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The Florida property insurance market is in dire financial straits, and the situation is getting worse. Insurance companies are struggling to do business in the state, leaving homeowners to pay the price through reduced coverage and higher premiums. Many of the problems the insurance industry faces are the result of unscrupulous contractors who raise the cost of doing business for insurance companies. Many insurers have left the state in the face of insurmountable challenges. While the state has responded by attempting to reform the industry, many of the root causes of the insurance crisis remain unaddressed.

Florida Law Creates an Incentive for Contractors to Cheat

Contractors have often been given free rein to run up the costs of repairs and hand the bills to insurance companies. Florida law allows contractors to receive an assignment of benefits under an insurance claim and take over the process of recovering money for the claim. The contractor can essentially use this legal loophole to try to force the insurance company to give them a blank check for homeowners’ repairs. Once a homeowner has signed over their claim to a contractor through the assignment of benefits, it belongs to the contractor to do with as they want. It does not matter whether the property owner actually wants to sue the insurance company.

In particular, roofing companies have been known to take advantage of the legal loophole provided by the assignment of benefits law. They have sued to get full replacement costs for roofs - which can cost upwards of tens of thousands of dollars - that may have simply just needed minor repairs. One recent change to Florida law prohibits insurance companies from canceling policies when homeowners may need a new roof. Roofing contractors have taken that opening to become even more aggressive with their legal claims.

Insurance Companies and Homeowners Suffer from the Current System

When a contractor is able to align with an attorney to sue an insurance company, there is little incentive for the contractor to control costs. In fact, the situation is just the opposite. Contractors run up large bills, and they sue the insurance company when these bills are not paid in full. Not only do insurance companies often get forced to pay unreasonable invoices, but they must also spend money to fight these claims in court. The combination of inflated costs and having to hire an insurance defense lawyer to represent them has driven many insurance companies to insolvency.

This system does nothing to help individual homeowners who end up suffering because of contractors’ actions. Contractors are the ones who benefit, while homeowners who pay insurance premiums get handed the bill in the form of policy cancellations and higher costs. According to some estimates, insurance fraud costs over $300 billion per year. Many of these costs are centered in Florida, a state in which there are many insurance claims due to frequent storms.

Contractors often go door-to-door after major storms in Florida, looking for homeowners to take advantage of and file claims on their behalf. Pressed to make repairs quickly, unsuspecting homeowners end up entrusting their claims to contractors who are looking to get rich at the expense of both insurance companies and their policyholders. To them, damage to a home is an opportunity to pad their bank accounts, regardless of whether proposed repairs serve the homeowner. They use high-pressure tactics on unsuspecting homeowners who have no idea about the financial realities of the insurance market.

These contractors often list work that does not really need to be done at inflated rates, and they include it in the claim. Contractors have the legal right to sue an insurance company as part of a homeowners' insurance claim. The insurance industry in the state is collapsing because contractors abuse this right.

Florida Has Taken Half Steps to Combat Fraud, But Needs to Go Further

Nearly 80% of homeowners’ litigation claims in the entire U.S. happen in Florida. The result is that Florida homeowners pay insurance premiums that are more than double the national average. This is all insurance companies can do to keep operating in the state. Even with these higher premiums, many insurance companies have left the state because of abusive practices from an alliance of contractors and plaintiffs' attorneys. Homeowners must contend with the reduced availability of coverage and additional policy exclusions, all at a higher price. Insurance companies feel they must take these actions if they want to operate in Florida and not subject themselves to excessive risk.

Even as Florida passed major legislation to reform the insurance industry, it did not do nearly enough to crack down on corrupt contractors. The legislation did cut back on attorneys’ fees in assignment of rights cases, but it did nothing to prevent unscrupulous lawsuits in the first place. Contractors are already fighting the provision of the new law that forbids them from recovering attorneys’ fees if their lawsuits are successful, which was one key way the old law incentivized contractors to pursue legal claims against insurance companies for inflated costs.

While Florida has taken some steps in the right direction regarding insurance fraud, there is much more that needs to be done. Every year, there are hundreds of open insurance fraud cases against Florida contractors. From 2019 to 2021, the number of insurance fraud cases against contractors nearly doubled. It is not just contractors who are responsible for the problem. They work in tandem with attorneys and public adjusters to create an intolerable situation where each has an incentive to inflate claims. Until there is major structural reform of homeowners’ insurance claims, the industry may continue to be one major storm away from collapse.