Insurance “Reform”! Really?

By Michael J. Gelfand, Esq. / Published April 2023

No Man’s Life, Liberty, or Property Is Safe When the Legislature Is in Session!

     This memorable quip is attributed to Will Rogers, revered as an entertaining comedian, an astute political commentator, or both! The repetitive “special” sessions of the 2022 Florida Legislature brings a new understanding to Will Rogers’ perspective.

     So how do Florida communities separate promises from reality? Remember not long ago, just last spring [2022] when the “regular” legislative session adjourned without addressing property insurance? Tallahassee promised the “insurance crisis” would be immediately addressed at a special session. The four special sessions, before the summer started, came and went with talk, but with no real relief for Florida’s communities and property owners.

     Then came the hurricanes, and a new cry arose: “Insurance reform!”

     In December 2022 a fifth special session was called. Highly detailed in 61 pages, but lightly debated, Senate Bill 2-A was approved by the legislature and, barely a week from introduction, signed by the governor with fanfare.

     For the record, Senate Bill 2-A, “An act relating to property insurance,” was approved by the governor as Florida Laws Chapter 2022-271, effective December 16, 2022.

     Any surprises? There might be some short-term relief. The long-term relief seems to be missing, assessing how risks and expenses are addressed. Remarkably, no learning from so-called insurance crises of the past is evident. Recall earlier crises suddenly evaporating when insurance executives were compelled to testify. This time around neither the legislative nor executive branches presented any significant expense analysis.

     All of this should cause a shiver in Florida community associations and for property owners. As insurers increasingly reduce coverage with “boilerplate” text that few see, fewer read, and hardly anyone understands, insurers jump on every misstatement to invalidate coverage. Caution is in the words.

     It has been suggested that community associations carefully consider their insurance coverage or, better yet, holes in coverage. This may push to budgeting reserves and contingencies for storm and casualty events—especially as insurers reduce coverage to actual, depreciated, cash value as opposed to traditional replacement cost!

     Two provisions in this bulky bill likely will be of most interest to Florida community associations and their members. These address flood insurance and assignments of benefits. Premiums … more on that later.

     A significant part of casualty recovery for Florida community associations, whether by storm or happenstance such as a fire, has been eviscerated. Traditionally, property policies permitted an “assignment of benefits” allowing a property owner to obtain funds and/or work by assigning, or transferring, insurance benefits. Many declarations of condominium/covenants that mandate insurance coverage include an assignment of benefits concept. For example, if a homeowners’ association was responsible to reconstruct a roof, benefits may be assigned to the homeowner to complete the work on the owner’s home. In condominium associations owners would assign their benefits to allow the association to coordinate reconstruction of all units.

     Citizens, the so-called “insurer of last resort,” will require flood insurance if the property is in a “special flood hazard area.” For other policies, there is a phase in for personal lines coverage beginning January 24, 2024, through January 1, 2027. Recall that residential personal lines coverage is differentiated from residential commercial lines of coverage frequently obtained by Florida condominium associations.

     Returning to premiums, the bad news springs from two areas. First, if an alternative insurer arrives, then Citizens’ coverage will no longer be available unless the alternative quotes a premium increase of 20 percent or greater. Cynics may anticipate that alternative premiums will arrive at just under 20 percent! For primary residences, usually a homestead, Citizens’ increases are 12 percent for 2023, 13 percent for 2024, 14 percent for 2025, and 15 percent for 2026. Of course, limits exclude coverage changes and surcharges, and the legislature can amend, overriding these numbers. Coverage for non-primary residences is not subject to a rate cap other than 50 percent!

     There are further increases lurking. A significant event may trigger surcharges to Citizens’ policyholders and others’ policyholders!

     Hidden expenses may pop up by rescinding a powerful weapon for policyholders, the ability to collect attorney’s fees incurred challenging slow paying or intransigent insurers. The new law does provide for some policing efforts, but as a practical matter policyowners will be at the mercy of insurers. As many have observed, when there is no recovery for attorney’s fees for policyowners, insurers can use that as a weapon to force settlements far under a claim’s real value. It is noted that in response to insurers’ assertions of fraudulent claims, there have been criminal penalties as well as judicial sanctions. Notably, the insurers have not provided significant evidence of gross problems with condominium and community association claims in Florida.

      Note that the new law expressly authorizes electronic investigations by insurers “without limitation.” “An insurer may use electronic methods to investigate the loss.” This includes using drones and independently movable machines. There does not appear to be any prohibition in these new provisions on insurers, nor requirements for advance notice of their use!

     As another reminder for everyone to keep wary of the fine print, insurers may now require arbitration in lieu of a right to trial by a judge or jury.

     Summing it all up, take the extra time to understand what you are getting and what you are not getting. You may not have much of a choice in light of the new law, but at least you can be knowledgeable. Inform your community members and plan accordingly.

Michael J. Gelfand, Esq.

Senior Partner, Gelfand & Arpe, P.A.

     Michael J. Gelfand, Esq., the senior partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar board-certified lawyer in condominium and planned development law and in real estate law, a certified circuit and county civil court mediator, a homeowners’ association mediator, an arbitrator, and parliamentarian. He is a past chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or 561-655-6224.