Addressing The Property Insurance Crisis By Contract Language: New Endorsement Approved By The Florida Department Of Insurance Regulation | Butler Weihmuller Katz Craig LLP

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On November 16, 2021 American Integrity Insurance Company of Florida filed a request for approval for an endorsement to its Homeowners multi-peril policy. The proposed endorsement addresses what are often discussed as the principal causes of the expanding scope and cost of property insurance litigation in Florida.

The endorsement provides that, for a reduction in premium, the insured agrees to mediation and, should that fail, binding arbitration as the exclusive process for resolving any dispute arising from, through or by the policy. The form specifically includes any and all persons making a claim of any kind under the policy including but not limited to any additional insured, omnibus insured, or assignee of post-loss benefits. Florida’s Office of Insurance Regulation approved the form on February 10, 2022. The proposed effective date for use of the form is April 22, 2022 for new business and June 21, 2022 for renewals.

The endorsement replaces the policy section on Mediation or Appraisal in the Homeowners Special Form. As all disputes will be resolved in either mediation or binding arbitration, the endorsement deletes any reference to the ”Suit Against Us” provision.

Mediation

In the event of a dispute between the carrier and the insured, or any additional insured, omnibus insured, other person making a claim under the policy, or an assignee of post-loss benefits as to the value of the claim, the insured must make a request for mediation within five years from the date of loss. The insured must also comply with all other provisions in the policy. The endorsement sets the following elements for mediation:

  1. The carrier will pay the reasonable costs of the mediation, including the mediator’s fee.
  2. The claimant has the right to be represented by an attorney of their choice to attend the Mediation.
  3. The claimant will be responsible for paying for their own attorney
  4. If the parties cannot agree on a mediator, either party may notify the other by certified mail and then a mediator certified per § 44.106, Florida Statutes1 will be chosen within ten days of such notice.
  5. Absent notice within ten days, the mediation process will be concluded without resolution and the dispute will move to binding arbitration.

Binding Arbitration

Resolution through binding arbitration must be requested within five (5) years from the date of loss, and the insured must comply with all other provisions of this policy. The insured or any additional insured, omnibus insured, other person making a claim under the policy, or an assignee of post-loss benefits, shall serve a Demand for Arbitration providing a clear and concise statement of the dispute and the relief sought by the filing party.

The endorsement provides that all disputes between the carrier, the insured any additional insured, omnibus insured, other person making a claim under the policy, or an assignee of post-loss benefits that arise out of or are related to the insurance contract shall be exclusively and finally resolved through confidential binding arbitration as provided in the endorsement, whether:

  1. arising out of State or Federal law
  2. based upon statutory duties, breach of contract, tort theories, punitive damages or other legal theories, irrespective of the basis for the duty or the legal theories upon which the claim is asserted

Binding arbitration will be conducted in accordance with the provisions of the Revised Florida Arbitration Code, Chapter 682, Florida Statutes. Binding arbitration and any litigation concerning the Binding Arbitration Agreement will take place in the county where the insured property is located and shall not be filed in a court of law, The parties have the right to be represented by an attorney and each party will be responsible for paying for their own attorney in the event they retain an attorney. Exceptions to the requirement for binding arbitration are:

(a) any suit requesting injunctive relief, any action pursuant to §682.02(1), Florida Statutes, and any supplemental relief requested therein may be filed in the Circuit Court in and for the county of residence premises.
(b) civil action for first party bad faith under section 624.155, Florida Statutes.

The endorsement provides that the parties shall jointly select one Arbitrator within twenty business days after service of the Demand for Arbitration. The Selection criteria for the arbitrator is as follows:

  1. is either a retired Florida circuit court or federal court judge,
  2. a member of the Florida Bar with at least ten (10) years of experience as an attorney
  3. has reasonable familiarity with the applicable arbitration rules,
  4. knowledge of insurance, contracts, and construction law (as may apply to the Dispute) in Florida.
  5. Is independent of all parties, witnesses, and legal counsel.2

If the parties cannot reach an agreement on an Arbitrator within twenty days of receipt of the Demand for Arbitration, then either party may petition the Circuit Court in and for the county of residence premises, for the specific and sole purpose of appointing the arbitrator. The parties agree that no attorneys’ fees or costs shall be paid or payable in the action to appoint an arbitrator.

The endorsement provides a detailed timeline for conducting binding arbitration. The terms of the endorsement make it clear that, unlike non-binding arbitration, the process will proceed much as a lawsuit would. The parties have the right to engage in discovery as provided by the Florida Rules of Civil Procedure and the Florida Revised Arbitration Code, and within any parameters set by the Arbitrator. The Arbitrator shall have the power to impose sanctions against a party, or the party’s counsel, for failing to comply with discovery obligations and applicable rules, or engaging in other disruptive or dilatory conduct3.

First, the Arbitrator shall schedule a Case Management Conference4 within fifteen days of his or her appointment. The conference will determine the schedule for the action and clarify the dispute if needed. Within 20 days of the Arbitrator’s initial Case Management Conference, any responsive pleading (or arbitration equivalent thereof) to the Demand for Arbitration shall be filed with the Arbitrator, unless otherwise determined by the Arbitrator. The Arbitrator shall set the schedule for the arbitration including:

  1. a discovery schedule,
  2. deadlines for witness disclosures and expert witness disclosures
  3. setting deposition parameters in both number and scope,
  4. setting deadlines for motion practice,
  5. computation of claimed damages
  6. the final arbitration hearing.

If an expert witness is retained, each expert must provide the following information not less than fifteen days before a deposition but no less than thirty (30) days before the final arbitration hearing:

  1. a written report stating all opinions that he or she will express at the hearing;
  2. the bases and reasons for the opinions;
  3. the facts and data considered in forming the opinions;
  4. all exhibits that will be used to summarize or support the opinions; and
  5. his or her curriculum vitae.

Under the endorsement, the final Arbitration hearing shall be held within one hundred twenty days from the service of the Demand for Arbitration. The Arbitrator shall issue a written decision within thirty days after completion of the final Arbitration hearing, unless the parties waive the time-requirements for conducting the final Arbitration hearing or waive the time requirement for issuing the written decision. The Arbitrator’s written decision shall contain findings of facts and conclusions of law that support the Arbitrator’s decision.

As in the mediation process, the carrier will bear the costs of the Arbitrator’s fee and the Arbitration filing fee. However, unlike litigation, each party shall otherwise bear his/her/its own attorneys’ fees and costs5. The endorsement provides:

YOU HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE YOUR, OR ANY ADDITIONAL INSUREDS’, OMNIBUS INSUREDS’, OTHER PERSON MAKING A CLAIM UNDER THE POLICY’S, OR ASSIGNEE’S STATUTORY RIGHTS UNDER FLORIDA LAW, SECTION 627.428, FLORIDA STATUTES, AND SECTIONS 627.70152, 627.7152, FLORIDA STATUTES, TO RECEIVE A REASONABLE SUM AS FEES OR COMPENSATION FOR YOUR ATTORNEY PROSECUTING YOUR CLAIM AGAINST THE INSURER. THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO THIS AGREEMENT AND TO PERFORM THEREUNDER.

The parties agree that the award of attorneys’ fees and costs under section x of Binding Arbitration Agreement do not include payment for attorney time and costs incurred during the Arbitration proceeding which includes the initial filing through the issuance of the Arbitrator’s final written decision, and specifically acknowledge and agree that attorneys’ fees otherwise awardable under 627.428 are waived for anything other than those incurred in an enforcement action of the Arbitration award.

You voluntarily acknowledge and fully understand that in waiving your and or any additional insured’s, omnibus insured’s, other person making a claim under the policy, or an assignee’s statutory rights under Florida law, sections 627.428, 627.70152, and 627.7152, Florida Statutes, to receive reasonable attorneys’ fees in the prosecution of your/their claim against the Insurer that:

  1. The parties will be responsible for paying their own attorney’s fees, if they hire an attorney to represent them to prosecute their case in the mediation and arbitration proceedings; and
  2. Because you have waived these statutory rights to receive an award of reasonable attorney’s fees in the mediation and arbitration proceedings, you have waived the right to give an assignee of your insured loss the ability to receive reasonable attorney’s fees and costs under section 627.7152, Florida Statutes.

Post-Award Proceedings

The parties agree that the Arbitrator’s decision shall be final, subject to the parties’ right to vacate, modify, correct and appeal the Arbitration Award as set out in the Revised Florida Arbitration Code, Chapter 682, Florida Statutes. The parties agree any court action to confirm, vacate, modify or correct, or entering a judgment on an Arbitration award6 shall be in the circuit courts and appellate courts of the county of residence premises.

The Endorsement also displays the following capitalized and bold faced cautions concerning the Waiver of Jury and Judge Trial.

EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OR JUDGE IN ANY DISPUTE AND AGREES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO THIS AGREEMENT AND TO PERFORM THEREUNDER.

Conclusion

By its terms, the endorsement approved by the Florida Department of Insurance Regulation addresses some of the longstanding concerns associated with first party contractual insurance disputes in Florida. In lieu of traditional trials conducted in State or Federal courts, disputed claims will be resolved at mediation and, failing settlement, binding arbitration.

The endorsement, which contemplates a short timetable for both mediation and binding arbitration, should lessen the delays often experienced in traditional courts. While discovery is envisioned, the arbitrator is given the power to impose sanctions against a party, or the party’s counsel, for failing to comply with discovery obligations and applicable rules, or engaging in other disruptive or dilatory conduct. That, in theory, should improve both the pace of discovery and decisions on discovery disputes. Time will tell what impact this form and forms like it will have on crisis in Florida’s property insurance market.

1. § 44.106 Standards and procedures for mediators and arbitrators; fees

2. No past or present officer, director, affiliate, subsidiary, or employee of a party, witness, or legal counsel, nor may any person with a financial interest in the outcome of the proceedings, serve as an arbitrator in the proceeding.

3. whether direct or indirect, that causes or will likely cause undue financial burden on another party in accordance with the substantive and procedural laws of Florida.

4. via telephone or audio/visual means

5. The Insurer acknowledges that the parties retain their entitlement to recover pursuant to section 682.15(3), Florida Statutes (relating to arbitration) to receive a reasonable attorney fees and expenses incurred by them if they successfully file a judicial proceeding seeking enforcement of an Arbitration award against the Insurer, and/or if they file a judicial proceeding challenging the Arbitration Award that results in a circuit court judgment that vacates the Arbitration Award without directing a rehearing, or that modifies or corrects the Arbitration Award as set out in section 682.15, Florida Statutes.

6. Pursuant to sections 682.12, 682.13, 682.14, and 682.15, Florida Statutes,

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