Florida Court Makes Major Ruling on Insurance Market

A Florida court of appeals ruled last week that a “direction to pay” (DTP) by a policyholder does not, by itself, represent an “assignment of benefits” (AOB), in a decision that reiterates lawmakers’ attempts to end a culture of excessive litigation in the Sunshine State.

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The decision upheld a reform introduced in Florida in 2023 in the form of Senate Bill 2-A, which prohibited the state’s long-standing practice of assigning benefits to another party for those holding insurance policies issued after January 1 of that same year. The bill’s goal was to avoid third parties suing insurers just to make a profit—a practice that’s been way too common in the state in past decades.

Why It Matters

The court’s ruling comes as Florida is making significant efforts to address the issues that led to the current homeowners insurance crisis in the state, including the increased risk posed by climate change, widespread fraud, and abusive and unnecessary litigation.

Critics have long argued that the rules around AOB in Florida allow third parties to file excessive lawsuits against insurers and profit from the practice, which in turn has contributed to skyrocketing premiums. In 2020, 79 percent of homeowners insurance lawsuits nationwide were in Florida—even as the state accounted for only 9 percent of the U.S. homeowners insurance claims, according to the Florida Office of Insurance Regulation.

Many insurers who haven’t been able to keep up with the increased likelihood of paying high damage claims—because of the risks of excessive lawsuits or the growing severity and frequency of natural disasters—have cut coverage in vulnerable areas or withdrawn from the state entirely. That has left Florida homeowners with limited availability and has led to the ballooning of the state’s insurer of last resort, Citizens Property Insurance Corporation.

What To Know

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Florida’s Fifth District Court of Appeal agreed with a decision previously taken by a lower court in a case involving Leonardo Caruso, a resident of The Villages, his insurer American Integrity Insurance Co. and Holding Insurance Companies Accountable (HICA).

What’s The Case About?

Caruso owns a house in The Villages, Florida’s sprawling retirement community, home to more than 130,000 people ages 55 and above.

After his house suffered roof damage in 2019, according to a court filing, Caruso selected Noland’s Roofing to repair it and signed a DTP instructing his insurer, American Integrity, to pay the company directly. A DTP allows the policyholder, in this case Caruso, to instruct their insurance company to pay the claim proceeds directly to a third party.

After he received American Integrity’s valuation of his claim, Caruso signed an AOB with HICA—whose goal is to help policyholders enforce their rights—in 2020. An AOB is a document signed by a policyholder that allows a third party to seek payment directly from the policyholder’s insurance company, as if it was the insured.

HICA then sued American Integrity for breach of contract for refusing to pay the entirety of Caruso’s claim, saying that payment should be made in accordance with the existing DTP. In this case, HICA had the goal of collecting money from Caruso’s insurance companies.

What Did The Court Decide?

The Florida court of appeals agreed on Friday with the decision previously made by a trial court in the case, saying that “HICA lacked standing to sue because the assignment that it relied on did not follow the governing statue.”

Specifically, the recently reformed AOB law forbids policyholders from assigning their insurance benefits to third parties to file claims and receive payments.

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“Without a valid assignment, HICA has no standing to sue American Integrity for its alleged breach of Caruso’s insurance policy,” the court ruled.

What People Are Saying

Florida’s Fifth District Court of Appeals wrote in its ruling that the assignment HICA relies on is an “assignment agreement.” The Legislature has mandated that such assignments comply with all other provisions of the statute.

“Because the assignment here did not do so, it is ‘invalid and unenforceable.’ And without a valid assignment, HICA has no standing to sue American Integrity for its alleged breach of Caruso’s insurance policy.”

Brian Donovan, chief actuary for Citizens Property Insurance Corporation, toldActuarial Review in July: “Everyone knows the reason everyone’s losing money is because of litigation.”

Mark Friedlander, director of the Insurance Information Institute, or Triple-I, previously told Newsweek that the Florida property insurance market has stabilized significantly over the past year “due to legislative changes addressing a manmade crisis caused by legal system abuse and claim fraud.”

What Happens Next

According to Friedlander, the Florida property insurance market is in “its strongest financial position in more than a decade.”

Despite progress, the market remains in a vulnerable position, especially as it still works to figure out a sustainable way to address the issue of the growing risk posed by climate change.