such areas as asbestos, premises liability, and product liability. Most of these efforts failed, but a coalition of business and insurance interests was able to persuade lawmakers to enact an asbestos bill that, among other things, required physical impairment as a part of any asbestos liability claim.²¹

For the 2006 session, tort reform advocates are focusing on Florida's comparative fault law, which includes a modified version of joint and several liability. Under the current law,²² the doctrine of joint and several liability applies to any defendant who is found to be more than 10 percent at fault, and the doctrine applies only to a specified portion of the judgment. House Bill 145²³ amends the comparative fault law to repeal joint and several liability. On February 22, 2006 the bill cleared its last committee hurdle. It may be in a position to be heard by the full Florida House early in the legislative session. The Florida Senate companion bill ²⁴ has yet to be referred to any committees.

Footnotes