Several states have recently added provisions to their insurance rehabilitation and liquidation acts which address the rights of parties to certain derivatives transactions with an insurance company in the event that an order of rehabilitation or liquidation is entered against the insurer. In short, these laws allow parties to exercise certain early termination and close-out netting provisions without regard to the applicable stay mechanism under state insurance insolvency law.
Early termination and close-out netting provisions are standard in derivatives transactions, and apply when an event of default (such as bankruptcy or insolvency) occurs with respect to one party. Upon one party’s event of default or upon the occurrence of another specified termination event with respect to one party, the non-defaulting party can terminate all the derivatives transactions outstanding under the applicable agreement, calculate a single net amount due by or to the defaulting party, and liquidate any pledged collateral. The ability of the non-defaulting party to exercise these rights is particularly important because the value of the derivatives are based principally on their fluctuating market value, and a stay that enjoins the rights of the non-defaulting party to exercise such rights could create escalating losses due to changes in market prices. Accordingly, the ability of the non-defaulting party to terminate derivatives transactions and net exposures quickly upon the other party’s insolvency is often critical in limiting losses.
Federal laws provide a level of certainty with respect to the enforceability of certain provisions of derivatives transactions, through the U.S. Bankruptcy Code in the case of a general corporate bankruptcy, and through the Federal Deposit Insurance Act (FDIA) in the case of an insolvent federally or state chartered bank or thrift. These laws provide an exemption from the automatic stay mechanism for specific provisions of certain derivatives transactions, including netting provisions, certain collateral provisions and termination provisions. Accordingly, a counterparty to a derivatives transaction with a corporation or financial institution enters into the transaction knowing that its rights under these provisions are generally enforceable upon the bankruptcy or insolvency of its counterparty, unaffected by the automatic stay.
Counterparties of U.S. insurance companies do not uniformly have the benefit of similar legal certainty with respect to the enforceability of the termination, netting, and collateral realization provisions against U.S. insurance companies. The insolvency of insurance companies is governed by state law and not the U.S. Bankruptcy Code, and state insurance insolvency laws generally do not provide an exception to applicable automatic stay mechanisms for derivatives transactions. Although difficult to gauge, it seems likely that banks and other financial institutions have, at least in some instances, avoided entering into derivatives transactions with U.S. insurance companies or charged a premium for such contracts, out of concern that state insurance insolvency law will prevent them from exercising termination, netting, and collateral realization rights if the insurer becomes insolvent.
However, a growing number of states have addressed the concerns of potential counterparties to U.S. insurance companies by adding new provisions to their insurance rehabilitation and liquidation acts addressing “qualified financial contracts,” including swap agreements and other derivatives transactions. The new provisions are based on Section 46 of the National Association of Insurance Commissioners’ Insurers Rehabilitation and Liquidation Model Act, which provides protections for qualified financial contracts and netting agreements modeled upon the analogous provisions in the FDIA and U.S. Bankruptcy Code. In general, these provisions allow the non-defaulting party to exercise netting provisions, collateral realization provisions, and termination provisions without regard to the automatic stay mechanism. Thus far in 2011, Arizona, Delaware, Indiana, Maine, Nebraska, and Virginia each added such a provision (legislation has been introduced in New Jersey, New York, and Ohio). These six states join Connecticut, Illinois, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Texas, and Utah as states that have an exception for qualified financial contracts or netting agreements from the applicable stay mechanism in their insurance insolvency law. With increased certainty in additional states regarding their rights when entering into derivatives transactions with U.S. insurance companies, banks and other financial institutions are likely to be more willing to enter into such transactions with U.S. insurance companies, or to do so without charging a premium to compensate for the uncertainty under state insurance insolvency law.
Congress Imposes New Rules for Taxation and Regulation of Surplus Lines Insurers
By Mary Kay Martire
On July 21, 2011, a portion of the Dodd-Frank Act known as the Nonadmitted and Reinsurance Reform Act (15 U.S.C.A. § 8201, et seq.) (NRRA) took effect. NRRA is one example of the continuing trend of increased federal oversight over state regulation of the business of insurance.
NRRA was designed in relevant part to increase uniformity and certainty in the taxation and regulation of surplus lines brokers and insurers. Historically, states refused to license nonresident surplus line brokers. This led to a system in which brokers had to place their out-of-state nonadmitted risks through resident surplus line brokers. However, following the enactment of the Gramm-Leach-Bliley Act in 1999, most states amended their producer licensing laws to allow for reciprocal licensing of surplus lines brokers. The new state laws were criticized for adding increased complexity for brokers, who were required to comply with the differing license requirements of each state in which they qualified to do business. The new state laws also created complexity regarding the taxation and allocation of the premium tax paid by surplus lines insurers on multi-state surplus lines insurance.
NRRA seeks to simplify the taxation and regulation of multi-state surplus lines transactions by establishing a one-state compliance rule. To that end, NRRA provides that with limited exception, the placement of nonadmitted insurance is governed only by the laws and regulations of an insured’s home state. 15 U.S.C.A. § 8202(a).
NRRA also provides that only a surplus line insurer’s home state may impose a premium tax on nonadmitted insurance. 15 U.S.C.A. § 8201(a). States cannot allocate tax revenue between themselves unless they adopt an interstate compact or other uniform, national tax allocation procedure. Id.
NRRA controls the type of regulations that a state may impose on surplus lines brokers. Effective July 21, 2012, a state may not collect any licensing fees from surplus lines brokers unless the state has enacted laws or regulations that provide for the state’s participation in a uniform national database for the licensing of surplus lines brokers. 15 U.S.C.A. § 8203. Moreover, states may not place eligibility requirements on domestic surplus lines insurers other than those set forth in the Non-Admitted Insurance Model Act and may not prohibit surplus lines brokers from contracting with alien insurers on the quarterly listing of alien insurers maintained by the National Association of Insurance Commissioners (NAIC). 15 U.S.C.A. § 8204.
Finally, NRRA provides relief from due diligence search requirements for brokers of large “exempt commercial purchasers.” Brokers who provide certain representations to these purchasers need not comply with state requirements that the broker determine whether the insurance sought by the exempt commercial purchaser can be obtained from an admitted insurer. 15 U.S.C.A. §§ 8205, 8206.
NRRA preempts or supersedes portions of the excess and surplus lines laws as they exist today in most states. According to the National Conference of State Legislatures (NCSL), as of July 29, 2011, at least 44 states and Puerto Rico have introduced legislation to comply with NRRA and 41 have enacted surplus lines legislation. A list of state legislative efforts to comply with NRRA can be found at NCSL.org.
Two competing multi-state compacts have been developed to address the issue of interstate allocation of surplus lines premium tax. NCSL, the National Conference of Insurance Legislators (NCOIL), and the Council of State Governments (CSG) have endorsed an interstate compact known as SLIMPACT-Lite. According to NCSL, as of July 29, 2011, nine states have enacted legislation to join SLIMPACT-Lite. The NAIC has endorsed a different model agreement, known as the Nonadmitted Insurance Multi-State Agreement (NIMA). As of July 29, 2011, four states have enacted NIMA legislation and ten have signed an agreement to be part of NIMA.
Surplus lines insurers and brokers should watch this issue carefully, as states continue to enact amendatory legislation and progress is made toward the adoption of a single comprehensive system with respect to the interstate allocation of premium tax on surplus lines insurance.
The vast majority of reinsurance disputes are decided by alternative dispute resolution methods. Binding arbitration is the most widely used method. Recently there has been increased interest in mediation. There is, however, a third alternative that has not traditionally been widely used in the reinsurance context but which may have advantages over both arbitration and mediation for the right cases. This third alternative is commonly referred to as binding mediation.
Binding mediation is a procedure under which a mediator is appointed and is responsible for attempting to get the parties to voluntarily settle their dispute. However, unlike in typical mediation, in the event that the parties are unable to settle their dispute, in a binding mediation, the mediator has the power to impose a resolution on the parties. The mediators’ binding resolution is intended to be treated like an arbitration panel’s decision and be binding on the parties and not subject to challenge in court (except on the limited grounds that an arbitration panel’s decisions are subject to attack in court).
Binding mediation has a number of advantages over traditional mediation. First and foremost, since the mediator has the power to impose a resolution on the parties, the mediator has more leverage than a traditional mediator. A party must take the mediators’ opinions on the issues very seriously. A party cannot simply disregard what the mediator is telling it and simply hope that an arbitration panel will have a different opinion. Binding mediation can therefore substantially increase the likelihood that the parties will make hard choices and voluntarily reach agreement.
Second, binding mediation is more cost effective than an unsuccessful mediation. Instead of educating a mediator and then, if no settlement is reached, having to start over with an arbitration panel, the mediator who is already familiar with the case is able to resolve the case. The parties are spared the expense and effort of educating an arbitration panel.
Third, in a binding mediation, the mediator can lock in those concessions that the parties are willing to make and can limit his or her rulings to those issues on which they are unable to agree. In traditional mediation, if the parties are unable to resolve the dispute in its entirety, any concessions that they made during the mediation are usually withdrawn and they end up arbitrating all the issues, as if the mediation never took place.
Binding mediation also may have some advantages over arbitration. First, it may be more cost effective than arbitration because, unlike the arbitration context, the mediator can give the parties feedback about the mediator’s view of the strengths and weaknesses of their case as the mediation proceeds. The parties can focus their presentations on issues that the mediator is concerned with and can withdraw or compromise issues on which the mediator tells them that they are unlikely to win.
Second, a binding mediation is likely to result in a settlement or decision with which all parties can live. The parties are likely to agree on a mutually acceptable resolution of many of the issues in the case, and the mediator will only have to decide a few issues on which agreement is not possible. It is therefore less likely that the result will be one that one of the parties views as totally unreasonable.
Third, during the mediation the mediator will likely discuss his or her proposed resolution of the issues with the parties and give them an opportunity to comment. This will minimize the chances that the mediator’s decision will have unintended consequences.
If the parties want to have a binding mediation, it is essential that they draft and sign a detailed binding mediation agreement that explicitly sets forth the procedures to be followed and the powers of the mediator. While courts are very familiar with arbitration agreements and routinely enforce them, binding mediation agreements are much less common. If the parties do not agree in writing and in detail on how the mediation will work and the scope of the mediator’s power, there is a substantial risk that the court will not enforce any resolution that the mediator attempts to impose that all of the parties did not agree to. For example, if the phrase “binding mediation agreement” is used without defining what is meant, a court is likely to hold that it just refers to a binding agreement to participate in mediation prior to suing, not that it empowers the mediator to impose a binding decision on the parties . Questions can also arise as to whether sufficient due process was afforded the parties, or whether the mediator was required to recuse himself and not sit in judgment over the case if the parties fail to reach agreement because his or her objectivity was tainted by participating in the unsuccessful mediation.
The safest course of action is to clearly define the powers of the mediator in the written agreement, and to state that the parties agree that the mediator will sit as an arbitrator to resolve those issues on which the parties fail to reach agreement. It should also expressly state that the mediator’s final award will constitute an arbitration award and will be enforceable under the Federal Arbitration Act.
It is also a good idea for the written binding mediation agreement to address key procedural issues. It should probably provide the parties with the right to conduct at least some limited discovery and to present evidence, testimony, and legal argument prior to the imposition of an award. The mediation can be structured with an initial pre-discovery phase to see if early settlement is possible, followed by a short period of discovery followed by additional mediation. Then, if the parties reach an impasse on certain issues, there can be an opportunity to present evidence and testimony prior to final resolution by the mediator acting in his or her capacity as an arbitrator.
A written agreement on these issues will minimize the chances that a court will believe that the mediator acted in excess of his authority or that the procedures adopted by the mediator deprived the parties of due process.
Binding mediation should be used only in those cases where the parties believe it is appropriate. It is likely to be most productive in cases where the parties have an ongoing business relationship and want to avoid the more confrontational environment of a typical arbitration. It is also probably better for smaller disputes where the money saved will be material compared to the amount in dispute and where the chances for an agreed upon resolution are stronger. Most parties probably prefer the more formal arbitration process where a large amount of money is in dispute and the greater costs associated with a full arbitration panel is much easier to justify.
For many decades, the reinsurance marketplace has adopted arbitration as the preferred mode of dispute resolution. The expressed goals of arbitration are familiar — timely and efficient resolution of disputes by a panel of experts familiar with the intricacies of the business. One way that the Federal Arbitration Act (FAA) facilitates those goals is by promoting finality. The grounds for vacating an award pursuant to the FAA are highly limited and difficult to sustain. See 9 U.S.C. § 10(a).
Despite those obstacles, over the last several years it has become commonplace for losing parties to reinsurance arbitrations to challenge the award in court. Thus, even after a lengthy arbitration, the parties now often engage in months, or even years, of appellate litigation before learning whether an award will stand.
Because it is extremely difficult to challenge an arbitration award on the merits, many losing parties have based their efforts to overturn an arbitration award on alleged nondisclosures by arbitrators during the arbitrator appointment process. Among the limited grounds for vacating an award contained in the FAA is that an arbitrator displayed “evident partiality” in making the award. As interpreted by the courts over the years, the standard for proving actual partiality is appropriately onerous — akin to a finding of fraud or corruption by the arbitrators. Accordingly, cases where arbitrators were found to be actually biased have been extremely rare.
Going back to the United States Supreme Court’s opinion in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 89 S. Ct. 337 (1968), however, courts have been more willing to vacate an award under the “evident partiality” standard based on nondisclosures of an arbitrator’s personal monetary interest in the dispute — or with a party — from which partiality might be inferred. Indeed, reinsurance practitioners are eagerly awaiting the Second Circuit Court of Appeals forthcoming decision in Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Insurance Co., 732 F. Supp. 2d 293 (S.D.N.Y. 2010). The opinion in that case should help further define the boundaries of required disclosures by arbitrators regarding their involvement in other potentially related arbitrations.
A recent decision by the Texas Appellate Court provides a new twist in this ongoing saga. Although the case was decided under the applicable Texas arbitration statute, the relevant provisions of that statute are identical to the FAA.
The Karlseng v. Cooke Decision
In Karlseng, et al v. Cooke, No. 05-09-01002, Tex. App. LEXIS 4868 (Tex. App. June 28, 2011), the Court of Appeals of Texas, Fifth District (Dallas) unanimously vacated a substantial arbitration award based on nondisclosures regarding the arbitrator’s social and personal relationships with the counsel for the prevailing party. The case involved a (non-reinsurance) partnership dispute that was arbitrated before a single neutral arbitrator pursuant to the JAMS arbitration procedures. After a lengthy arbitration, the arbitrator ruled in favor of the plaintiff, Cooke, and awarded $22 million in damages, including more than $6.0 million in attorneys’ fees. Karlseng moved to vacate based on alleged nondisclosure of the arbitrator’s relationship with the lead counsel for the plaintiff.
A remarkable aspect of the case is the extensive discovery that took place as part of the vacatur proceedings in the reviewing trial court, including document discovery of all emails and other communications that took place over a 15-year period concerning the arbitrator’s communications with Cooke’s counsel. That documentary discovery was supplemented by depositions and hearing testimony of the arbitrator, the lawyer, and their spouses regarding the intimate details of every social or business interaction over that time frame, including the text of thank you notes, dinner invitations, and so forth. Following that discovery, the trial court rejected Karlseng’s challenge and confirmed the award. On appeal, however, the Court of Appeals unanimously reversed, ordering the vacatur of the award.
The opinion recites in laborious detail the history of the interactions between the arbitrator and lawyer from the time the lawyer was a law clerk in 1994 through their dealings after the arbitration award was issued. The gist of the record is that the lawyer and arbitrator, and their wives, pursued a regular — but not particularly close or active — social and professional relationship over an extended time frame. This involved periodic calls regarding business and legal issues, mutual invitations to speak at conferences and similar marketing events, expensive dinners at country clubs, gifts baskets provided at Christmas, and tickets to a Dallas Mavericks game. Although the opinion presents these facts devoid of characterization, the record portrays a mutually beneficial relationship in which the lawyer became well known to a successful local arbitrator, whereas the arbitrator potentially stood to benefit from arbitration appointments from a prominent local firm.
Clearly there is nothing inappropriate regarding such relationships within a local legal community, which are commonplace. The Court of Appeals, however, was understandably troubled by the complete nondisclosure of those relationships when the arbitrator was appointed. Applying precedent of the Texas Supreme Court, the relevant test espoused by the court was whether the arbitrator failed to “disclose facts that might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” The Court concluded that the opposing party was entitled to know and to consider the relationship between the arbitrator and counsel at the time the arbitrator was appointed.
Several facts appear to have weighed heavily in the court’s assessment. First, even though the arbitrator and lawyer knew each other well, when the lawyer first appeared in the case, the lawyer and arbitrator introduced themselves to each other as if they had never met. Second, although the two temporarily ceased their socializing during the pendency of the case, very shortly after the award was issued, the arbitrator invited the lawyer and his wife and another couple to a lavish dinner at a Dallas restaurant. Finally, although the arbitrator testified that he had forgotten about much of the history of his social interaction with the lawyer over the years, when the lawyer appeared in the case, the arbitrator admitted that he made no effort to undertake any due diligence to review or remind himself regarding the extent of that relationship. The Court emphasized that an arbitrator possesses a duty of inquiry and due diligence when it comes to disclosures.
Practical Lessons From the Opinion
Observers may differ regarding whether the nondisclosures at issue warranted the vacatur of the underlying award. The salient practical point from this opinion, however, is that companies engaged in arbitration can take steps to avoid such a debate altogether. Although no lawyer enjoys losing a hard-fought case on the merits, certainly an even worse experience for any corporate or outside counsel would be to expend the company’s valuable time, resources, and energy in a lengthy arbitration, only to ultimately have a successful award vacated based on procedural concerns that were wholly preventable.
Many clients and counsel view the issue of arbitrator disclosures as a matter purely for the arbitrators. The Karlseng decision provides a cautionary tale against such an approach. Companies would do well to appreciate that many arbitrators are effectively solo practitioners who have entered that vocation on a part-time basis in the latter stages of their careers. They often understandably lack organized or detailed records of their prior business engagements. It also should not be assumed that arbitrators can remember their myriad professional and social engagements over the years — even more recent ones.
For that reason, instead of simply relying on the arbitrator’s records and recall, when addressing the issue of arbitrator disclosures, parties can protect themselves by taking an active role in the process. A relevant step that could be added to companies’ pre-dispute checklists would be to have the client and law firm involved review their records (or at least circulate an email among the relevant group) to uncover all prior, arguably material, professional or social dealings with the arbitrator. The findings can then be put on the record. Equally, rather than assuming that an arbitrator will actively review his or her records before completing a disclosure form, clients could specifically request that this be done and obtain confirmation when the process is complete. Had the lawyer in the Karlseng case prompted such simple preventative measures at the outset of the case, he would not have put his client at risk of having a successful award challenged at the close of an already expensive arbitration.
These steps may be more than what is actually required by the current state of the law under the FAA. The point is, however, that litigants should assume that their opponents will use any grounds available — however meritless — to challenge an adverse arbitration ruling. Accordingly, companies would be well served by implementing small preventative steps that could help avoid months or years of expensive and disruptive post-arbitration court proceedings. If successful in that endeavor, not only will companies save themselves resources and aggravation, but they will capture more of the benefits that arbitration offers as a dispute resolution mechanism.
Auto Insurance Fraud Reform Efforts Continue in Florida
By Nate Wesley (Wes) Strickland
For many years, Florida’s auto insurance market has enjoyed stability in terms of availability and affordability of coverage with any number of solid insurers competing for business, including nonstandard risks. Florida’s relatively stable market for auto insurance could be in jeopardy due to personal injury protection (PIP) insurance fraud that has grown at an alarming rate over the past three years. Although PIP fraud has been a problem in the Miami area for many years, the problem is no longer localized to that part of the state. Organized fraud rings that employ such tactics as staged auto accidents and fraud and abuse in medical billing have moved into other areas of the state, causing many carriers to tighten their underwriting standards and raise their rates to cover the increasing costs of battling PIP fraud.
Legislation that would have addressed this problem failed to gain traction in the 2010 legislative session, but there was momentum heading into the 2011 legislative session for meaningful PIP fraud reform due to reports coming from the National Insurance Crime Bureau (NICB), Florida’s Office of Insurance Consumer Advocate, and Agency for Health Care Administration (AHCA) that corroborated the anecdotal evidence that carriers had previously relied upon for support of PIP fraud reform. Unfortunately, PIP fraud reform once again was not prioritized, and the 2011 legislative session ended with only a few discrete measures adopted that are unlikely to resolve the problem.
The latest NICB report on vehicle collision questionable claims (VC QCs), issued April 11, 2011,1 shows that between 2009 and 2010, there was a 15-percent increase nationwide in the total number of BI/PIP claims and a 17-percent increase in the number of VC QCs. The most common reason reported for VC QCs was “Staged/Caused Accident,” followed by “Suspicious Hit While Parked,” “Paper/Phantom Accident,” “Jump In,” and “Solicitation (Chasers and Cappers).” Florida led the nation with the highest number of VC QCs in 2009 and 2010. The cities with the most VC QCs were New York, Tampa, Orlando, Los Angeles, and Houston. The report notes that each of these cities already has an NICB Major Medical Fraud Task Force comprised of investigators and analysts from NICB, the insurance industry and law enforcement. These task forces were established to target the growing fraud associated with auto policies and illegitimate bodily injury claims. So the number of questionable claims has increased in these cities despite the stepped up anti-fraud efforts by the auto insurance industry and law enforcement.
The insurance industry is not alone in sounding the alarm bell. On April 11, 2011, the Florida Office of Insurance Regulation (OIR) issued a report on the results of a PIP data call to auto insurers licensed in Florida.2 The results of the data call revealed that in 2010, the pure direct loss ratio for PIP was 97.4 percent, which means for every dollar of premium that the insurer collects, more than 97 cents was used to pay losses. The OIR report also found that the frequency of PIP claims in Florida had generally decreased from the fourth quarter of 2005 to the fourth quarter of 2008. Since 2008, however, there has been a sharp increase in the frequency of paid claims. The OIR’s report states that, if the frequency of claims continues to increase at the same rate over the next year, OIR expects a 19-percent increase in the frequency of paid claims in the next year. The OIR report further revealed that the severity of PIP claims in Florida has generally increased since the fourth quarter of 2005. If the severity continues to increase at that same rate as it has from the fourth quarter of 2008, OIR expects a nine-percent increase in the severity of paid claims in the next year. Over the next year, OIR expects to see a 29-percent increase in pure premium, which is the average premium per exposure needed to cover expected losses for that exposure.
It is important to note that the latest NICB report and the results of OIR’s PIP data call were not released until after the 2011 session of the Florida Legislature was already underway, which may have limited the usefulness of that information for advocates of PIP fraud reform. However, prior to the beginning of the 2011 session, on November 3, 2010, Florida’s Office of Insurance Consumer Advocate issued a report and recommendations to Florida House and Senate leadership on the results of a PIP roundtable conducted earlier that year.3 This report confirmed that Florida’s auto insurance fraud problem is not limited to questionable accidents, but also extends to fraud and abuse in billing for medical services. The Consumer Advocate’s recommendations incorporated a number of measures directed at tightening regulation of health care clinics and providing more tools and resources for law enforcement to combat staged accidents.
A number of the recommendations in the Consumer Advocate’s report are similar to those that had been included in the Comprehensive Insurance Fraud Investigation and Prevention Act of 2010 (HB 1447), a PIP fraud reform package that failed to garner much attention during the 2010 legislative session. The core provisions of HB 1447 were directed at cracking down on health care clinic licensure and exemption fraud; fixing glitches and loopholes that limit the ability of the Division of Insurance Fraud and insurance investigators to investigate fraudulent acts; and providing additional economic sanctions to deter insurance fraud.
Heading into Florida’s 2011 legislative session, the insurance industry identified a number of issues targeted at reining in PIP fraud, including:
The issues that were pursued in 2011 were split into two sets of bills — one aimed at attorneys’ fees and medical provider examinations (House Bill 967 and Senate Bill 1694), and the other that dealt more broadly with PIP fraud (House Bill 1411 and Senate Bill 1930). All of these measures were strongly opposed in the House and Senate by trial attorneys and medical provider interests and ultimately died in committee. Some members of the Legislature attempted to amend some of the anti-fraud measures onto other bills, including those directed at attorneys’ fees, long form crash reports, enhanced fraud penalties, and the Direct Support Organization, but only two of them survived on bills that passed the Legislature. Senate Bill 2160 included language relating to expanded use of long form crash reports, and House Bill 1087 creates civil monetary penalties for motor vehicle insurance fraud. Both of these bills were signed by the Governor and enacted into law.4 However, there is a widespread view that neither of these measures will provide insurers and law enforcement with the tools necessary to stymie the growth of PIP fraud in Florida.
Preparations are already underway for the 2012 Florida legislative session, and PIP fraud reform is gaining attention once again. The recently appointed Florida Insurance Consumer Advocate has announced the creation of a working group to be comprised of legislators and various stakeholders to study the problem of auto insurance fraud.5 The Florida Senate Banking and Insurance Committee also has added auto insurance fraud as an issue to be studied in advance of the 2012 session.6 It is likely the Committee will issue a white paper or policy statement as a result of their study, before the 2012 Florida legislative session convenes. The governor has not yet developed any specific legislative proposals but has recognized there is an ongoing problem with PIP and even has publicly questioned whether PIP should be made optional.7
2 “Report on Review of the 2011 Personal Injury Protection Data Call,” Florida Office of Insurance Regulation (April 11, 2011).
3 “Personal Injury Protection Roundtable Recommendations,” Florida Office of Insurance Consumer Advocate (November 3, 2010).
4 See Chapter 2011-66, Laws of Fla., and Chapter 2011-174, Laws of Fla.
5 “Insurance Consumer Advocate Creates PIP Working Group,” Florida Office of Insurance Consumer Advocate Press Release (August 11, 2011).
6 “Interim Issue Brief Title: Personal Injury Protection (PIP),” Florida Senate Committee on Banking and Insurance 2011-2012 Interim Work Plan, Project Number 2012-203.