In case you missed it, The Wall Street Journal published March 15, 2017 had an article in the editorial section titled “Florida’s Trial Bar Hurricane.” I think most folks who are regular readers of WSJ would agree that the publication is no friend of plaintiff lawyers, so at least we know they are prejudiced to some extent and thus know where they are coming from. But in this case, I see no prejudice but instead good reporting. They make some excellent points, which seemingly are backed up by facts and figures even if they are from the carrier’s side. In my opinion this editorial piece is a good analysis of Florida’s current AOB problem, which is currently being debated in the 2017 Florida Legislative session.

Most of the facts in this article are not new to me as I had written a blog titled AOB SOB on this problem which I think gives a bit more depth to the issues and problems from an in-the-field perspective. But now, as that AOB issue has gotten national exposure with this WSJ editorial piece, it will be interesting to see how this plays in the coming weeks in Tallahassee. This is especially critical since so many people from different parts of the country have second homes in Florida or rent seasonal homes. In the end, the consumer (owner of real property) will be paying more due to the out of control AOB problem.  And once these property owners are fully educated and learn what really is causing the increase in insurance expenses, things may change fast in the Florida Legislature.

After all, let’s apply a little common sense.  Do we really have such a big water loss problem that requires attorneys to sue on behalf of contractors because the contractors are not getting paid enough for emergency services? I think not. Who knew we had such a problem with broken water pipes? And who knew this exists on such a grand scale that it is being alleged that insurance companies are not paying the fair and reasonable cost for emergency services? Not me.  Oh sure, I have seen disputes over cost and scope on a various types of losses, but those issues have and can still be resolved via several alternative dispute resolution forums that are in most cases readily available to the parties.

So it may come as a shock (I am sorry) that it’s all about the money. More than a few bad actors are making a grab for the green stuff and that is a root cause of the problem as outlined in the WSJ and other publications.

If you really want to know how ridiculous this whole thing has become, here is one for the record books. I recently heard a plaintiff attorney tell a conference room full of insurance professionals that the need for the AOB’s and lawsuits was because in South Florida there were to many old galvanized water pipes that were breaking and causing an inordinate amount of water losses which apparently is overwhelming the insurance industry, and causing lawsuits to be filed to recover emergency service expenses that could not be paid in a timely manner or in the right amount.

Can you imagine that South Florida is infested with faulty water pipes?  I can only guess that the rest of Florida must have been built in a later century as this problem does not show up in the statistics in other counties north or west of Dade, Broward, or Palm Beach Counties.  The wonder of it all! Now I see another plaintiff law firm is running ads broken pipe ads on television and referring viewers to a “broken water pipe portal.” I guess they want you to review their findings to see if your pipes are bad!

As I have said before, water losses are the most frequent type of claims reported to insurance companies. If it weren’t for the AOB and its attendant attorney fee component, these losses would be routinely handled as they have been in the past. A direction to pay form is signed by the policyholder; the emergency service provider sends this and his billing information to the insurer; and in my experience, matters are resolved with no need to file a lawsuit.  

Another component of the AOB issue is property insurance fraud. A lot of the AOB lawsuits are supposedly predicated on fraud and or misrepresentation, which is a whole other issue than scope and price of a loss. So my question has been, if fraud is suspected why is somebody, anybody somewhere not following up and doing something about this? And just who is that somebody? Apparently no one wants to step up to the plate and get their hands dirty when fraud is suspected. And yes, I know the burden of proof is different for civil versus criminal fraud. So apparently the solution is just to keep AOB-water disputes in the civil arena. After all, in the end let the consumer pay the delta of what is fair and reasonable and what is, let’s just say, overreaching via higher insurance premiums. And since they have no voice in the rate hike request and approval process, the gravy train keeps on keeping on. Remember if you keep your rate request under 15%, no public hearing, no public input, how nice!

Finally, remember the good times never last. If the AOB keeps on keeping on, the legal industry could be in the cross hairs as the legislature just may take the lawyers out of the equation in one form or another. Don’t think so? Here is something to noodle on.  How about mandatory appraisal for property insurance disputes? Just add an endorsement to preclude attorney’s fees on disputes on scope and price.  As folks in the industry know, when appraisal was taken out of property policies, legal cost went through the roof. Now the trend is seemingly to keep first party claims out of the legal arena on disputes involving scope and price of a covered loss unless coverage is denied in whole or part. 

With Florida’s rapid growth and almost all of the economy in one way or another tied to real estate, (which of course requires insurance) don’t be surprised if the WSJ article may be a catalyst for change. Hopefully, it will be positive change that will discourage the bad actors feeding at the trough. At least one noted insurance industry blogger has picked up on this. For an update on the latest twist in AOB legislation see: Attorney Fees, AOB Reforms and AOC!  Let us know what you think.