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February 14, 2023 Practice Points

Florida Passes Law to Encourage Arbitration of Property Insurance Claims

Will this encouragement of arbitration set an example for the rest of the nation?

By Robert P. Wax

Florida recently passed legislation encouraging arbitration in order to help solve the serious problems facing the homeowner's insurance market in the state. 

By way of background, Florida homeowners have been facing rapidly increasing insurance rates, liquidations, and failures of their carriers, over the last few years. As a result of rapidly increasing litigation over claims in the state courts, and other factors, insurance companies in Florida were facing increasing difficulty in getting required reinsurance, among other problems. To put a point on the "excessive" homeowner claims in Florida—the country's third largest state in population (having just surpassed New York)—in 2021 there were 100,000 lawsuits in Florida with claims totaling $7.8 billion in damages, whereas the other 49 states had a total of 24,000 cases claiming $2.4 billion.

To begin to solve these problems, Governor DeSantis convened a special legislative session in late November to comprehensively deal with the issue. A complex and detailed law was passed overwhelmingly in both houses of the legislature, and was signed into law on December 16, 2022, and became effective on January 1, 2023.

The 61-page law, which includes a number of protections for insured persons, is too comprehensive and complex to describe here. (See Ch. 2022-271 (Senate Bill 2A) of the Florida Laws.) However, it includes a section 18 on Mandatory Binding Arbitration (to be section 627.70154, Florida Statutes Revised), that is directly relevant to this website.

Simply and importantly, section 18 permits a property insurance policy issued in Florida to provide for mandatory binding arbitration in a separate endorsement to the policy that is accepted and executed by the insured, in lieu of future court litigation over claims. The key is this: a policyholder is provided an "actuarially sound credit or premium discount for accepting the endorsement."

It appears that, with this provision in place, insurers are preparing to offer policy discounts on new and renewal policies of up to 25 percent in 2023 for policy holders agreeing to the endorsement.

Based on current homeowner premiums averaging $4,231 in Florida now being three times the nationwide average, many policy holders probably will want the discount, inevitably driving many future claims to arbitration—a result which those who believe in the cost and efficiency advantages of arbitration over litigation will be a good policy outcome.

Will this encouragement of arbitration set an example for the rest of the nation?

Robert P. Wax is a member of the College of Commercial Arbitrators in Palm Beach Gardens, Florida.

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