Florida Enacts Significant Reform Impacting Property Insurance Claims

Scott Seaman and Daniel Shatz | Insights for Insurers

Earlier this month, Florida Governor Ron DeSantis signed into law S.B. 76, enacting significant property insurance claim reform in the State of Florida that becomes effective on July 1, 2021. We summarize some of the highlights below.

Regulation of Contractors and Public Adjusters

Section One creates Florida Statutes section 489.147, which prohibits contractors from: (a) soliciting a residential property owner by means of a “prohibited advertisement” (defined as “any written or electronic communication by a contractor that encourages, instructs, or induces a consumer to contact a contact a contractor or public adjuster for the purpose of making an insurance claim for roof damage”); (b) offering to a residential property owner anything of value in exchange for allowing the contractor to inspect the property owner’s roof or making an insurance claim for damage to the roof; (c) offering, delivering, receiving, or accepting any compensation, inducement, or reward, for the referral of any services for which property insurance proceeds are payable (excluding payment for roofing services rendered); (d) interpreting or advising about property insurance policy provisions or adjusting a property insurance claim on behalf of an insured without a public adjuster license; or (e) providing an insured with an agreement authorizing repairs without providing a good faith estimate of the itemized cost of services and materials. (§ 489.147(2).)

A contractor who engages in any of the foregoing is subject to disciplinary proceedings and may receive up to a $10,000 fine for each violation. (§ 489.147(3).) An unlicensed person who engages in any of the foregoing is subject to the same sorts of fines and is also guilty of unlicensed contracting, subject to penalties set forth in existing Florida Statutes section 489.13. (§ 489.147(4).) For purposes of this section, the acts of any person on behalf of a contractor are deemed the actions of the contractor. Finally, the statute provides that, if a contractor executes a contract with a residential property owner to repair or replace a roof without including a notice that the contractor may not engage in the aforementioned practices, then the residential property owner may void the contract within 10 days after executing it. (§ 489.147(5).)

Section Five amends Florida Statutes section 626.854 to prohibit licensed contractors or their subcontractors from “advertis[ing], solicit[ing], offer[ing] to handle, handl[ing], or perform[ing] public adjuster services,” unless licensed and compliant as a public adjustor. The statute previously prohibited the unlicensed “adjust[ing of] a claim on behalf of an insured.” The statute will now also prohibit the following acts by a public adjuster, public adjuster apprentice, or person acting on behalf of a public adjuster or public adjuster apprentice, and sets forth fines and disciplinary proceedings for violations: (a) offering anything of value to a residential property owner in exchange for conducting an inspection of the property owner’s roof or making an insurance claim for damage to the roof or (b) offering, delivering, receiving, or accepting any compensation, inducement, or reward for the referral of any services for which property insurance proceeds would be used for roofing repairs or replacements.

Office of Insurance Regulation Oversight

The legislation affects the scope and breadth of the Office of Insurance Regulations’ examination and oversight of property insurers.

Section Two adds two subsections to existing Florida Statutes section 624.424 to require property insurers, beginning January 1, 2022, to include supplemental information regarding closed claims (excluding liability only claims) in their annual reports to the Office of Insurance Regulation, including, among other things, information regarding the location, date, type, cause, and payments for/of the loss, as well as information about when the claim was reported, closed, and reopened, if applicable. The legislation additionally requires each insurer doing business in Florida which pays a fee, commission, or other financial consideration or payment to any affiliate to provide the Office of Insurance Regulation “any information the office deems necessary” to facilitate a determination as to whether the fee, commission, or other financial consideration or payment is “fair and reasonable” based upon, among other unspecified factors, “the actual cost of the service being provided.”

Section Four amends Florida Statute section 626.7452 to provide that a managing general agent may be examined as if it were the insurer, even if the managing general agent solely represents a single domestic insurer. Previously, the statute had an exception for managing general agents who solely represent a single domestic insurer.

Section 14 amends subsection (3) of section 627.801 to expressly grant the Office of Insurance Regulation additional enumerated powers in connection with its examination of insurers. Specifically, the section now also permits the office to: (a) require insurers to produce “such records, books, or other information and papers in the possession of the insurer or its affiliates as are reasonably necessary”; (b) retain outside attorneys, actuaries, accountants, and other experts, at the insurer’s expense, to “assist in the conduct of the examination” and act “in a purely advisory capacity”; and (c) “examine the affiliates of the registered insurer” so long as “limited to information reasonably necessary.” (§ 628.801(3)(a), (b), (d).) The section further provides that the insurer producing materials for examination “is liable for and shall pay the expense of examination in accordance with s. 624.320.” (§ 628.801(3)(c).)

Elimination of Exception for Managing General Agent Contracts

Section Three amends Florida Statute section 626.7451 to require managing general agents, as a precondition to placing business with an insurer, to enter into written contracts with the insurers specifying appropriate underwriting guidelines, even when the managing general agents control, or are controlled by, the insurer. Previously, the statute had an exception for managing general agents who controlled, or were controlled by, the insurer.

Deadlines for Notice of Claims

Section 10 amends existing section 627.70132 adding new definitions for the terms “reopened claim” (defined as “a claim that an insurer has previously closed, but that has been reopened upon an insured’s request for additional costs for loss or damage previously disclosed to the insurer”) and “supplemental claim” (defined as “a claim for additional loss or damage from the same peril which the insurer has previously adjusted or for which costs have been incurred while completing repairs or replacement pursuant to an open claim for which timely notice was previously provided to the insurer”) and expanding the scope of the statute from covering only windstorm or hurricane damage claims to claims for loss or damage caused by “any peril.” The statute previously provided that claims, supplemental claims, or reopened claims were barred unless notice of the claim given to the insurer within 3 years after the hurricane first made landfall or the windstorm caused the covered damage. It will now be amended to provide that (a) claims and reopened claims (not supplemental claims) are barred unless notice of the claim was given to the insurer within 2 years after the date of loss and (b) supplemental claims are barred unless notice of the supplemental claim was given within 3 years after the date of loss. The statute now includes an additional section clarifying that, for claims resulting from “weather-related events,” the “date of loss” will be “the date that the . . . weather-related event is verified by the National Oceanic and Atmospheric Administration.”

Section 11 amends section 627.7015, concerning alternative procedure for resolution of disputed property insurance claims, by deleting the words “windstorm or hurricane” from subsection (9)(e) thereof, thereby conforming and updating a statutory cross-reference to section 627.70132.

Notice of Intent to Initiate Litigation, Consolidation of Related Lawsuits, and Claims for Attorneys’ Fees

One of the most significant parts of legislation is the creation of Florida Statutes Section 627.70152, a comprehensive statute relating to property insurance litigation.

Section 12 creates section 627.70152, entitled “suits arising under a property insurance policy.” The new section “applies exclusively to all suits not brought by an assignee arising under a residential or commercial insurance policy,” and provides that, as a condition precedent to filing a suit under a property insurance policy and unless the suit is a counterclaim, a claimant must first await the insurer’s coverage determination and provide the department with written notice of intent to initiate litigation ten business days prior to filing suit. The section requires that a notice state “with specificity” (and may support with documentation) the following:

  1. that the notice is provided pursuant to this section;
  2. the alleged acts or omissions of the insurer giving rise to the suit, which may include a denial of coverage;
  3. if provided by an attorney or other representative, that a copy of the notice was provided to the claimant;
  4. if the notice is provided following a denial of coverage, an estimate of damages, if known;
  5. if the notice is provided following acts or omissions by the insurer other than denial of coverage, both of the following – a. the presuit settlement demand, which must itemize the damages, attorney fees, and costs [and] b. the disputed amount.

The section also imposes duties upon the insurer, requiring it to have a procedure to investigate, review, and evaluate the dispute and respond in writing to the notice within 10 business days of receipt. If the notice was served following a denial of coverage, the insurer must respond by either (1) accepting coverage; (2) continuing to deny coverage; or (3) asserting the right to reinspect the damaged property within 14 business days (in which case the applicable statute of limitations will be tolled during the reinspection period). If the notice alleges an act or omission by the insurer other than a denial of coverage, the insurer must respond by “making a settlement offer or requiring the claimant to participate in appraisal or another method of alternative dispute resolution” (and again, the statute of limitations will be tolled as long as the appraisal or other alternative dispute resolution is ongoing).

Evidence of the notice is admissible as evidence only in a proceeding regarding attorney fees, and the statute sets forth a framework for calculating fees in a suit arising under a residential or commercial property insurance policy not brought by an assignee. Specifically, the statute calculates attorneys’ fees as follows:

  1. If the difference between the amount obtained by the claimant and the presuit settlement offer, excluding reasonable attorney fees and costs, is less than 20 percent of the disputed amount [(i.e., the difference between the pre-suit demand and pre-suit settlement offer)], each party pays its own attorney fees and costs and a claimant may not be awarded attorney fees under s. 626.9373(1) or 627.428(1).
  2. If the difference between the amount obtained by the claimant and the presuit settlement offer, excluding reasonable attorney fees and costs, is at least 20 percent but less than 50 percent of the disputed amount [(i.e., the difference between the pre-suit demand and pre-suit settlement offer)], the insurer pays the claimant’s attorney fees and costs under s. 626.9373(1) or 627.428(1) equal to the percentage of the disputed amount obtained times the total attorney fees and costs.
  3. If the difference between the amount obtained by the claimant and the presuit settlement offer, excluding reasonable attorney fees and costs, is at least 50 percent of the disputed amount [(i.e., the difference between the pre-suit demand and pre-suit settlement offer)], the insurer pays the claimant’s full attorney fees and costs under s. 626.9373(1) or 627.428(1).

The foregoing framework governs claims for attorney’s fees in lawsuits brought under property insurance policies.

Section Six amends Florida Statutes section 626.9373 so as to make clear that “[i]n a suit arising under a residential or commercial property insurance policy not brought by an assignee, the amount of reasonable attorney fees shall be awarded only as provided in s. 57.105 or s. 627.70152, as applicable.” Section nine adds language to section 627.428 to limit an assignee’s ability to recover attorney fees in a suit arising under a residential or commercial property insurance policy to the extent provided for in sections 57.105 or 627.70152.

Section 13 creates section 627.70153, entitled “consolidation of residential property insurance actions.” The new section provides that a court may order consolidation and transfer of “ongoing multiple actions involving coverage provided under the same residential property insurance policy for the same property with the same owners.”

Citizens Property Insurance Corporation

Section Seven amends Florida Statutes section 627.351(6), a subsection that concerns the Citizens Property Insurance Corporation and serves “to ensure that there is an orderly market for property insurance for residents and businesses of this state.” Specifically, the legislation revises a procedure that the plan of operation of Citizens Property Insurance Corporation must provide for determining the eligibility of a risk for coverage. It also requires that the corporation include the costs of catastrophe reinsurance to its projected 100-year probable maximum loss in its rate calculations, even if the corporation does not purchase such reinsurance. The legislation also deletes obsolete language relating to the corporation’s rate filings and now requires the corporation to annually implement a rate increase that does not exceed a certain percent for specified years (11% for 2022, 12% for 2023, 13% for 2024, 14% for 2025, and 15% for all subsequent years). In addition, the legislation requires approval by the corporation’s board of governors for the corporation’s employee compensation plan, for the corporation’s budget allocations for salaries, and for all raises exceeding 10%.

Section Eight of the legislation conforms and updates a statutory cross-reference contained within Florida Statutes section 627.3518, a section that serves to provide a framework for the Citizens Property Insurance Corporation to implement a clearinghouse program.

Appraisal Process Tolls Contractual Suit Limitation Period Even For Non-Covered Claims

Alycen A. Moss and Elliot Kerzner | Property Insurance Law Observer

The Eleventh Circuit Court of Appeals recently held that, under Georgia law, an appraisal process tolled a commercial property policy’s two-year contractual suit limitation period even for non-covered claims. In Omni Health Solutions, LLC v. Zurich Am. Ins. Co., No. 19-12406, 2021 WL 2025146 (11th Cir. May 21, 2021) (unpublished), the insured filed a property insurance claim with its insurer, reporting hail damage to the roof of its medical facility in Macon, Georgia, and water intrusion. The policy required the insurer to give notice of its intentions with respect to a claim within 30 days of receiving a sworn proof of loss. Following a protracted appraisal process, the insured sued the insurer in Georgia superior court for breach of contract and bad faith. In its first count, the insured contended that the insured breached its policy obligation by failing to timely make a coverage decision.

The insurer removed the suit to the Middle District of Georgia, which granted summary judgment to the insurer on the grounds that the insured’s claim was barred by the policy’s two-year contractual limitation period. While acknowledging that, under Georgia law, the appraisal process generally tolls an insurance policy’s limitation period, the court found it unclear whether all claims related to an insurance policy are tolled by the appraisal process or only those that are affected by or dependent upon the outcome of the appraisal. Ultimately, the district court found that the appraisal process did not toll the breach of contract claim because it was based on extra-contractual damages, not on whether the insurer was required to cover the alleged loss.

The Eleventh Circuit disagreed, holding that the damages sought by the insured were not extra-contractual because they naturally arose from the alleged breach of contract. In particular, the insured asserted that the insurer’s delay in reaching a coverage decision caused repair of the insured’s property to take longer than it should have and resulted in additional business losses that would not have occurred had the insurer complied with its contractual obligations. Thus, while outside the policy limits for business income loss, the damages sought by the insured naturally flowed from the insurer’s alleged breach of contract. The court noted that neither the policy language nor Georgia law limits damages for breach of an insurance contract to covered amounts when the insurer’s breach caused the insured to suffer damage beyond that caused by an insured event.

The insurer contended that the insured’s delay claim should not toll the contractual limitations period because it was not at issue in the appraisal process, as evidenced by the fact that the insured was seeking business income loss beyond the 13 months awardable under the policy. The court found this argument unpersuasive, for several reasons. First, the policy did not limit the appraisal process to establishing damages for any particular type of claim. Rather, by the express terms of the appraisal provision, the appraisal process established the “amount of loss” suffered by the insured, without regard to coverage limits or liability. The court noted that the appraisal panel was tasked with determining the amount of the insured’s loss, not whether the loss was covered. Second, adjudication of the insured’s delay claim depended on completion of the appraisal process because the alleged damages overlapped with the loss amount at issue in the appraisal.

Critically, the court pointed out that the appraisal in fact determined the amount of the insured’s business income loss sought as damages in its delay claim. This demonstrated that the appraisal process was connected to the insured’s claim for damages. Accordingly, the court concluded that the appraisal process tolled the contractual limitation period for the insured’s claim for breach of contract for failure to timely make a coverage decision. The court therefore reversed the district court’s grant of summary judgment on this claim. Because the insured’s bad faith claim depended on the viability of its breach of contract claim, the court also reversed the district court’s grant of summary judgment on the insured’s bad faith claim.

Based on the Eleventh Circuit’s holding in Omni, an insured may rely on an appraisal process to toll a contractual suit limitation period even for claims that are not covered by the policy, or for damages outside the policy limits. As long as the amount of loss determined by the appraisal award overlaps with the amount of damages sought by the insured in its lawsuit, a court will view the appraisal process as sufficiently connected with the lawsuit to toll the contractual suit limitation period. Therefore, when dealing with an appraisal, insurers should be prepared to defend potential lawsuits well beyond the original contractual limitation period set by the policy.  

Five Tips To Help Navigate The Insurance Claims Process

Courtney Alvarez, Andrew Reidy and Joseph Saka | Lowenstein Sandler

Companies purchase liability insurance, often referred to as “litigation insurance,” to help manage the risk of lawsuits they may face. Most policyholders understand that they need to provide notice of claims, but there are a number of parts of the insurance claims process that are far less intuitive. In order to help facilitate resolution of your insurance claim, we will address five common issues that corporate insureds face on the road to an insurance recovery.

A.  More Than One Policy Can Apply to the Same Loss

Losses and lawsuits frequently trigger coverage under more than one policy. This occurs when there are overlapping coverages (e.g., a directors and officers’ policy and a general liability policy both apply) or a long tail exposure (e.g., asbestos claims or environmental claims). For example, Bill Cosby obtained coverage for suits by sexual assault victims alleging defamation under both his homeowners and umbrella insurance policies. AIG Prop. Cas. Co. v. Cosby, 892 F.3d 25, 29 (1st Cir. 2018). As part of the notice process, each of your coverages should be reviewed for potential applicability so that all potential avenues for recovery are preserved. In addition, insurers accepting coverage often want to make sure that all other insurers that might have a coverage obligation are noticed. The bottom line is that coverage can be found in unexpected places, and your internal procedures should include a review of all coverages.

B.  Billing Guidelines Are Not Part of the Insurance Contract

Insurers routinely insist that their billing guidelines be followed. The “guidelines” usually are treated by the insurers as mandatory rules for billing. They provide an overview of the litigation costs the insurance company will and will not pay. The guidelines can address everything from attorney billing rates to limitations on discovery and research. Insurers often insist that defense counsel agree to comply with the billing guidelines before the insurer will agree to the retention of counsel. However, insurer billing guidelines typically are not part of the policy. Furthermore, ethical obligations limit defense counsel’s ability to comply with billing guidelines that impair their representation. Many states have detailed opinions setting forth the boundaries of permissive billing guidelines based on ethical rules. See, e.g., Md. Bar. Assoc. Ethics Comm. Opinion 2000-23 (Apr. 25, 2000); Va. Legal Ethics Opinion 1723 (Nov. 24, 1998). Corporate insureds should not accept the insurer’s billing guidelines, but should instead offer to discuss specific issues (e.g., rates) or to use the insured’s own litigation guidelines.

C.  Insurers May Seek To Avoid Coverage on ‘Public Policy’ Grounds

There is a common misconception that insurance policies do not provide coverage for intentional misconduct. In fact, insurance policies commonly cover claims alleging intentional misconduct. For example, directors and officers’ insurance policies provide coverage for claims alleging breach of fiduciary duty and securities violations. Likewise, commercial general liability policies provide coverage for claims alleging invasion of privacy and defamation. While insurers sometimes add exclusions for claims alleging dishonest or criminal conduct or exclusions for injuries that are expected and intended, these exclusions typically are limited in scope.

However, even in the absence of an express exclusion, many insurers have attempted to narrow their coverage obligations based on their contention that providing the coverage they sold would violate state public policy. Policyholders should not accept such arguments at face value. Some states, like Delaware, reject an insurer’s attempt to invoke public policy where the insurer failed to place an express restriction in the policy. RSUI Indem. Co. v. Murdock, 248 A.3d 887, 905 (Del. 2021). Even in those states that recognize some form of public policy limitation on coverage, courts typically will apply it narrowly so that it does not bar coverage for defense costs and does not apply in the absence of a finding that the insured acted with an intent to cause injury.

D.  In Many States, Insurance Companies Are Required To File Their Policy Forms With State Insurance Regulators

In many states, insurance companies are required to file with state insurance regulators any policy forms that they use and sell in the state. This can be significant for several reasons. Insurance regulatory filings generally are publicly available, and insurance companies frequently include statements about how the insurance policy is meant to apply and the reason for specific changes to the policy. Thus, these filings can be an invaluable tool in insurance policy interpretation and can be used as evidence to prove coverage, rebut an insurer’s assertion of an exclusion, or show the policyholder’s interpretation of the policy is reasonable. Some states go a step further and may hold that an insurer is estopped from taking a position that contradicts a position it took in regulatory filings. See, e.g., Morton International v. General Accident Ins. Co., 134 N.J. 1, 629 A.2d 831 (1993). Moreover, in a minority of states, an insurer’s failure to file a policy form with state regulators can result in the unfiled endorsement being void. See, e.g., Bailer v. Federal Ins. Co., 214 F. Supp. 3d 1228 (N.D. Ala. 2016). Thus, an insurer may be barred from asserting an exclusion if it did not meet its regulatory obligations. Therefore, in situations where the interpretation of specific policy language is at issue, insureds should review state filings relating to the language.

E.  Frustration and Delay Are Part of the Insurance Company Playbook

Many businesses find the insurance claims process, and the often accompanying delay, to be frustrating and maddening. Some insurance companies design the process this way. From a financial perspective, insurance companies make money from the delay in adjusting a claim and making a payment. As Warren Buffett colloquially put it in one of his shareholder letters, “[The] collect-now, pay-later model leaves P/C companies holding large sums–money we call ‘float’–that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit.” 2019 Berkshire Hathaway Shareholder letter, available at https://www.berkshirehathaway.com/letters/2019ltr.pdf.

Many policyholders also do not know that insurers can be insured under reinsurance policies for bad-faith claims made by an insured. For that reason, and because typically there is a high threshold for proving bad faith, the threat of bad faith claim standing alone may not be effective in motivating an insurer to pay a claim. To effectively exert pressure, businesses need to explore the applicability of statutes relating to unfair insurance practices or to seek to raise the insurer’s exposure in excess of policy limits.

A Look Inside Florida’s Recent Property Insurance Reform

John Daid Dickenson and Chad A. Pasternack | Property Insurance Law Observer

Two years after implementing meaningful assignment of benefits reform, Florida enacted broader property insurance claim reform. On June 11, 2021, Governor DeSantis sign S.B. 76, which takes effect on July 1, 2021. S.B. 76 focuses on reducing insurance claim litigation by, amongst other things, requiring timely notice of claims, curtailing certain solicitation practices used by roofing contractors, and limiting the circumstances in which attorney’s fees can be awarded to policyholders in property insurance lawsuits.

Deadlines for Notice of Claims

S.B. 76 expanded Florida Statutes Section 627.70132, which previously set notice deadlines for windstorm claims. The amended Section 627.70132 is applicable to both admitted insurers and surplus lines insurers and applies to claims arising from any peril. The amended statute states:

(2) A claim or reopened claim, but not a supplemental claim, under an insurance policy that provides property insurance, as defined in s. 624.604, including a property insurance policy issued by an eligible surplus lines insurer, for loss or damage caused by any peril is barred unless notice of the claim was given to the insurer in accordance with the terms of the policy within 2 years after the date of loss. A supplemental claim is barred unless notice of the supplemental claim was given to the insurer in accordance with the terms of the policy within 3 years after the date of loss.

The statutes defines “reopened claim” as “a claim that an insurer has previously closed, but that has been reopened upon an insured’s request for additional costs for loss or damage previously disclosed to the insurer.” The term “supplemental claim” is defined as “a claim for additional loss or damage from the same peril which the insurer has previously adjusted or for which costs have been incurred while completing repairs or replacement pursuant to an open claim for which timely notice was previously provided to the insurer.”

Accordingly, under this amended statute, whether a claim is open will affect the amount of time the policyholder has to submit a request for additional costs. For claims that are open, and thus continue to be adjusted, the insured must submit the supplemental claim within three years. For closed claims, the insured is required to give notice within two years. For hurricanes, tornadoes, windstorms, severe rain, or other weather-related events, the date of loss is the date that the hurricane made landfall or the weather-related event is verified by the NOAA. Section 627.70132 does not affect the statute of limitations.

Notice of Intent to Initiate Litigation

The most significant part of S.B. 76 is the creation of Florida Statutes Section 627.70152, a comprehensive statute pertaining to property insurance litigation. With the exception of those suits brought by assignees, insureds are now required to submit a notice of intent to the Florida Department of Financial Services at least 10 days before filing suit, but may not do so until the insurer has made a coverage determination as required by Section 627.70131. The notice must specify the alleged acts or omissions giving rise to the suit and, if for reasons other than a denial of coverage, must include an itemized pre-suit settlement demand.

Insurers must respond in writing within 10 business days after receiving a pre-suit notice. If responding to a notice regarding a denial of coverage, the insurer may respond by accepting coverage, continuing to deny coverage, or asserting the right to re-inspect the property. If the insurer is responding to a notice alleging an act or omission other than a coverage denial, the insurer must respond by making a settlement offer, invoking appraisal, or requiring the insured to participate in another form of alternate dispute resolution.

If an insured files suit without giving its notice of intent, or if the insured files suit before the insurer has an opportunity to respond, the suit must be dismissed without prejudice.

Claims for Attorney’s Fees

Claims for attorney’s fees in lawsuits brought under property insurance policies will be governed by Section 627.70152. In the notice of intent, policyholders are required to make a pre-suit settlement demand. In response, insurers are required to make a pre-suit settlement offer. The difference between the pre-suit demand and pre-suit settlement offer is the “disputed amount.” The amount of “reasonable attorney’s fees” will be calculated as follows:

  1. If the difference between the amount obtained by the claimant and the pre-suit settlement offer, excluding reasonable attorney fees and costs, is less than 20 percent of the disputed amount, each party pay its own attorney fees and costs and a claimant may not be awarded attorney fees under s. 626.9373(1) or s. 627.428(1).
  2. If the difference between the amount obtained by the claimant and the pre-suit settlement offer, excluding reasonable attorney fees and costs, is at least 20 percent but less than 50 percent of the disputed amount, the insurer pays the claimant’s attorney fees and costs under s. 626.9373(1) or s. 627.428(1) equal to the percentage of the disputed amount obtained times the total attorney fees and costs.
  3. If the difference between the amount obtained by the claimant and the pre-suit settlement offer, excluding reasonable attorney fees and costs is at least 50 percent of the disputed amount, the insurer pays the claimant’s full attorney fees and costs under s. 626.9373(1) or s. 627.428(1).

The “disputed amount” is the critical element for determining whether and to what extent a policyholder may be entitled to an award of attorney’s fees. The reasonableness of a fee award is determined by looking at: (1) the difference between the amount obtained and the insurer’s pre-suit offer, and (2) comparing the difference to the “disputed amount.” Therefore, this statute encourages both policyholders and insurers to fairly evaluate and attempt to resolve claims without litigation.

Regulation of Contractors and Public Adjusters

Florida Statutes Chapter 489 regulates contractors. S.B. 76 creates Fla. Stat. Section 489.147, which prohibits contractors from soliciting residential property owners by means of a prohibited advertisement, offering residential property owners financial incentives for allowing the contractor to conduct and inspection or submit an insurance claim for roof damage, and advising policyholders about coverage. Prohibited advertisements are any advertisement that encourages a consumer to contact a contractor or public adjuster for the purpose of making an insurance claim for roof damage. Contractors and unlicensed persons found to be in violation of Section 489.147 may be fined up to $10,000 per violation.

S.B. 76 also several subsections of Florida Statutes Section 626.854, which regulates public adjusters. The revised statute further prohibits contractors from adjusting or soliciting insurance claims, except that a contractor may suggest that a consumer consider contacting his or her insurer to determine if a proposed repair is covered. Additionally, revised Section 626.854 prohibits public adjusters from offering financial incentives to residential property owners for allowing the adjuster to inspect the property owner’s roof or making a claim for damage to the property owner’s roof.

Statutory Offers of Judgment

There has been some question among those following S.B. 76 regarding whether the bill prohibits statutory offers of judgments. Florida Statutes Section 768.79 encourages settlement of claims by providing an attorney fee shifting mechanism in instances where the defendant makes an offer of judgment to the plaintiff, and the ultimate judgment is one of no liability or the plaintiff obtains a judgment that is at least 25% less than the amount of the offer. Section 768.79 has a corresponding provision for plaintiffs that make reasonable proposals for settlement.  

S.B. 76 amends Florida Statutes Sections 626.9373 and 627.428, the statutes that provide attorney fee shifting for policyholders, to state, in part: “In a suit arising under a residential or commercial property insurance policy not brought by an assignee, the amount of reasonable attorney fees shall be awarded only as provided in s. 57.105 or s. 627.70152, as applicable.” Under a strict reading of this language out of context, it would seem that Section 768.79 is no longer relevant in property insurance litigation. However, that interpretation may not be accurate considering the context. This language was added to the end of a paragraph creating one-way attorney fee shifting for prevailing policyholders. In context, this new language appears only to be narrowing the definition of “reasonable sum as fees” in the existing one-way attorney-fee shifting mechanism.

Considering that Section 768.79 applies “[i]n any civil action for damages,” it seems reasonably likely that courts will continue to enforce statutory offers of judgment made by defendants in property insurance litigation. 

Consolidation of Related Lawsuits

Section 627.70153 requires parties to give written notice to the court if they are aware of ongoing  multiple lawsuits involving coverage for the same residential property policy under the same insurance policy with the same owner. The court then may order the cases be transferred or consolidated.

Closing Thoughts

S.B. 76 should have a positive impact on the insurance claim landscape in Florida. The Florida Legislature is encouraging insurers to pay legitimate claims, and discouraging unscrupulous contractors and other actors from abusing the insurance claim process and from clogging the courts with frivolous litigation.

A New Roadmap to a Familiar Journey: The ASCE Standard on Loss of Productivity

Frederick E. Hedberg | American Bar Association

As the construction industry recovers from and adjusts to the effects of the COVID-19 pandemic and prepares for a new normal, post-COVID world, claims for losses of productivity on projects that were in progress when COVID-19 struck will likely increase due to contractors performing work under conditions far different than originally contemplated when they bid the project and signed the contract.  Consequently, as contractors pursue claims seeking compensation for adverse impacts to the productivity on projects shut down or slowed because of the COVID-19 pandemic, and owners defend such claims, documenting causation and accurately assessing loss of productivity will be vital to both parties.  While COVID-19 has changed our lives and the construction industry in many ways, it has not changed the fact that claims for loss of productivity remain some of the most contentious, and most difficult to quantify and prove.

Today, contractors must balance common, but often competing, goals of progressing the work to complete projects while at the same time taking unprecedented steps to protect the safety and health of their workers and the public.  In addition to impacts due to design errors and omissions, performing work out of sequence or in adverse weather conditions because of delays, or excessive overtime due to acceleration, contractors must recognize that a host of causes—impacts due to social distancing, labor unavailability due to illness, quarantine, owner restrictions and government restrictions, compliance with OSHA and other safety guidelines, medical testing, work stoppages and suspensions, and supply-chain challenges—may result in losses of productivity on projects.  To maintain this balancing act, contractors often expend more actual labor hours on the project than planned, resulting in losses of productivity.  Successfully identifying, quantifying and proving such losses is critical to a contractor’s financial success, especially in today’s economy.

While the right to recover for losses of productivity is well-settled, there is no universally accepted standard for calculating damages for these claims.  Contractors and their experts rely upon various treatises and studies on loss of productivity to present such claims in mediation, litigation and arbitration proceedings.  Over the years, courts have decided claims and awarded damages based on different methodologies for quantifying and proving such claims, often leading to inconsistent results.  The American Society of Civil Engineers (ASCE), in conjunction with its Construction Institute, seeks to develop consistency and provide guidance through its soon-to-be-published standard “Identifying, Quantifying and Proving Loss of Productivity”. 1

Different Methodologies

The methodology that a contractor ultimately employs to calculate damages for loss of productivity due to additional labor, material and equipment costs incurred owing to disruptions on a project is often the most critical issue in prevailing on a loss of productivity claim.  While courts do not require such claims to be proven with exactitude or precise calculations, proving that decreased productivity due to disruptions to the manner and/or timing of the work often requires the use of a generally accepted methodology and credible expert testimony; without a foundation of a generally accepted methodology, the expert’s analyses and testimony may be excluded at trial, especially from a jury trial.  Contractors must also closely review the contract to ensure it does not expressly exclude claims for loss of productivity due to site conditions, changed weather conditions or other anticipated events or conditions.  The methodology chosen also often depends on the facts of the case, and the contractor’s contemporaneous records related to its labor and equipment productivity.

The Measured Mile approach is generally favored by courts and federal agencies as the preferred method of calculating losses of labor productivity.  It compares a contractor’s productivity levels between periods in which work was disrupted and periods without a disruption, thereby considering only the actual effects of a disruption and eliminating disputes over the validity of cost estimates or factors impacting productivity due to no fault of the owner.  As long as the work during the periods in comparison is reasonably similar, courts and the Board of Contract Appeals have permitted this methodology.  This approach, however, cannot be used if the contractor never performed the work efficiently and, therefore, does not have a baseline of unimpacted work for comparison.

Federal and state courts have also allowed contractors to prove their loss of productivity claims using cost-based methods such as “total cost” and “modified total cost.”  Under the total cost method, the difference between a contractor’s total actual costs and its estimated costs of completing construction is its “lost productivity damages.”  To prevail, a contractor must prove: (1) the nature of the loss makes it impossible or highly impractical to determine lost productivity damages with a reasonable degree of certainty; (2) its bid or cost estimate was realistic; (3) the actual costs it incurred were reasonable; and (4) it is not responsible for the added expenses. 2 Under the modified total cost method, courts will adjust a contractor’s recovery if it is unable to satisfy all four of these requirements.  Using the total cost method as a starting point, courts adjust the contractor’s award down to account for inaccurate bids or to eliminate cost overruns for which the contractor is responsible.  

Courts and the Board of Contract Appeals have further allowed the use of industry studies as an alternative means of calculating labor inefficiency. The Board of Contract Appeals accepted the Mechanical Contractors Association of America (MCAA) Manual as a means of measuring labor inefficiencies. 3   The MCAA Manual  4 lists 16 factors affecting labor productivity, stated as percentage losses to add onto labor costs for the contractor’s labor man-hours, with categories of minor, average and severe, typically determined by conducting fact-witness interviews and doing a complete review of the project records.

The New ASCE Standard

When published, the ASCE standard will be a useful resource for owners, developers, contractors, design professionals, consultants and attorneys for identifying, quantifying and proving loss of productivity claims.  It goes through the life cycle of such claims in the context of five distinct, but interrelated, categories: productivity basics; identifying productivity loss; establishing recoverable loss of productivity; quantifying productivity loss; and avoiding productivity loss.  Each category includes key principles that function as guidelines or recommended practices to be used by any project participant in prosecuting or defending loss of productivity claims.  The application of key principles to each category or phase provides the claimant with both a useful roadmap and a solid foundation for its claims.

From the onset, the standard provides useful guidance on collecting, storing and validating productivity data, which is a critical element of a claim of loss of productivity.  Next, it recommends best practices for identifying the causes of productivity loss as early as possible, recording those causes in the project records, taking steps to mitigate such losses and providing notice of such impacts in compliance with the contract.  After laying the predicate groundwork, the standard provides valuable guidance on recovering productivity loss by using project labor records, project participants and unbiased experts to validate that the actual conditions differed materially from those that should have been reasonably anticipated, and to estimate productivity losses with a reasonable degree of certainty, even for cumulative-impact changes.

Once a claimant has established causation and responsibility, the standard promulgates a preferred order of methods for quantifying productivity loss.  By segregating and ranking different, sometimes inconsistent, damage calculation methods into tiers, the standard should establish consistency.  The preferred order of such methods is expected to be: the most preferred approach—the Measured Mile (Tier 1); academic and industry productivity factors studies and modified total cost (Tier 2); and, lastly, the least preferred method—total cost (Tier 3).  Before moving to a lower tier, the standard recommends that it be shown with a reasonable degree of certainty that a higher-tier method could not have been used.  The standard also recommends using separate productivity analyses that do not overlap for different periods or areas of the project if doing so will improve the overall reliability of the damages estimate.

In Closing

The ASCE standard, developed from the perspective of various industry sectors, project participants, project delivery methods, project types and sizes, and which will be accredited by the American National Standards Institute (ANSI), has the potential to be a universally accepted, relied upon resource for prosecuting and defending loss of productivity claims.  The ANSI accreditation, along with the consensus process managed by the ASCE Codes and Standards Committee, will confer a certain level of credibility.  Only time will tell, however, the extent and manner that the standard is consulted and relied upon, and, if so, the extent to which the trier-of-fact finds expert testimony based on the standard to be credible. While it is only advisory, the standard provides key principles on all aspects of loss of productivity claims that, at the very least, provide sound, practical guidance regarding such claims.