Fdcc property insurance section

How Assignments of Benefits Are Impacting HowFirst-Party Assignments of Benefits Are Claims Impacting Property Insurance First-Party Property Insurance Claims William R. Lewis, Esq.1 & Timothy R. Engelbrecht, Esq.2 Butler Weihmuller Katz Craig, LLP3 Executive Summary Many insurers around the country have been actively monitoring the growth and development of assignment of benefit (“AOB”) litigation in first-party property damage claims in Florida over the past few years. These AOB claims and lawsuits present unique challenges to insurers both as claims and when they evolve into lawsuits. This article will (1) explain how the growth in AOB claims occurred in Florida; (2) describe the particular challenges insurers face in addressing AOB claims and lawsuits; (3) and discuss whether other states can expect to see a rise in AOB claims and lawsuits.

I.

From hurricanes to sinkholes to AOBs.

Most people probably remember when Florida was devastated by a number of hurricanes in 2004 and 2005. Hurricane Charley made landfall in Florida in mid August of 2004 as a Category 4 hurricane. The storm killed 17 people in Florida4 and caused $13 billion in damage in Florida alone.5 Only a few weeks later, in early September,

1

Bill Lewis is a partner at Butler Weihmuller Katz Craig LLP. Since joining the firm in 1993, Bill has built a dynamic practice that focuses on the defense of first-party property insurance coverage and extracontractual matters. Bill’s experience includes handling matters involving Chinese drywall, oil spills, hurricanes, collapses, floods, sinkholes, fires, and earth movement. Bill can be reached at wlewis@butler.legal.

2

Timothy Engelbrecht is a partner at Butler Weihmuller Katz Craig LLP. Like Bill, Timothy’s practice focuses on assisting insurers in first-party property insurance coverage and extra-contractual matters.

Timothy can be reached at tengelbrecht@butler.legal.

3

Butler Weihmuller Katz Craig, LLP is a civil litigation firm devoted entirely to defense and insurance litigation. The firm has been serving corporations, insurance companies, and insured individuals across the United States, Canada, Mexico, Europe and the Caribbean for more than 35 years. Please visit the firm’s website at http://www.butler.legal/.

4

http://www.sptimes.com/2004/08/16/Weather/Deaths_from_Hurricane.shtml.

5

https://en.wikipedia.org/wiki/Hurricane_Charley.

Hurricane Frances struck Florida. The storm killed five people in Florida and caused $9.5 billion in damage in Florida.6 Florida had barely begun to rebuild after the 2004 Atlantic hurricane season when the 2005 season hit. As it would turn out, the 2005 Atlantic hurricane season would end up being the most active Atlantic hurricane season in recorded history. All told, the 2005 Atlantic hurricane season was responsible for 3,913 deaths and approximately $159.2 billion in damage for all affected areas.7 The most devastating hurricane to hit Florida during the 2005 Atlantic hurricane season was Hurricane Wilma. Hurricane Wilma still remains the most intense hurricane ever recorded in the Atlantic basin.8 The storm killed six people in Florida and caused more than $20 billion in damage in Florida.9 Hurricane Wilma remains the fifth costliest storm in U.S. history.10 These storms in 2004 and 2005 generated thousands of property damage claims in Florida. Many of those claims spawned lawsuits that kept insurers, insureds, contractors, public adjusters11, and lawyers in Florida very busy for nearly a decade.

Around that same time, Florida was facing another natural disaster crisis in the form of sinkhole losses. Citizens Property Insurance Corporation, which is the state-run insurer of last resort, reported that between 2007 and 2011, the number of sinkhole claims it received ballooned from 1,432 to 4,032. Citizens incurred $537 million in sinkhole losses in 2011 while collecting only $52 million in premiums. Many of these sinkhole claims turned into lawsuits. Like the hurricane-related lawsuits before them, these sinkhole-related lawsuits kept insurers, insureds, contractors, public adjusters, and lawyers in Florida very busy for a number of years as well.12 However, by 2009-2010, most hurricane-related lawsuits were coming to an end. In 2011, Florida enacted changes to its laws that govern how sinkhole claims are handled.13 Those changes greatly reduced the number of sinkhole claims and lawsuits.

6

http://www.local10.com/weather/remembering-hurricane-frances.

7

https://en.wikipedia.org/wiki/2005_Atlantic_hurricane_season.

8

https://en.wikipedia.org/wiki/Hurricane_Wilma#Florida.

9

http://www.hurricanescience.org/history/storms/2000s/wilma/.

10

https://en.wikipedia.org/wiki/Hurricane_Wilma#Florida.

11

The number of public adjusters in Florida exploded after the hurricanes of 2004-2005. The Office of Program Policy Analysis and Government Accountability reports that there were 678 licensed public adjusters in Florida in 2003-2004. By 2008-2009, that number had ballooned to 2,914 licensed public adjusters in Florida.

12

http://www.tampabay.com/news/business/banking/floridas-sinkhole-alley-homeowners-struggle-withinsurance-overhaul/2201564.

13

http://www.tampabay.com/news/sinkholes-become-floridas-latest-insurance-disaster/1208473.

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To a certain degree, with the hurricane and sinkhole claims and lawsuits diminishing, there was something of a vacuum in what had previously been a robust atmosphere of first-party property insurance litigation. Lawyers and public adjusters who represented insurance policyholders were beginning to see their workloads decreasing.

With fewer of those claims available in 2011 and beyond, lawyers who represented insurance policyholders began to look for new opportunities to assist people because of the benefits provided by Florida's unique attorney fee-shifting statute." Florida Statute § 627.428 allows an insured to recover attorney fees if the insured prevails against a first-party insurer. That, in part, helped to drive many hurricane and sinkhole claims into litigation. However, with fewer of those claims available in 2011 and beyond, lawyers who represented insurance policyholders began to look for new opportunities to assist people who had claims covered by the attorney fee shifting provision of Florida Statute § 627.428.

At about that same time, South Florida began to experience a steep increase in claims for broken pipes causing water damage.14 Some people have attributed the increase in these claims to the fact that many South Florida houses and buildings have out-dated galvanized pipes that are at the end of their expected lifespan. Others have suggested the steep increase in these claims was being caused by non-fortuitous events.15 To put the situation in perspective, Citizens reported that it paid out $1,452 for every policy in South Florida counties in 2014 compared with only $976 in 2013 and just $664 in 2012. Said another way, the cost of water damage claims more than doubled in just two years in south Florida. In all other counties in Florida, Citizens only paid out $162 per policy on average in 2014.16 Unlike the hurricane and sinkhole claims, many of these new water damage claims were not being made by insureds. Instead, many of the claims were being made by water extraction and/or repair contractors who received an AOB from the insureds in exchange for their work. Through the AOB, the contractor would “step into the shoes” of the insured for all purposes of making the claim and any lawsuit thereafter.

14

http://www.sun-sentinel.com/business/consumer/fl-citizens-rate-hike-20150825-story.html.

15

http://www.myfloridacfo.com/sitePages/newsroom/pressRelease.aspx?id=4505. In 2015, the State of Florida arrested more than 30 people in South Florida and charged them with crimes related to an organized scheme to start fires and create water damage in order to recover on fraudulent insurance claims. The State of Florida referred to the investigation as “Operation Flames and Floods.” The investigation spanned 2012-2014. The alleged ringleader of the scheme was a public adjuster. He was charged with arson resulting in injury, 18 counts of arson, 131 counts of grand theft, 27 counts of false and fraudulent insurance claims, organized crime to defraud, racketeering, and racketeering conspiracy.

The scheme cost insurers over $14 million in false claims. http://www.local10.com/news/florida/miamidade-county/accused-fraudsters-face-charges-after-bilking-insurance-companies-of-millions-.

16

http://www.sun-sentinel.com/business/consumer/fl-citizens-rate-hike-20150825-story.html.

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Importantly, and perhaps most tellingly as to why this area of litigation has taken off so meteorically, is the fact that the assignee contractor is covered by the attorney fee shifting provision of Florida Statute § 627.428 just as the insured is covered by the statute. See Continental Cas. Co. v. Ryan Inc. E., 974 So.2d 368, 377 (Fla. 2008) and Conyers v. Balboa Ins. Co., 935 F. Supp. 2d 1312, 1318 (M.D. Fla. 2013).

Like most states, Florida law recognizes an insurer’s right to prohibit the assignment of the insurance policy (i.e. the transfer of pre-loss insurance rights), but generally permits the assignment of post-loss insurance benefits. COUCH ON INSURANCE gives a concise explanation of why most states follow this rationale: Although there is some authority to the contrary, the great majority of courts adhere to the rule that general stipulations in policies prohibiting assignments of the policy, except with the consent of the insurer, apply only to assignments before loss, and do not prevent an assignment after loss, for the obvious reason that the clause by its own terms ordinarily prohibits merely the assignment of the policy, as distinguished from a claim arising under the policy, and the assignment before loss involves a transfer of a contractual relationship while the assignment after loss is the transfer of a right to a money claim. The purpose of a no assignment clause is to protect the insurer from increased liability, and after events giving rise to the insurer's liability have occurred, the insurer's risk cannot be increased by a change in the insured's identity.

3 Couch on Ins. § 35:8.

In most states, the greatest concentration of AOB litigation occurs in the no-fault auto insurance and life insurance fields. However, in Florida, insurers have been experiencing an avalanche of lawsuits brought by water extraction and repair contractors who are seeking to recoup their attorney fees under Florida Statute § 627.428. A coalition of insurers and the Florida Chamber of Commerce claims that there has been a 90,000% increase in the amount of AOB lawsuits filed in Florida since 2000.17 In many instances, the amount in controversy in an AOB lawsuit is fewer than $15,000. Many times, the amount in controversy is fewer than $5,000, which means the case can be brought in small claims court. Since the amounts in dispute are often so small, the amount being claimed for attorney fees and costs quickly eclipses the amount in dispute on the claim.

Over the past three years, many assignee water extraction and repair companies have become seasoned litigants. The proliferation of assignee claims, coupled with Florida’s attorney fee shifting statute, have incentivized many lawyers to take these cases. For instance, one source reports that one particular water mitigation company 17

http://www.fightfraud.today/#.

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has brought 79 total lawsuits in South Florida since the beginning of 2014. Another company filed 257 total AOB lawsuits statewide in 2013 and 2014.18 This explosion of AOB litigation has not gone unnoticed by the Florida Legislature. In both 2014 and 2015, the Legislature considered a number of legislative proposals that would have eliminated AOBs or greatly limited the ability of an assignee contractor to receive attorney fees for such AOB lawsuits. The legislative proposals fostered spirited debate both by members of the Legislature19 as well as lawyers who represent assignee contractors.20 The Florida Legislature did not pass any AOB bill in either 2014 or 2015. However, there are bills currently pending in both the Florida House and Senate that would address AOBs if enacted into law.21 It is for these reasons that many insurers have been watching the growth and development of AOB litigation in first-party property damage claims in Florida over the past few years. Florida recently surpassed New York to become the third most populous state in the nation.22 It is growing at the second fastest rate in the nation, trailing only Texas.23 As such, Florida is a bellwether state. That is why many insurers are watching and analyzing the AOB trend in Florida to see how it is playing out, and to determine if a similar trend will occur in other states.

II.

Navigating the challenges of AOB claims and lawsuits.

With that background in mind, we can now look at the particular challenges insurers face in dealing with AOB claims and lawsuits. AOB litigation has been working its way through Florida’s trial and appellate courts for nearly three years. Beginning in 2015, there were a number of important appellate decisions on the horizon. By the close of 2015, six important appellate decisions were issued. Notably, each decision went against the insurance company involved in the case. That has insurers concerned about the direction of AOB litigation in general.

What follows is a chronology of those six appellate decisions, the issue involved in each, the outcome, and its potential ramifications.

18

http://www.claimsjournal.com/news/southeast/2015/06/23/264117.htm.

19

http://www.tbo.com/list/news-opinion-commentary/home-repair-insurance-claim-fraud-hammeringflorida-20150123/ and http://www.insurancefraud.org/IFNS-detail.htm?key=20029#.Vp5KXXnSmmw.

20

http://www.propertyinsurancecoveragelaw.com/2015/02/articles/florida/aob-and-the-industry-whocried-wolf/.

21

http://floridapolitics.com/archives/198425-insurance-real-estate-groups-seek-homeownersinsurance-reform-in-2016.

22

http://www.census.gov/newsroom/press-releases/2014/cb14-232.html.

23

http://jacksonville.com/news/2015-12-22/story/florida-population-tops-20-million-state-grows-fasterall-others-except-texas.

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1.

The Gerena case – April 10, 2015.

Issue: Must an assignee have an insurable interest in the property in order to recover assigned insurance proceeds?

Answer: No.

Florida’s Fifth District Court of Appeal (“5DCA”)24 issued its opinion in the case of Accident Cleaners, Inc. aao Gerena v. Universal Ins. Co., 2015 WL 1609973 (Fla. 5th DCA 2015). Accident Cleaners received an AOB from the insured in exchange for cleaning up a dead body at the insured’s property. Accident Cleaners submitted a bill to Universal. Universal declined to pay the full bill. Accident Cleaners then sued Universal.

Universal moved to dismiss arguing that Accident Cleaners did not have an insurable interest in the insured’s house. Universal argued that Florida Statute § 627.405 required Accident Cleaners, not just the insured, to have an insurable in the insured’s house in order to recover money under the insurance policy.

The trial court agreed with Universal. Accident Cleaners appealed. The 5DCA reversed.

The 5DCA stated that Universal’s argument “ignores that the right to recover is freely assignable after loss and that an assignee has a common-law right to sue on a breach of contract claim.” Id. at *2. The 5DCA cited to the case of W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 210-11 (1917), which it said shows Florida law has recognized assignments of benefits since 1917.

In closing, the 5DCA in Genera said: We therefore construe section 627.405 to require the property owner who holds the policy to have an insurable interest at the time of loss. The property owner’s insurable interest is imputed to the post-loss assignee. This interpretation allows both the insurableinterest requirement and free assignability of post-loss claims to coexist.

Id. The Hughes, Meiselman, and Casey cases – May 20, 2015.

Shortly after the Genera decision was issued, the Fourth District Court of Appeal (“4DCA”) issued its opinions in three factually similar cases on the same day.

24

Florida has five District Courts of Appeal. Conflicts between and among the Districts are settled by the Florida Supreme Court.

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2.

The Hughes case.

Issue: Does the insurance policy’s anti-assignment and loss payment provisions bar an assignment of benefits?

Answer: No.

The first of the three cases is One Call Prop. Servs., Inc. aao Hughes v. Sec. First Ins. Co., 165 So. 3d 749 (Fla. 4th DCA 2015). One Call received an AOB from the insured in exchange for doing water extraction work. Security First declined to pay the entire bill submitted by One Call. One Call sued Security First.

Security First moved to dismiss by challenging the validity of AOB. Among other arguments, Security First argued the AOB was barred by the anti-assignment and loss payment provisions of the insurance policy.

The trial court agreed with Security First. One Call appealed. On appeal, the 4DCA reversed.

In its opinion, the 4DCA stated that “allowing post-loss assignments of insurance claims” is “well-settled case law.” Id. at 753. The 4DCA cited cases going back 98 years, also citing to the case of W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 210-11 (1917), as had the 5DCA in Genera.

The 4DCA then explained why the anti-assignment and loss payment provisions of the insurance policy do not bar or invalidate AOBs. The 4DCA acknowledged that the issue of AOBs is a hotly contested issue. However, the 4DCA stated the issue was a policy decision better left to the legislature than the judiciary.

In concluding its opinion, the 4DCA stated it was not reaching the merits of other arguments Security First made because they were not essential to the appeal. The 4DCA identified those arguments as “whether the assignment violates the public adjuster statute or the statute governing insurable interests, or whether the assignment is a partial assignment that cannot be enforced against Security First without its consent.”

3.

The Meiselman case.

Issue: Does the insurance policy’s anti-assignment and loss payment provisions bar an assignment of benefits?

Answer: No.

The second of the three cases mentioned above was Emergency Servs. 24, Inc. v. United Prop. and Cas. Ins. Co., 165 So. 3d 756 (Fla. 4th DCA 2015). In that case, Emergency Services 24 received an AOB from the insured in exchange for doing water 7

extraction work. United declined to pay the entire bill submitted by Emergency Services 24. Emergency Services 24 sued United.

United moved for final summary judgment arguing the AOB was barred by the anti-assignment and loss payment provisions of the insurance policy. The trial court agreed with United. Emergency Services 24 appealed. The 4DCA reversed citing the Hughes case. Id. at 756.

Also, the 4DCA reiterated its words from Hughes by saying that it was not reaching the merits of other arguments United made because they were not essential to the appeal. The 4DCA identified those arguments as “whether the assignment violates the public adjuster statute or the statute governing insurable interests, or whether the assignment is a partial assignment that cannot be enforced against the insurer without its consent.” Id. at 756-57. However, in making that statement, the 4DCA inserted a footnote in the opinion advising the trial court on remand to take notice of the Genera case (cited and discussed above).

4.

The Casey case.

Issue: Does the insurance policy’s anti-assignment and loss payment provisions bar an assignment of benefits?

Answer: No.

The third of the three cases mentioned above is ASAP Restoration and Constr., Inc. aao Casey v. Tower Hill Signature Ins. Co., 165 So. 3d 736 (Mem)(Fla. 4th DCA 2015). The trial court dismissed ASAP’s case based on Tower Hill’s argument that the insurance policy’s anti-assignment and loss payment provisions barred the AOB. ASAP appealed. The 4DCA reversed, again citing the Hughes case.

Also, the 4DCA reiterated its words from Hughes by saying that it was not reaching the merits of other arguments made by Tower Hill. The 4DCA identified those arguments as “whether the assignment violates the public adjuster statute or the statute governing insurable interests, or whether the language of the assignment was so broad that it constituted an assignment of the entire policy in violation of the anti-assignment clause.”

And here, like Meiselman, the 4DCA inserted a footnote in the opinion advising the trial court on remand to take notice of Genera.

5.

The OIR case – June 22, 2015.

Issue: Can an insurer include language in the insurance policy prohibiting post-loss assignments of insurance benefits?

Answer: No. 8

a.

The merits opinion – June 22, 2015

Shortly after the issuance of the Hughes, Meiselman, and Casey opinions, the First District Court of Appeal (“1DCA”) issued its opinion in the case of Sec. First Ins. Co. v. Office of Ins. Regulation, 2015 WL 3824166 (Fla. 1st DCA 2015). In that case, a controversy arose between Security First and Florida’s Office of Insurance Regulation (“OIR”) when OIR refused to allow Security First to include language in its insurance policy stating “[a]ssignment of this policy or any benefit or post-loss right will not be valid unless we give our written consent.”

Security First requested a hearing on the matter. The hearing officer upheld OIR’s refusal to allow the language in the insurance policy. The hearing officer concluded that “a restriction on assignments of post-loss rights in an insurance policy would be misleading as it would lead the policyholder to believe that the validity of such assignment was contingent upon the written consent of the insurer, contrary to Florida law.” Id. at *1. Security First sought review at the 1DCA. The 1DCA affirmed by saying “[o]n this point we find an unbroken string of Florida cases over the past century holding that policyholders have the right to assign such claims without insurer consent.” Id. The 1DCA cited to W. Fla. Grocery Co. v.

Teutonia Fire Ins. Co., 74 Fla. 220, 77 So. 209, 210-11 (1917) as well as the Hughes case cited above.

In concluding its opinion, the 1DCA acknowledged that the issue of AOBs is hotly contested. However, like the 4DCA in Hughes, the 1DCA said this was a policy issue better left to the Legislature than the judiciary. b.

The opinion denying rehearing – October 26, 2015

After the 1DCA issued its June 22, 2015 opinion, Security First moved for rehearing, reconsideration, to certify conflict with decisions of the 4DCA, or to certify a question of great public importance to the Florida Supreme Court regarding the proper interpretation of AOBs. The 1DCA denied all those motions. See Sec. First Ins. Co. v.

Office of Ins. Regulation, 2015 WL 6446925 (Fla. 1st DCA 2015). With regard to its refusal to certify a question of great public importance, the 1DCA said: Security First also asks that we certify as a question of great public importance, whether an insurance policy’s prohibition of an insured’s assignment of “any benefit or post-loss right” without the insurer's consent is “void as contrary to the Florida Statutes or to this state’s ‘public policy’ “? As recounted in our merits opinion, a century of precedents from Florida's courts—including, most recently, the Fourth District in One Call— has said that an insured may assign post-loss rights without the insurer's consent. See, e.g., W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 74 Fla. 220, 77 So. 209, 210–11 (Fla.1917). The original basis for this principle is a bit murky, the supreme court in Teutonia Fire simply saying it was a 9

“well-settled rule” without much discussion. But its vitality has persevered since that time. We recognize that “the failure to certify a question eliminates this potential basis for the Supreme Court of Florida's jurisdiction,”, but we see little indication that supreme court review is warranted given the overall consistency in the precedents.

Id. at *1 (some internal quotations omitted).

6.

The Walker case – July 8, 2015.

Issue: Is an assignee (as opposed to the insured) barred from litigating whether the assigned claim is covered by the insurance policy?

Answer: No.

Shortly after the issuance of the OIR opinion, the 1DCA issued its opinion in a case called United Water Restoration Group, Inc. aao Walker v. State Farm Florida Ins. Co., 173 So. 3d 1025 (Fla. 1st DCA 2015). In Walker, United Water received an AOB from the insured in exchange for doing water extraction work. State Farm determined the loss was excluded from coverage under the insurance policy. As such, State Farm declined to pay the bill submitted by United Water. United Water sued State Farm.

State Farm moved for summary judgment or dismissal arguing that only the insured, not its assignee, can litigate a coverage dispute. The trial court (both county court and the circuit court sitting in its appellate capacity) agreed with State Farm and dismissed the case. United Water sought second-tier certiorari review at the 1DCA. The 1DCA granted the certiorari petition and quashed the lower courts’ rulings.

The 1DCA said “dismissal of United Water’s complaint violated the clearly established principles of law that an assignee of post-loss insurance benefits can sue for breach of such benefits”, including whether the loss was covered. Id at 1027. The 1DCA stated that was a clear established principle of law. Id. The 1DCA said the dismissal amounted to “a miscarriage of justice.” Id. at 1028.

In addition to these six appellate decisions, there is another case currently pending on appeal that addresses yet another set of AOB issues: 7.

The Schlanger case – oral argument heard on December 15, 2015.

Issue #1: Does Florida’s homestead protection bar an assignment of benefits when the damage is to homestead property?

Issue #2: Does an assignment of benefits constitute an unlicensed or unauthorized public adjusting agreement?

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Answer: Appeal pending.

In One Call Prop. Servs., Inc. aao Schlanger v. St. Johns Ins. Co., No. 2013CA000868, 2014 WL 7496474 (Fla. 19th Cir. Ct. Nov. 20, 2014), One Call received an AOB from the insured in exchange for doing certain work at the insured’s house. St. Johns declined to pay some or all of One Call’s bill. One Call sued St. Johns.

St. Johns moved for summary judgment on two bases. First, St. Johns argued the AOB was invalid because it impermissibly sought to divest the insured of homestead-protected insurance proceeds.25 Second, St. Johns argued One Call’s AOB amounted to an unlicensed or unauthorized public adjusting agreement, thus invalidating the assignment.

The trial court agreed with St. Johns on both bases. The trial court noted that its ruling on the first basis (i.e. homestead) was especially true since only one of the two named insureds signed the AOB. The trial court’s authority for the first basis was the case of Quiroga v. Citizens Prop. Ins. Co., 34 So. 3d 101 (Fla. 3d DCA 2010).

In Quiroga, a lawyer helped insureds recover money from their insurer after their homestead property was damaged. Id. at 101. Thereafter, though, the insureds refused to pay their lawyer his contingency fee for his services. Id. The lawyer filed a motion to impress a charging lien on the insurance proceeds. The insureds opposed the motion. The insureds argued the lawyer could not get any of their insurance proceeds because that money was protected by Florida’s homestead protection. Id. The trial court agreed with the insureds and denied their lawyer’s motion to impress a charging lien. The lawyer appealed.

Reluctantly, the Third District Court of Appeals (“3DCA”) agreed with the insureds stating “[b]ecause Quiroga did not and, as a matter of public policy in this State, cannot through an unsecured agreement, such as the contingent fee agreement in this case, enter into an enforceable contract to divest himself from the exemptions afforded him through [homestead protection], this Court is compelled to affirm the order under review, the equities of the matter notwithstanding.”

The 3DCA in Quiroga cited to Florida’s Constitution, Art. 10 § 4(a). That section says: There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person….

25

Florida’s Constitution exempts homestead property from levy and execution by judgment creditors.

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The 3DCA in Quiroga also cited to the case of Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201, 203-04 (Fla. 1962). In that case, the Florida Supreme Court explained why insurance proceeds, in addition to the actual physical property insured, are protected by homestead protection: The reason for the rule [exempting fire insurance proceeds] is that the homestead was provided for the benefit of the exemptor’s family, and it may be insured to protect them from loss. The insurance is intended to restore the property in case it is destroyed by fire; those contracting with the exemptor are on knowledge of this fact, and to hold that creditors could seize the proceeds of the insurance policy would give them an advantage they never contemplated would deprive the insured of the means provided to take the place of and restore his homestead.

Id. at 203-04.

After the trial court in Schlanger ruled for St. Johns, One Call appealed to the 4DCA. As noted above, the appeal is pending. The 4DCA likely will address whether an AOB is barred by Florida’s homestead protection, or whether an AOB is consistent with Florida’s homestead protection since the work being done is in the nature of repairing the homestead property. Also, the 4DCA likely will address whether an AOB amounts to an unlicensed or unauthorized public adjusting agreement, or whether it is distinguishable from public adjusting given the fact the assignee is not negotiating on behalf of the insured but is rather seeking payment for itself.

III.

Will similar AOB issues expand to other states beyond Florida?

It is impossible to know for sure if other states beyond Florida can expect to face the same challenges insurers are facing in Florida with regard to AOB claims and lawsuits. However, based on the information above, it is possible to identify what appears to be the primary drivers of the AOB situation in Florida currently. With that in mind, it may be possible to predict if the same circumstances can be expected in other states.

Here are what appear to be the primary drivers of the current AOB situation in Florida: 1.

The existence of a statutory attorney fee-shifting provision that incentivized lawyers to take first-party property insurance claims.

2.

An unprecedented series of natural disasters that lead to a tremendous number of first-party property insurance claims and lawsuits between 2004-2011.

3.

The growth and development of a class of lawyers and public adjusters whose business became dependent on a large volume of first-party 12

property insurance claims and lawsuits, in large part because of the hurricanes and sinkholes.

4.

A sharp decline in the number of hurricane and sinkhole claims in 2011.

5.

The rise of a more sophisticated class of water extraction and repair contractors who have identified the assignment of benefit as a vehicle by which they are able to pursue insurance companies directly for payment for the services they provide to the insured.

6.

The fact that Florida’s attorney fee-shifting provision applies to assignees as well as insureds.

Based on the information set forth above, there are two factors that likely need to be in place for AOB litigation to occur in other states as it has in Florida. The first factor is that the law of the state needs to permit the free assignment of post-loss insurance proceeds along the lines described above in COUCH ON INSURANCE. The American Law Reports states that the free assignment of post-loss insurance proceeds is “universally accepted.”26 The cases cited therein confirm this is the case in nearly all states, including California, Montana, Minnesota, Texas, and Illinois.27 However, the case of Holloway v. Republic Indem. Co. of Am., 652, 147 P.3d 329, 335 (Ore. 2006) suggests Oregon does not follow this rule.

The second factor that likely needs to be in place for AOB litigation to occur in other states is that the law of the state needs to allow the assignee to recover attorney fees as part of its litigation against the insurer. Most states follow the American Rule on attorney fees. The American Rule states that each litigant pays her own attorney fees unless a statute or contract provides otherwise. Baker Botts, L.L.P. v. ASARCO LLC, 135 S.Ct. 2158, 2164 (2015). Florida’s fee-shifting statute is an exception to the American Rule.

Other states have created exceptions, in whole or in part, to the American Rule.

Alaska is the probably the most extreme example. In essence, Alaska has abolished the American Rule. Alaska Rule of Civil Procedure 82 states that the prevailing party in a civil case shall be awarded attorney’s fees calculated under the rule. No other state has gone so far. Instead, most other states have enacted statutes that allow attorney fees under certain circumstances.28

26

56 A.L.R. 1391

27

All of these states also have a number of attorney fee-shifting statutes for certain situations.

28

Susanne Di Pietro, Teresa W. Carns & Pamela Kelley, Alaska’s English Rule: Attorney’s Fee Shifting in Civil Cases (Alaska Judicial Council October 1995).

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For example, California has a two-way attorney fee-shifting provision for contract claims when there is an attorney fee provision in the contract.29 Washington has a twoway attorney fee-shifting provision for the enforcement of contracts valued at fewer than $5,000.30 Arizona has a two-way fee shifting provision for the contested enforcement of a contract.31 These states, and there may be others, appear to have the two factors mentioned above that could permit a similar AOB situation to occur there along the lines of what is occurring now in Florida assuming the right conditions were present.

AOB litigation is a very hot topic in Florida. Florida is a bellwether state. Insurers need to continue monitoring the situation to see how it will play out. Moreover, insurers need to monitor other states to see if the AOB climate in Florida will have any spillover effect on other states.

29

Cal. Civil Code ยง 1717(a) (West 1985 & Supp. 1995).

30

Wash. Rev. Code Ann. ยง 4.84.250 (1988).

31

Ariz. Rev. Stat. Ann. ยง 12-341.01 (1992).

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