The Implications of Senate Bill 2A on Florida Statute § 627.428

Prior to December 16, 2022, Florida Statute § 627.428 entitled insureds in first-party property cases to attorneys’ fees and costs when suing their carrier to enforce the policy, if the insurer contested a valid claim and judgment was entered in favor of the insured. The Supreme Court of Florida, in its 1993 decision in State Farm Fire & Casualty Co. v. Palma, 629 So.2d 830, 832 (Fla. 1993) held that the terms of Florida Statute § 627.428 requiring an insurer to pay attorney fees when a judgment is rendered in favor of an insured or when the insured prevails on appeal are an implicit part of every insurance policy issued in Florida. This entitlement to attorneys’ fees and costs was, arguably, a contributing cause of the enormous amount of lawsuits filed each year against property insurance carriers and has resulted in a niche industry of plaintiff firms whose primary source of income is attorney fees collected from suing property insurance carriers. According to the office of Governor Ron DeSantis, Florida accounts for only 9% of the country’s home insurance claims, but 79% of the country’s home insurance lawsuits.

The effect of 79% of the country’s home insurance lawsuits is not without consequences. On February 25, 2022, St. Johns Insurance Company was ordered into receivership for purposes of liquidation. On March 14, 2022, Avatar Property & Casualty Insurance Company was ordered into receivership. On June 15, 2022, Southern Fidelity Insurance Company was ordered into receivership. On August 8, 2022, Weston Property & Casualty Insurance Company was ordered into receivership. On September 27, 2022, FedNat Insurance Company was ordered into receivership. Just three weeks ago, on February 27, 2023, United Property and Casualty Insurance Company was ordered into receivership. Due to the costs associated with the sheer volume of claims, Florida lost six homeowner’s insurance companies in the span of one year, forcing thousands of homeowners to turn to what is designated as Florida’s last resort: Citizens Property Insurance Corporation, who in September 2022, reached over one million policies, more than double the number of policies it held in 2020.

Given what can only be characterized as a homeowner insurance crisis in the state of Florida, it was apparent that something had to be done to stop or slow the continuing insolvencies of Florida’s homeowner insurance carriers.

In response, on December 9, 2022, in its second special session of the year, the Florida Senate filed proposed Senate Bill 2A. Senate Bill 2A sought, among numerous other insurance-related measures, to repeal the automatic entitlement to attorneys’ fees and costs under Florida Statute § 627.428. Senate Bill 2A was signed into law on December 16, 2022, and now provides, in pertinent part:

627.428. Attorney fees

1. Except as provided in subsection (4), upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
2. As to suits based on claims arising under life insurance policies or annuity contracts, no such attorney fees shall be allowed if such suit was commenced prior to expiration of 60 days after proof of the claim was duly filed with the insurer.
3. When so awarded, compensation or fees of the attorney shall be included in the judgment or decree rendered in the case.
4. In a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.

Section 26 of Senate Bill 2A provides that “Except as otherwise expressly provided in this act, the act shall take effect upon becoming a law.” Thus, Senate Bill 2A, on its face, took effect on December 16, 2022.

Senate Bill 2A, Property Insurance, is the most significant property insurance reform bill in recent history. According to a News Release from the Governor’s office on December 16, 2022, the Bill is intended to strengthen Florida’s property insurance market by eliminating one-way attorney fees for property insurance claims, which will disincentivize frivolous lawsuits, and realign Florida’s market to best practices that will promote more market competition in the private insurance industry and will reduce the burden of excessive predatory litigation, bringing the cost down for homeowners.

As noted, the bill was signed into law by the Governor on December 16, 2022. Regardless, attorneys on behalf of policyholders continue to sue property insurance carriers claiming attorney fees under Florida Statute § 627.428. What remains to be seen is whether Florida Statute § 627.428, as signed into law on December 16, 2022, will be applied retroactively. Attorneys for the policyholder argue that the statute in effect at the time the insurance contract is signed governs. Attorneys for the carrier maintain that a claim for attorneys’ fees should be stricken under Florida Statute § 627.428, if the homeowner filed suit in January or thereafter, after Senate Bill 2A became law.

The long-term effects of the changes to Florida Statute Sec. 627.428 on Florida’s homeowner insurance market are not yet clear. However, as these statutory changes are enforced by the courts, we anticipate a major shift in both the quantity and quality of lawsuits filed by policyholders. Without the incentive of being awarded their fees and costs, attorneys for the policyholder will need to adapt to a new environment where the risks may outweigh the benefits.