Contributed By Berger Singerman
Florida’s Insurance Code, outlined in Florida Statutes Section 624.01, together with Chapters 624-632, 634, 635, 635, 641, 642, 648 and 651 of the Florida Statutes (“Insurance Code”) regulate Florida’s insurance industry and serve as the primary source of insurance and reinsurance law in the state.
In Florida, insurance companies are distinguished based on whether the insurer holds a valid certificate of authority and are identified as either “authorised” or “unauthorised” insurers. An “authorised” insurer is one duly authorised by a certificate of authority issued by the office to transact insurance in the state while an “unauthorised” insurer does not have such certificate (Florida Statutes Section 624.09). Although a certificate of authority is required to transact business in Florida, the Insurance Code sets forth various activities for which a certificate of authority is not required. These activities include, but are not limited to, the investigation, settlement, or litigation of claims under its policies lawfully written in this state, or liquidation of assets and liabilities of the insurer (other than collection of new premiums) and reinsurance, when transacted as authorised (Florida Statutes Section 624.402).
A certificate of authority is also not required to conduct transactions as an eligible surplus lines insurer for coverage lawfully written under the Insurance Code. An eligible surplus lines insurer is an unauthorised insurer that has been made eligible to issue insurance coverage under the Surplus Lines Law outlined in Florida Statute Sections 626.913-626.937(Florida Statutes Section 626.914(2)).
Most notably, and critical to the analysis of a surplus lines insurance policy is that except as may be specifically stated to apply to surplus lines insurers, the provisions of Florida Statutes Chapter 627, Insurance Rates and Contracts, do not apply to surplus lines insurance authorised under the Surplus Lines Law (Florida Statutes Section 626.913(4)).
The Florida Department of Financial Services (DFS) enforces the provisions of the Insurance Code and executes the duties imposed on them by the Insurance Code (Florida Statutes Section 624.307). Additionally, the Florida Office of Insurance Regulation (FLOIR) is responsible for the regulation, compliance and enforcement of statutes related to the business of insurance.
The duties of FLOIR and DFS are varied and include the examination of an insurer’s affairs, transactions, accounts, records, assets, accounting principles, finances and activities.
Additionally, DFS has investigative authority if it has reason to believe that any insurer has violated or is violating any provision of the Insurance Code, or upon the written complaint indicating that any such violation may exist.
The authorisation and requirements of insurers to write insurance are outlined in Florida Statutes Section 624. Generally, to qualify for and hold authority to transact insurance in the state, an insurer must be in compliance with the Insurance Code, with its charter powers and must be an incorporated stock insurer, an incorporated mutual insurer, or a reciprocal insurer, of the same general type as may be formed as a domestic insurer subject to certain exceptions outlined in Florida Statutes Section 624.404. The insurer must also maintain enough reserves as required by Chapter 625 of the Insurance Code.
For an insurance carrier to receive initial authority to transact any kind of insurance as defined in the Insurance Code, an insurer applying for its original certificate of authority in Florida must meet a certain surplus threshold not to exceed USD100 million (Florida Statute Section 624.407).
Among other criteria, the office shall not grant or continue authority to transact insurance in Florida as to any insurer if the management, officers, or directors are found to be:
Additionally, any person who was an officer or director of an insurer doing business in Florida and who served in that capacity within the two-year period before the date the insurer became insolvent, may not thereafter serve as an officer or director of an insurer authorised, have direct or indirect control over the selection or appointment of an officer or director through contract, trust, or by operation of law, unless the officer or director demonstrates that their personal actions or omissions were not a significant contributing cause to the insolvency (Florida Statutes Section 624.4073).
Florida requires each insurer to annually pay a tax on insurance premiums received during the preceding calendar year (Florida Statutes Section 624.509), except regarding wet marine and transportation insurance. The tax generally ranges from 1% to 1.75% of the gross amount of receipts subject to applicable deductions, credits and statutory exceptions. Payment by the insurer of a license tax and statutory premium receipts taxes is a condition precedent to transacting business in Florida.
Most overseas based insurers and reinsurers are regulated under the guidelines of Florida’s Surplus Lines Law described above which allows for participation in Florida’s insurance market upon compliance with the statutory requirements outlined in the Insurance Code. Insurance contracts procured as surplus lines coverages from unauthorised insurers in accordance with the Surplus Line Law are fully valid and enforceable and are given acceptance and recognition in all matters and respects to the same effect and extent as contracts issued by authorised insurers.
A foreign or alien insurer (Florida Statutes Section 624.06) not formed under the laws of Florida, may not be authorised to transact insurance in this state unless it is otherwise qualified under the Insurance Code and has operated satisfactorily for at least three years in its state or country of domicile. The three-year requirement may be waived if the foreign or alien insurer or exchange meets the statutory requirements set forth in Florida Statutes Section 624.404(a)-(e).
In Florida, a “fronting company” is an authorised insurer which by reinsurance or otherwise generally transfers more than 50% to one unauthorised insurer which does not meet certain requirements of the Insurance Code or more than 75% to two or more unauthorised insurers which do not meet the requirements of the Insurance Code, of the entire risk of loss on without obtaining the prior approval of the office (Florida Statutes Section 624.404(4)(b)):
The office may, in its discretion, approve a transfer of risk in excess of the statutory limits upon presentation of satisfactory evidence that the transfer would be in the best interests of the financial condition of the insurer and of the policyholders (Florida Statutes Section 624.404(4)(c)).
No authorised insurer is permitted to act as a fronting company for any unauthorised insurer which is not an approved reinsurer (Florida Statutes Section 624.404(4)(a)).
Protections and credits for ceding insurers are outlined in Florida Statutes Section 624.610.
Florida allows a domestic stock insurer, subject to regulatory approval and the requirements set forth in the Insurance Code to merge with one or more domestic or foreign stock insurers authorised to transact insurance in Florida. The regulations of the merger or share exchange of stock insurers are outlined in Florida Statutes Section 628.451. Rules related to the acquisition of controlling stock are set forth in Rule 69O-143.056 of Florida’s Administrative Code.
Qualified insurers may make agreements between themselves with respect to the equitable apportionment and distribution among them upon satisfaction of the statutory criteria outlined in Florida Statutes Section 627.351 governing insurance risk apportionment plans. As an example, such insurers may agree on the use of reasonable rate modifications for insurance products.
In addition, Citizens Property Insurance Corporation, was statutorily created to ensure an orderly market for property insurance for both residents and businesses in Florida. The corporation is tasked with providing residential and commercial property insurance for applicants who are entitled, but, in good faith, are unable to procure insurance through the voluntary market (Florida Statutes Section 627.351(6)). In creating this entity, Florida also enacted financial incentives for private insurers to take out policies from the corporation and place back in distribution of the private market under a depopulation program (Florida Statutes Section 627.3511).
An insured’s general obligations during the insurance application process are governed by Florida Statute Section 627.409. While underwriting guidelines and application questions will vary by carrier, any misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under a policy in certain circumstances. If, for example, the misrepresentation, omission, concealment or statement is fraudulent or material to the acceptance of the risk or the hazard assumed by the insurance company, the carrier can seek to avoid coverage on these grounds.
Additionally, an insurer can seek to avoid coverage if an insured conceals a material fact and, if the true facts had been known to the insurer, the insurer in good faith:
Unintentional misrepresentations or omissions in an application for insurance may prevent a recovery on a policy if the insurer proves that the misrepresentations or omissions are material to the risk taken or that the insurer would have altered the policy or would not have issued the policy had the true facts been revealed, Laboss Transp. Services, Inc. v Glob. Liberty Ins. Co. of New York, 188 F. Supp. 3d 1320, 1329 (S.D. Fla. 2016).
Generally, an insurance company has the right to rely on the accuracy of an insured’s representations made in an insurance application and has no duty to make additional inquiry unless an insurer has actual or constructive knowledge that such representations are incorrect or untrue, Certain Underwriters at Lloyd's London v Jimenez, 197 So. 3d 597, 601 (Fla. 3d DCA 2016).
An insurance company, however, cannot deny a claim under a residential property policy for credit information available in public records if a policy has been in effect for more than 90 days, pursuant to Florida Statutes Section 627.409(3).
Where a misrepresentation occurs that meets the requirements of Florida Statutes Section 627.409, an insurance company may unilaterally rescind the insurance policy. When an insurer seeks to rescind a voidable insurance policy, it must give both notice of rescission, and return or tender all premiums paid by the insured within a reasonable time after discovery of the grounds for avoiding the policy.
A representative of an insured in procuring insurance is known as an “insurance broker.” A broker represents the insured by acting as a middleman between the insured and the insurer to obtain insurance and is not employed by a specific company. An “insurance agent” represents an insurer under an exclusive employment agreement by the insurance company. The distinction between an agent and a broker is important because acts of an agent can be imputed to the insurer, and acts of a broker may be imputable to the insured. See Essex Ins. Co. v Zota, 985 So. 2d 1036, 1046 (Fla. 2008).
Florida requires insurance contracts to contain standard or uniform provisions mandated by the Insurance Code. The use of provisions may be waived in certain forms if the provision is unnecessary for the protection of the insured, inconsistent with the purposes of the policy and the policy is otherwise approved (Florida Statutes Section 627.412).
At minimum, with certain limited exceptions, every policy shall specify:
Additional provisions, not inconsistent with the Insurance Code, may be contained within a policy if they are:
With respect to personal lines of insurance, any individual of legal capacity may procure or effect an insurance contract on his or her own life or body for the benefit of any person. Insurance contracts can be procured on the life or body of another individual under certain conditions and the existence of an insurable interest as outlined in Florida Statutes Section 627.404.
Property insurance contracts require an insurable interest at the time of the loss. Insurable interest means any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment (Florida Statutes Section 627.405).
A policy can be written to include one or multiple insureds. Generally, the actions of one insured can impact the rights of other insureds. Where multiple insureds share coverages, limitations could be exhausted by one insured without the knowledge of the others.
Certain lienholders can also be named as interested parties on a policy. As an example, many property insurance policies identify the property’s mortgage company because the mortgagee has an interest in the preservation of the property. These policies will often include language requiring the mortgagee to be included as an additional payee on claim payment checks. In many policies, the loss payment language will also protect additional parties that may have an interest in the property. These policies may require the insurer to pay the insureds and/or any party legally entitled to receive payment.
Amounts payable under a policy for personal property, additional living expenses and other covered items that are not subject to a recorded security interest noted in the policy must be paid directly to the primary policyholder without requiring an endorsement from any mortgage holder (Florida Statutes Section 627.70121). Additional interests may still apply under a valid assignment.
Florida’s exposure to catastrophic hurricane losses necessitated the creation of the Florida Hurricane Catastrophe Fund (“Fund”). The Fund, codified in Florida Statutes Section 215.555, was the result of a determination that insurers needed to reduce their exposure to hurricane losses to maintain solvency and was necessary to protect the public from an insurer’s unwillingness, or inability, to maintain sufficient reserves, surplus and reinsurance.
The Fund is structured as a state trust fund under the direction and control of the State Board of Administration and operates exclusively to protect and advance the interest in maintaining insurance capacity in Florida. The Fund reimburses insurers for qualified losses subject to the insurer complying with the reporting requirements. All premiums paid to the fund under reimbursement contracts are treated as premium for approved reinsurance for all accounting and regulatory purposes.
Additionally, the Fund’s board may procure reinsurance to maximise the capacity of the fund and may enter into capital market transactions, including, but not limited to, industry loss warranties, catastrophe bonds, side-car arrangements, or permissible financial contracts consistent with prudent management of the Fund.
Reciprocity in the treatment of policyholders in receivership is extended to those states which, in substance and effect, enact the National Association of Insurance Commissioners Rehabilitation and Liquidation Model Act, the Uniform Insurers Liquidation Act, or the Insurer Receivership Model Act (Florida Statutes Section 631.015).
When interpreting an insurance contract, Florida follows the well-established principles of insurance contract interpretation, including the guiding principle that insurance contracts are construed in accordance with “the plain language of the polic[y] as bargained for by the parties.” Auto-Owners Ins. Co. v Anderson, 756 So. 2d 29, 33 (Fla. 2000).
Florida courts have consistently held “in construing insurance policies, courts should read each policy as a whole, endeavouring to give every provision its full meaning and operative effect.” Swire Pac. Holdings, Inc. v Zurich Ins. Co., 845 So. 2d 161, 165-66 (Fla. 2003) (quoting Anderson, 756 So.2d at 34); see also § 627.419(1), Fla. Stat. (2002) (“Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any application therefor or any rider or endorsement thereto”).
A coverage clause is generally interpreted as broadly as possible to ensure the greatest amount of insurance coverage. Zurich Am. Ins. Co. v Nat'l Specialty Ins. Co., 246 F. Supp. 3d 1347, 1356 (S.D. Fla. 2017). To determine the parties’ contractual intent, a court may only consider the language in the insurance policy. Fireman's Fund Ins. Co. v Tropical Shipping & Constr. Co., 254 F.3d 987, 1003 (11th Cir. 2001) (citing Towne Realty v Safeco Ins. Co., 854 F.2d 1264, 1267 (11th Cir. 1988)). “As a general rule, in the absence of some ambiguity, the intent of the parties to a written contract must be ascertained from the words used in the contract, without resort to extrinsic evidence.” Id. (quoting Lee v Montgomery, 624 So. 2d 850, 851 (Fla. 1st DCA 1993)).
Warranty associations are regulated by Chapter 634 of the Insurance Code which specifically outlines the requirements for motor vehicle service agreement companies, home warranty associations and service warranty associations.
While not always deemed technical conditions precedent to coverage, an insured’s obligations under the policy are outlined within the policy’s “duties after loss” or “post-loss obligations” provisions. The failure to comply with any of these obligations may relieve the insurer of its duties under the policy.
To determine whether the insurer is relieved of liability for the failure of an insured to comply with any such duty, relevant factors such as the following may be reviewed:
Disputes regarding coverage are questions of law and generally subject to judicial determination. In Florida, a legal or equitable action on an insurance contract must be brought within five years (Florida Statutes Section 95.11(2)(b)).
Florida, however, has a unique law governing the reporting of windstorm and hurricane claims that precludes recovery if a claim, supplemental claim, or reopened claim for loss or damage caused by a windstorm or hurricane is not reported to the insurance company within three years after the hurricane first made landfall or the windstorm caused the damage (Florida Statutes Section 627.70132).
The three-year limitation for providing notice of a loss for windstorm and hurricane claims does not impact the statute of limitations which allows for an action for a breach of a property insurance contract to be brought within five years from the date of the loss (Florida Statutes Section 95.11(2)(e)).
Insurance policies are contracts, and therefore, ordinary contract principles govern their interpretation and construction. Whether a forum selection clause or choice of law provision is mandatory or permissive can depend on the language of the policy. Unless a party can show the forum selection clause is unreasonable or unjust, the provision is likely enforceable. Florida Courts will generally enforce choice of law provisions unless the law of the chosen forum contravenes strong public policy.
Litigation related to insurance contracts is typically initiated by the policyholder as a breach of contract action. Generally, if litigation is initiated by the insurance company, it is in the form of an action seeking declaratory relief to determine the party’s rights and obligations under the insurance contract.
Each licensed insurer in Florida appoints the Chief Financial Officer as its attorney to receive service of all legal actions. Service of process upon Florida’s Chief Financial Officer, as the insurer’s attorney, is the sole method of service of process on any authorised domestic, foreign, or alien insurer in the state (Florida Statutes Section 624.422(3)).
Florida does not recognise common law first-party actions against insurance companies for bad faith claims practices. To initiate an action against an insurance company for such conduct in Florida and seek punitive damages, an insured must first file a Civil Remedy Notice of Insurer Violation (CRN). The CRN arises from the statutorily created cause of action against first-party insurers for bad-faith actions. Talat Enterprises, Inc. v Aetna Cas. & Sur. Co., 753 So. 2d 1278 (Fla. 2000)
The CRN should include the statutory provision, including the specific language of the statute which the insurance company violated, the facts and circumstances giving rise to the violation, individuals with knowledge of the violation, the policy language at issue and a statement that the CRN is filed to perfect the right to pursue a statutory civil remedy (Florida Statutes Section 624.155). If the insurance company cures the allegations contained within the CRN by paying the damages or correcting the circumstances giving rise to the violation, an insured does not have a valid cause of action.
In addition to the CRN, the determination of the existence of liability and the extent of damages are conditions precedent to a bad faith action (Florida Statutes Section 624.155(3)(a). See Blanchard v State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991).
Florida allows an insured to recover attorneys’ fees against an insurer under Florida Statutes Sections 627.428 and 626.9373 as a prevailing party. An insured’s counsel is also permitted to seek the application of a contingency fee multiplier which may be awarded upon the satisfaction of certain criteria outlined by the Florida Supreme Court. See Florida Patient's Comp. Fund v Rowe, 472 So. 2d 1145 (Fla. 1985) and Standard Guar. Ins. Co. v Quanstrom, 555 So. 2d 828 (Fla. 1990).
The requirements to enforce a foreign judgment in Florida are found in Florida Statutes Sections 55.501-55.509 commonly referred to as the “Florida Enforcement of Foreign Judgments Act”. The statute outlines the necessary recording and notice prerequisites to enforcement. A foreign judgment properly recorded will have the same effect and be subject to the same rules of civil procedure, legal and equitable defenses, and proceedings for reopening, vacating, or staying judgments, and it may be enforced, released, or satisfied, as a judgment of a circuit or county court of Florida.
Florida favours the enforcement of arbitration clauses in insurance contracts in congruence with the United States Supreme Court’s liberal federal policy favouring the enforcement of arbitration provisions, especially in the field of international commerce.
Florida is part of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Florida has an alternative procedure for the resolution of disputed residential property claims as outlined in Florida Statutes Section 627.7015. The statute was enacted to encourage the effective, fair and timely handling of property insurance claims without the necessity of a formal proceeding. Under the terms of the statute, an insurance company is required to, at the time of issuance and renewal of a policy or, at the time a first-party claim is filed by a policyholder, notify the policyholder of the right to participate in the mediation process implemented by the Department of Financial Services.
If an insurance company, required to comply with Florida Statutes Section 627.7015, fails to provide notice to a policyholder of its right to participate in mediation or if the insurer requests the mediation, and the mediation results are rejected by either party, the insurance company cannot compel the insured to submit to an appraisal of the claim.
While not a statutory creation, appraisal is another form of alternative dispute resolution included in some policies and often utilised to resolve claims. Appraisal is available where coverage was acknowledged by the insurer and a dispute over the scope and amount of damages remains. In appraisal, each side will choose its own appraiser. The appraisal panel is then tasked with determining the amount of loss. This process “necessarily includes determinations as to the cost of repair or replacement and whether or not the requirement for a repair or replacement was caused by a covered peril or a cause not covered, such as normal wear and tear, dry rot, or various other designated, excluded causes”, see State Farm Fire and Cas. Co. v Licea, 685 So. 2d 1285, 1288 (Fla. 1996). The appraisers are therefore equipped to make determinations as to whether certain damages were caused by the claimed loss. If the appraisers fail to reach an agreement, they submit the disagreement to an umpire. A decision agreed to by any two will set the amount of loss and is binding on the parties absent very few limited exceptions.
Florida sets forth various penalties against insurance companies for late payment of claims. Under certain circumstances, an insurance carrier is required to issue payment within 90 days after an insurer receives notice of an initial, reopened, or supplemental property insurance claim from a policyholder unless the failure to pay is caused by factors beyond the control of the insurer which reasonably prevent such payment (Florida Statutes Section 627.70131(5)(a)). Any payment of an initial or supplemental claim or portion of the claim made 90 days after the insurer receives notice of the claim, or made more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented payment, whichever is later, bears interest at the current statutory rate. The interest begins to accrue from the date the insurer received notice of the claim.
If the parties resolve a claim through a voluntary settlement, the insurer must issue payment within 20 days after the settlement is reached or such other date as agreed by the parties. The failure to issue payment of a settlement within the allotted time will result in the accrual of interest at the annual rate of 12% (Florida Statutes Section 627.4265). If the settlement is conditioned on the execution of a release, interest will not begin to accrue until the release is provided to the insurance company.
A judgment or decree against an authorised insurer must be fully satisfied within 60 days (Florida Statutes Section 627.427(1)). If the judgment or decree is not satisfied within 60 days and proof of the failure is properly filed with the clerk, the insurance company’s certificate of authority may be revoked (Florida Statutes Section 627.427(2)). If the certificate is revoked, a new certificate will not be issued until the judgment or decree is paid in full and proof of payment is filed with the court. The insurer may also be responsible for the fees and costs incurred for seeking payment.
An insurance company can also be subject to punitive damages under Florida’s Civil Remedy Statute outlined in Florida Statutes Section 624.155 for acts, such as improper claim and settlement delays, where those acts occur with such frequency as to indicate a general business practice.
Developments in the insurance industry are often focused on mitigating risk and exposure. With recent advancements in satellite imagery and drone technology, insurers are making efforts in the initial underwriting process to more clearly understand a risk and secure a snapshot of a property prior to the occurrence of a loss.
Additionally, insurers have the ability to assist an insured in mitigating a claim through the use of technology including loss control devices such as sensors that sound an alarm when the environment around high-value art exceeds set temperature or humidity levels or when a leak is detected (2019 Florida House Bill No 301, Florida One Hundred Twenty-First Regular Session).
In 2019, Florida House Bill No 301 was enacted which amended portions of the Insurance Code to allow an insurer, or agent, to offer or provide for free or at a discounted price, services or goods of any value that relate to loss control or loss mitigation with respect to the covered risk (Florida Statutes Section 626.954(5)).
Climate change and the increased exposure for the private flood market are at the forefront of emerging risks impacting Florida’s insurance industry As the threat of rising sea levels, high tides and flooding continue to impact Florida’s coast, Florida’s policyholders are looking beyond the National Flood Insurance Program which has historically been the only option to procure flood insurance.
The Florida Office of Insurance Regulation now lists nearly forty carriers eligible to write primary or excess flood insurance outside of the NFIP.
In 2019, Florida amended Florida Statutes Sections 627.422, 627.7152 and 627.7153 regarding lawsuits filed under an “assignment of benefits”. Under an assignment of benefits, a third-party receives the rights to an insurance claim and seeks recovery directly against an insurer. The new law sets forth several stringent parameters for an assignment to be valid.
If the matter ultimately proceeds to litigation and the difference between a judgment obtained by the assignee and the statutorily required pre-suit settlement offer is less than a certain percentage of the disputed amount, the insurer can now seek to recover attorneys’ fees. This legislation eliminated the application of the one-way attorney fee statute created under Florida Statutes Sections 627.428 and 626.9373 such that claimants who initiate cases brought under an assignment of benefits may also be exposed to attorneys’ fees.
The Florida Office of Insurance Regulation long-range planning report outlines its mission, goals, objectives and measures for the upcoming fiscal years including anticipated trends. According to the 2019 report, the Office “has one of the most sophisticated regulatory technology systems in the country, featuring applications that electronically receive and process insurance company form, rate, data, and financial filings”. The Office continues to incorporate that technology into a consolidated filing submission and review tool for the insurance industry.
This technology will continue to promote the Office’s mission to provide a stable and competitive insurance market for consumers. As of June 30, 2019, OIR had oversight of 4,497 entities in Florida according to the statistics compiled by the Florida Office of Insurance Regulation from the COREN database based on July 12, 2019 retrieval. According to the Office, the Florida homeowners’ insurance market is the largest in the nation based on premium volume. Market conditions in Florida can be assessed against a variety of criteria, including market entry (new entities), market concentration/competition, premium volume, premium rates, company financial condition, and size of residual markets.