Florida Codifies Insurers’ Right to Contribution, Increases Surplus Lines Fees

June 21, 2019

Passage of Florida Law Creates a Statutory Right to Contribution among Insurers with a Duty to Defend, and Could Increase Costs of and Market for Surplus Lines Insurance

The Legislation

Florida’s omnibus House Bill 301 [1] was signed into law by Florida governor Ron DeSantis on June 18, 2019. [2] The provisions of this Bill, among other things, create a statutory right of contribution among insurers for defense costs, and remove the prescriptive cap on per-policy agent fees for surplus lines coverage.

Right to Contribution Codified

HB 301 creates Florida Statute § 624.1055, which codifies insurers’ rights to contribution for defense costs incurred in defending a common insured when multiple insurance policies have been triggered. Earlier Florida court decisions concerning allocation of defense costs among multiple insurers held that there was no such right of contribution. Section 624.1055 applies to all insurance policies issued for delivery in the state of Florida, or under which an insurer has the duty to defend an insured against claims asserted, or suits or actions filed, in the state of Florida.

 

Historical Context of Contribution among Insurers

Previously, courts have denied claims for contribution among insurers, relying heavily on the fact that there was no statutory authority for it. [3] As a result, insurers—recognizing that they would be unable to recoup defense costs from other insurers of their common insured—delayed assuming their duty to defend for as long as possible, resulting in lengthy delays in litigation. [4]  

The new law is intended to alleviate litigation downtime and ease the burdens on policyholders by incentivizing insurers to promptly assume their defense, by providing a clear mechanism for insurers to recover prorated defense costs from other insurers on the risk.

 

Law and Application

Section 624.1055 will become effective on January 1, 2020, and will apply only to those claims or suits initiated on or after that date. While the section impacts both admitted and surplus lines insurers, it does not apply to motor vehicle liability insurance or medical professional liability insurance.  

Under Section 624.1055(1), defense costs are to be apportioned among all insurers who owe a duty to defend, in accordance with the terms of the pertinent policies. In the absence of policy wording, courts are empowered to use “such equitable factors as the court determines” to be appropriate in making an allocation. It is unclear from the language of this section what “factors” the court may rely upon.   

Significantly, Section 624.1055 provides a notice of claim requirement, which relieves an insurer from any obligation to cover pre-tender defense costs. Insureds therefore should remain vigilant in submitting claims to all insurers.

Contribution litigation under the statute may be brought in any court of competent jurisdiction. Such claims likely will arise when claims trigger multiple successive policies or overlapping concurrent policies, particularly in connection with litigation involving substantial defense costs—e.g., construction defect, asbestos, and environmental litigation.

The Full Text of §624.1055

The new section reads, in full, as follows:

§ 624.1055 Right of contribution among liability insurers for defense costs.

A liability insurer who owes a duty to defend an insured and who defends the insured against a claim, suit, or other action has a right of contribution for defense costs against any other liability insurer who owes a duty to defend the insured against the same claim, suit, or other action, provided that contribution may not be sought from any liability insurer for defense costs before the liability insurer’s receipt of notice of the claim, suit, or other action. 

(1)   APPORTIONMENT OF COSTS. – The court shall allocate defense costs among liability insurers who owe a duty to defend the insured against the same claim, suit, or other action in accordance with the terms of the liability insurance policies. The court may use such equitable factors as the court determines are appropriate in making such allocation.

(2)   ENFORCEMENT OF RIGHT OF CONTRIBUTION. – A liability insurer who is entitled to contribution from another liability insurer under this section may file an action for contribution in a court of competent jurisdiction.

(3)   CONSTRUCTION. –

a.      This section is not intended to alter any terms of a liability insurance policy or to create any additional duty on the part of a liability insurer to an insured.

b.     An insured may not rely on this action as grounds for a complaint against a liability insurer.

(4)   APPLICABILITY. – This section applies to liability insurance policies issued for delivery in this state, or liability insurance policies under which an insurer has a duty to defend an insured against claims asserted or suits or actions filed in this state. Such liability insurance policies include surplus lines insurance policies authorized under the Surplus Lines Law, ss. 626.913-626.937.

(5)   Notwithstanding subsection (4), this section does not apply to motor vehicle liability insurance or medical professional liability insurance.

 

Surplus Lines Fees

HB 301 also amends Florida Statute § 626.916, which currently limits the fee a surplus lines agent may charge to $35, per-policy, upon each policy certified for export. Under the new law, so long as an insurance agent’s fee is “reasonable,” is separately itemized before purchase, and is enumerated in the policy, any amount may be charged. The fee limitation had not been changed since it was increased from $25 to $35 in 2001. [5] Currently, industry experts report that the fee is inadequate to compensate agents for the actual administrative costs associated with administering a policy. [6]

This change brings Florida in line with a majority of states that do not impose a prescriptive fee cap on fees associated with surplus lines transactions, including the top five states by gross surplus lines premiums.[7] The removal of the cap may increase costs per transaction for insureds; however, some are predicting that increased compensation will entice brokers and insurers to participate in the surplus lines market in Florida, creating a more robust market for insureds. [8]

Conclusion

The new § 624.1055 is expected to speed up litigation, and ease burdens on litigants who may have otherwise found themselves fronting defense costs in complex litigation implicating multiple insurers. In addition, while Florida insureds may see a bump in per-policy surplus lines fees, the more agent-friendly Florida market potentially could lead to more robust surplus lines offerings in the future.

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[1] This bill is considered omnibus because of its incorporation of components of Florida House Bill 387 and Senate Bill 538, which also dealt with aspects of insurance reform. Each of those bills died in committee prior to final approval, with portions being incorporated into House Bill 301.

[2] Florida Governor Ron DeSantis, News Release: Governor DeSantis Signs 11 Bills, https://www.flgov.com/2019/06/18/governor-ron-desantis-signs-11-bills/ (last visited June 20, 2019).

[3] Continental Cas. Co. v. United Pacific Ins. Com., 637 So. 2d 270 (Fla. 5th DCA 1994); Central Mut. Ins. Co. v. Michigan Mut. Liability Co., 285 So.2d 684, 685 (Fla. 3d DCA 1973); see also Argonaut Ins. Co. v. Md. Casualty Co., 372 So. 2d 960, 964 (Fla. 3d DCA 1979).

[4] House of Representatives Staff Analysis, House Bill 301, pg. 4, available at https://www.flsenate.gov/Session/Bill/2019/301/Analyses/h0301d.COM.PDF (last accessed June 21, 2019).

[5] House of Representatives Staff Analysis, House Bill 387, pg. 3, available at https://www.flsenate.gov/Session/Bill/2019/387/Analyses/h0387c.COM.PDF (last accessed June 21, 2019)

[6] Id. at pg. 6.

[7] Florida Legislature Considers Reforms to Non-Admitted Insurance Market, https://www.insurancejournal.com/news/southeast/2019/04/09/523091.htm (April 9, 2019).

[8] Id.

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If you have questions concerning this topic, or would like to discuss in further detail, please contact Kevin Merriman.

Authors: Kevin Merriman, David Knapp, Katerina Kramarchyk

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