Personal Injury Protection (PIP) coverage was first enacted in Florida in 1971. PIP is also known as no-fault insurance, and it allows drivers and passengers to obtain insurance benefits for medical treatment and wage loss, regardless of negligence, without going to court.Currently, Florida motorists are required to maintain auto insurance with at least $10,000 in PIP coverage. In addition, Florida is one of only two states that do not require drivers to maintain bodily injury insurance coverage.
Typically, PIP covers 80% of medical costs and 60% of lost wages up to the policy limit. While the purpose of PIP is to expedite the process of obtaining insurance benefits for medical costs, it led to fraud in Florida. As a result, the 2012 Florida Legislature passed HB-119 to combat PIP fraud, but fraud remained a problem. In 2017, the Florida House voted to repeal and replace PIP; however, the Senate failed to address the bill.
On April 14, 2021, the Florida Senate passed SB-54 with a vote of 38 to 1, which repeals PIP and requires motorists to obtain bodily injury coverage of $25,000 per person/$50,000 per accident and $10,000 in property damage coverage. It does not require medical payments coverage with limits of $5,000 or $10,000 to cover the medical expenses of the insured unless the insured opts in. Twelve days later, the Florida House voted 99-11 to repeal PIP in HB-719 and require every motorist to carry bodily injury coverage of $25,000 per person/$50,000 per accident. The bill was sent back to the Senate, which voted to adopt the House bill by a vote of 37-3 on April 30, 2021, with a change. The House voted to accept the change on April 29, 2021, and submitted the bill to the Governor. If the Governor signs it into law, it would have an effective date of January 1, 2022.
One question is whether repeal of PIP will reduce motorists' insurance premiums. According to a 2016 report by the Florida Office of Insurance Regulation, motorists should see an average of a 5.6% decrease in their auto insurance premiums. However, a 2018 study by consulting firm Milliman showed a potential average increase of premiums of 5.3%. Insurance companies are coming down on both sides of this issue with some companies asserting that it will force more motorists to drive without insurance because they will be unable to afford the premiums for the newly required bodily injury coverage. Other companies believe that premiums will be reduced due to the elimination of PIP fraud.
Another issue concerns the impact of the bad faith provisions contained in the bill. Favorably, the bill should impact a portion of Powell claims, which could prove beneficial to insurance companies. In Powell v. Prudential Property & Casualty Insurance. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), a Florida appellate court held that "an offer to settle is not a prerequisite to the imposition of liability for an insurer's bad faith refusal to settle, but is merely one factor to be considered." The Court explained "[w]here liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations."? From its name, a lawsuit for third-party bad faith where the claimant never offered to settle at or below the applicable coverage limits became known as a "Powell?claim."? Under the safe harbor provisions in the bill, if the insurance company initiates settlement negotiations in the absence of a demand and tenders its policy limits within 45-days of an occurrence that results in one claim or globally offers its policy limits to settle multiple claims arising out of the same accident or occurrence, an insurer cannot be held in bad faith for failure to settle earlier. Additional safe harbors exist. Specifically, that section states:
(8) SAFE HARBORS.—
- After an insurer receives actual notice of an incident or a loss that could give rise to a covered liability claim, the insurer is entitled to a reasonable opportunity to investigate and evaluate the claim. The amount of time required for the insurer's investigation and evaluation will vary depending on the circumstances of the claim. The safe harbors provided in this subsection are available to an insurer that complies with the best practices standards of subsection (4).
- When one claim arises out of a single occurrence, and an insurer initiates settlement negotiations by tendering the applicable policy limits in exchange for a general release of the insured within 45 days after receiving actual notice of the loss, the failure to tender the policy limits sooner does not constitute bad faith.
- When multiple claims arise out of a single occurrence, the combined value of all claims exceeds the total of all applicable policy limits, and an insurer initiates settlement negotiations by globally tendering the applicable policy limits in exchange for a general release of the insured within 45 days after receiving actual notice of the loss, the failure to tender policy limits sooner does not constitute bad faith.
- An insurer is not under any circumstances liable for the
failure to accept a settlement offer within 45 days after receiving
actual notice of the loss if:
- The settlement offer provides the insurer fewer than 15 days for acceptance; or
- The settlement offer provides the insurer fewer than 30 days for acceptance where the offer contains conditions for acceptance other than the insurer's disclosure of its policy limits.
- This subsection does not require that an insurer automatically tender policy limits within 45 days in every case.
The bill also amends section 624.155, Florida Statutes, regarding first-party automobile claims and creates section 624.156. Section 624.155 is amended to add that an insured can bring a first party bad faith claim against the insurer for failing to provide the insured: the contact information for the adjuster handling the claim; information about coverage issues and how the coverage issue can be resolved; the basis for the insurer's rejection of a settlement offer or demand; and, "any needed extensions to respond to a time-limited settlement offer," if these failures were the cause of the claim not settling.
The newly created statutory section, 624.156, addresses third-party claims relating to the ownership, maintenance, or use of an automobile. Largely codifying or adopting existing case law,1 an insurer has a duty to act in good faith in handling a claim and must comply with the best practices standards. These standards include, but are not limited to: 1) after the insurer receives notice of a claim, the insurer must assign an adjuster to investigate the insured's probable exposure and attempt to resolve any coverage issues; 2) the insurer must adjust the claim in an ethical and honest manner and consider the claimant's potential recoverable damages based on the information available at that time; 3) an insurer must request from the insured or claimant additional relevant information necessary to evaluate whether to settle a claim; 4) an insurer must conduct all verbal and written communications with the insured with honesty and complete candor; 5) the insurer must make reasonable efforts to explain to unrepresented individuals in simple terms claims–handling and insurance issues; 6) the insurer must retain written communications and a summary of verbal communications for at least five (5) years after an excess judgment is entered or until the conclusion of the extra–contractual claim, if one is filed.The insurer must also communicate to the insured all of the following:
- The identity of any other person or entity the insurer has reason to believe may be liable.
- The insurer's evaluation of the claim.
- The likelihood and possible extent of an excess judgment.
- Steps the insured can take to avoid exposure to an excess judgment, including the right to secure personal counsel at the insured's expense.
- The insured's duty to cooperate with the insurer, including any specific requests required because of a settlement opportunity or by the insurer for the insured's cooperation under subsection (5), the purpose of the required cooperation, and the consequences of refusing to cooperate.
- Any settlement demands or offers.
Further, when it is reasonably necessary to settle a covered claim likely in excess of the applicable policy limits and if requested by the claimant, an insured must disclose on a form adopted by the Florida Department of Financial Services or the form provided by the claimant.
A significant time imposition on the part of the insurer is to provide the insured, no later than 14 days following actual notice of an incident or a loss, notice of the insured's duties under the statute. If timely, the insured has a duty to cooperate with the insurer in the defense and settling of the claim, including executing affidavits required by the insurer, providing documents requested by the insurer, and disclosing information on the Department's or claimant's form. An insurer may terminate its defense if the insured unreasonably fails to meet its duties of cooperation, under certain conditions. Additionally, an insurer is not liable for any damages caused by the failure to settle or defend a liability claim against the insured if the insurer unreasonably fails to cooperate with the insurer.
If the trier of fact finds that the party bringing a bad faith claim met its burden of proof, the insurer is liable for the amount of any excess judgement and court costs. If the party bringing the bad faith action is an insured or an assignee of the insured, that person or entity is entitled to attorney's fees expended to bring the bad faith action. Punitive damages are not permitted.Critically, an insurer may only be found liable for bad faith failure to settle a third-party claim if the insurer's failure to meet its duty of good faith is the proximate cause of the insurer not settling the claim "when, under all the circumstances, the insurer could and should have done so, had it acted fairly and honestly toward its insured and with due regard for the insured's interests."
Although a demand is not a prerequisite to a bad faith claim, the bill provides incentives to claimants to present demands. In addition, the bill places limitations on the expiration date for time demands with and without conditions.
If the law is signed, the one and only path to a bad faith claim due to an automobile accident is section 624.156. If any conflict arises between this statutory section and the case law, the statute controls. Hopefully, this statute provides uniformity, clear guidance to an insurer regarding exactly what good faith steps are required, and will reduce the gamesmanship played in an attempt to create a bad faith claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.