Ninety Day Time Requirement for Payment or Denial of Property Claims-Part II

NINETY DAY TIME REQUIREMENT FOR PAYMENT OR DENIAL OF PROPERTY CLAIMS-PART II

AMENDMENTS TO F.S. 627.70131 RAISE NEW CONCERNS

The enactment of F.S. 627.70131 resulted in a predictable reaction from the insurance industry, primarily directed at subsection 5 and the new “90 Day Rule” requiring property insurers to pay or deny claims within ninety (90) days from the initial report of loss by the insured. The statute’s exception for delay caused by factors “beyond the control” of insurers offered little comfort to carriers recognizing the inherent difficulty in resolving a claim within such a short time span, with the inevitable challenges by claimants’ counsel to an assertion that the claim could not be resolved within the statutory time limitation because of matters “beyond the control” of the insurer. The recognition of a failure to meet the deadline as a violation of the Insurance Code giving rise to a statutory bad faith claim under Florida’s Civil Remedy Act only heightened the concerns about this troubling new law. Several groups and individuals raised these concerns in the hope of having the statute amended to address these issues.

In response to those concerns, the statute was amended during the recent Special Session of the Legislature and those amendments were signed into law just a few weeks ago by Governor Crist, to be effective immediately. However, the relief many had hoped to see was not provided with these amendments. In many ways, a bad situation was made even worse. The amended statute is set forth below with the revisions highlighted.

CODING:
Words stricken are deletions; words underlined are additions.

         Section 18.  Subsection (5) of section 627.70131,

  Florida Statutes, as amended by chapter 2007-1, Laws of

  Florida, is amended to read:

         627.70131  Insurer's duty to acknowledge communications

  regarding claims; investigation.--

         (5)(a)  Within 90 days after an insurer receives notice

  of a property insurance claim from a policyholder, the insurer

  shall pay or deny such claim or a portion of the claim unless

  the failure to pay such claim or a portion of the claim is

  caused by factors beyond the control of the insurer which

  reasonably prevent such payment. Any payment of a claim or

  portion of a claim paid 90 days after the insurer receives

  notice of the claim, or paid more than 15 days after there are

  no longer factors beyond the control of the insurer which

  reasonably prevented such payment, whichever is later, shall

  bear interest at the rate set forth in s. 55.03. Interest

  begins to accrue from the date the insurer receives notice of

  the claim. The provisions of this subsection may not be

  waived, voided, or nullified by the terms of the insurance

  policy. If there is a right to prejudgment interest, the

  insured shall select whether to receive prejudgment interest

  or interest under this subsection. Interest is payable when

  the claim or portion of the claim is paid. Failure to comply

  with this subsection constitutes a violation of this code.

  However, failure to comply with this subsection shall not form

  the sole basis for a private cause of action.

         (b)  Notwithstanding subsection (4), for purposes of

  this subsection, the term "claim" means any of the following:

         1.  A claim under an insurance policy providing

  residential coverage as defined in s. 627.4025(1);

         2.  A claim for structural or contents coverage under a

  commercial property insurance policy if the insured structure

  is 10,000 square feet or less; or

         3.  A claim for contents coverage under a commercial

  tenants policy if the insured premises is 10,000 square feet

  or less.

         (c)  This subsection shall not apply to claims under an

  insurance policy covering nonresidential commercial structures

  or contents in more than one state.

There are a number of significant revisions to the statute. While the amendments may alleviate at least one concern about the 90 Day Rule, they create significant new concerns to be faced in handling property claims. The key points of the amendments are:

1. The requirement to “pay or deny” now includes separate portions of a claim, rather than the entire claim.

2. There is now a “15 Day Rule” added to the statute for paying or denying claims (or portions of claims) after any factors “beyond the control” of the insurer have ceased. This makes the decision due 15 days after the factors have ceased or 90 days after the loss was reported, whichever is later.

3. For claims paid after the 90 day/15 day period has run, interest must be paid on the claim. The interest must be paid at the time the claim (or portion of the claim) is paid.

4. An insured entitled to interest on the claim payment may elect to claim statutory interest under F.S. 55.03 dating back to the report of the loss or pre-judgment interest authorized by law, whichever is greater. Under F.S. 627.428, the pre-judgment interest may date back to the loss itself—even before the loss is reported.

5. The failure to pay interest will be considered a violation of the Insurance Code giving rise to a bad faith claim under the Civil Remedy Act. However, it may not be used as the sole basis of a bad faith claim.

6. This may not be waived, voided or nullified by the provisions of a policy. The standard language in most policy forms providing that the claim is payable 30 or 60 days “after submission of a Proof of Loss, compliance with the policy terms, agreement is reached or an award is entered” is now unenforceable.

7. The statute is now applicable to all claims under a residential policy, PLUS claims for structural or contents damage under a commercial policy insuring a structure of 10,000 square feet or less in size, and contents claims under a commercial tenant’s policy in a structure of that size. However, it is not applicable to a non-residential commercial structure or contents located in more than one state.

And so, these amendments remove the bad faith threat for failing to meet the 90 day/15 day requirement or for failing to pay the interest at the time the claim is paid when no other violations under the Civil Remedy Act or the Unfair Claims Practices Act have occurred. Since most bad faith claims in property cases allege a long list of violations, this may be a largely meaningless concession in terms of stemming the avalanche of bad faith claims this new statute is expected to bring, although it will provide a legal defense at trial in cases where it can be shown that no other types of violations have occurred.

The remaining portions of the amended statute can only be seen as more bad news for insurers in Florida.

• The “15 Day Rule” means a delay on the part of the insured or other factors “beyond the control” of an insurer will not provide an open-ended extension of the time to make a decision on a claim. A delay early on in the history of the claim which is resolved shortly thereafter will mean a decision is still due at the end of 90 days. For factors preventing a coverage decision late in the game, insurers may have only 15 days to make a decision after the issue is resolved.

• The scope of the act has been expanded to include commercial claims in small to mid-size businesses operating in structures of 10,000 square feet or less.

• Any portion of a claim may trigger this statute if it has not been paid or denied within the applicable time limitations, meaning questionable coverage concerns about some aspect of a claim will not justify withholding a coverage decision on other portions of the claim. (This could be particularly problematic in cases of suspected fraud.)

• One of the oldest provisions in standard form policies, the Loss Payable provision dating back to the 1943 New York Standard Fire Policy (a/k/a the “165 Lines” form) has been legislatively erased.

• And to give teeth to the measure, insurers must now pay interest on claims or portions of claims which have not been timely handled.

Just when you thought things couldn’t get any worse…they did.

Insurers in Florida face some formidable challenges in complying with this new law. As noted in our previous Client Bulletin about the original act, claims will have to be handled more efficiently, more effectively and more quickly than ever before. At a time when many carriers are already confronting the challenges of down-sizing and cost-cutting in their claims operations, this new challenge will be formidable, indeed.

As always, we invite you to contact us for further information on this or any other issue you may be confronting. In the meantime, please know that we are committed to facing these challenges together as a team. Thank you.