Property insurance insider: we will know if tort reform is effective within 18 months

In a conversation with The Capitolist, insurance industry veteran Scott Johnson sounded off on the state of Florida’s property insurance market, asserting that insurers and lawmakers alike should sense the effects of the recent tort reform measures within 18 months.

Johnson’s comments come at a point of inflection in the state’s insurance landscape, with conflicting viewpoints emerging on what property owners can expect in terms of future premiums. Last week, key state lawmakers said they plan to adopt a “wait and see” approach to measure the impact of reforms. Johnson, however, opines that the effects can already be felt.

“I think … we can look for signs that the reforms are working in 18 months,” Johnson commented. “I also believe that we are already seeing signs because insurance companies, actuaries, and so forth can see in the changes a better future and are reacting now based on what they saw in the legislation that passed.”

Johnson cited potential metrics that can denote the reform measures’ effectiveness, including the total number of lawsuits filed against insurers in the state. He further pointed to the 280,000 lawsuits filed by attorneys in the days leading up to the legislation’s enactment date as an indication that lawyers who excessively file lawsuits are feeling the effects of the new laws.

“What the legislature did was fire a shotgun and each of the individual pellets hit a unique scheme attorneys used,” he said.

Senate Bill 2D, signed during a December 2022 special session, took steps to reduce frivolous litigation through the enactment of regulatory changes, including the reservation of attorney fee multipliers, requiring proof that an insurer breached its agreement with a policyholder before a lawsuit can be filed, and preventing insureds from transferring their unilateral right to receive attorneys’ fees to contractors.

“Lawsuits, frivolous or not, cause every claim to be 500 percent more expensive,” said Johnson. “To me, the answer to the question is to first see if the tort reforms, which are the most comprehensive in Florida — and probably American — history are designed to impact the frequency and severity of litigation.”

Exemplifying the issues surrounding frivolous litigation, Johnson references material in his book Collapse of an Evil Empire, which documents the disbarment of attorney Scot Strems, whom he alleges filed tens of thousands of lawsuits against insurers. The numerous lawsuits compound findings from the National Association of Insurance Commissioners that despite registering 8 percent of the nationwide property claims, Florida had nearly 80 percent of America’s property insurance suits last year.

“What was driving the insolvencies [of insurers] was non-weather-related lawsuits,” Johnson said. “[Strems] and the attorneys that worked in the firm were filing and processing 10,000 lawsuits at a time. They used various means of subterfuge to get around advertising laws and … do various things that the tort reforms that passed have made illegal. That’s just one lawyer. There are 6,000 trial lawyers in the state of Florida. Many were doing some, or all of the same things as this firm.”

Johnson does subsequently assert, however, that the reforms have subverted unethical legal proceedings in the state.

“With the tort reforms, I believe that problem — in my opinion — has largely been solved,” he said. “You can tell it has been solved because of those 280,000 lawsuits. The trial attorneys know that their pot of gold is going away. So before Gov. DeSantis could sign that bill, they filed all of those lawsuits in hopes they could be grandfathered in.”

Since the litigation reforms were signed into law, state regulators have approved six more private insurance companies to come into Florida and take an additional 153,000 policies off of the Citizens Property Insurance Corporation rolls. More private companies in the market would, in theory, result in increased competition to offer Florida homeowners lower rates. But the impact so far is limited, and not all homeowners are reaping the benefits.

“Even though [insurers have gone insolvent], there have been another five or six new insurance companies, and another one or two who had been non-renewing policies as well that have stepped up and taken policies from Citizens,” Johnson continued. “We see a better future here as a result of those changes.”