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Litigation and Fraud Force Consumers to Pay More for Auto Insurance

    Case Law Changes Are Primary Culprit in Higher Auto Insurance Premiums

    TAMPA, Fla., March 16 The House Insurance Committee,
chaired by Representative Leslie Waters, R-Largo, recently passed two bills
aimed at addressing the dramatic increase in Personal Injury Protection (PIP)
insurance costs in Florida. These bills attack the two major problems with
Florida's No-Fault auto insurance system-litigation and fraud. The Insurance
Committee's action is the first step toward providing relief to consumers; the
Department of Insurance (DOI) estimates that auto insurance fraud costs
Floridians $500 million a year in increased premium and DOI rate filings show
that at least 35 companies have raised rates in Florida in the past 12 months.

    Under the Florida automobile insurance No-Fault system, adopted statewide
in 1971, medical bills and lost wages are paid regardless of fault through
Personal Injury Protection (PIP) coverage.  The system was designed to pay
auto accident victims faster by avoiding the delays and expense of lawsuits,
reduce the volume of lawsuits by eliminating minor injury cases from the court
system and minimize overall motor vehicle insurance costs.

    Although this system was intended to reduce overall auto insurance costs,
it has instead recently caused them to skyrocket.

    According to Juan Andrade, Gulf Region General Manager, Progressive
, the reason is simple: "There are two primary drivers of increased
costs in PIP in Florida today - rampant litigation, which flies in the face of
the original intent of No-Fault, and pervasive personal injury fraud."

    The surge in litigation is fueled by recent changes in Florida case law
and by a provision in the PIP statute that nearly guarantees attorney's fees
for lawyers filing PIP-related lawsuits, regardless of the amount of the PIP
benefits recovered.  Two recent examples provided by Progressive, Florida's
third largest auto insurer, illustrate this:

    *     One Florida attorney recently filed suit to recover seven cents in
          interest for a medical provider in the state.  In return for
          recovering the seven cents, the attorney was paid more than $1,000
          in fees.

    *     Another attorney filed suit over a $4 reduction of benefits.  He
          received $1,000 in attorney's fees.

    It is also important to realize that most of these suits are over nominal
amounts sought by plaintiff attorneys; consumers gain little if anything from
these lawsuits and in fact see only the negative effects through increased
auto insurance premium.

    "The near-guarantee of fees for filing these lawsuits has opened the flood
gates on litigation against insurance companies," said Andrade. "There is no
minimum threshold for which attorneys can file suit - if there's a penny to be
recovered, a suit will be filed.  In the last 12 months, of the $1.4 million
Progressive paid to settle low-value PIP suits, $1.2 million, or 86 percent,
represented attorney fees and costs."

    As a result of the onslaught of litigation, court dockets throughout the
state are clogged with PIP lawsuits, leading multiple courts to attempt to
interpret the original intent of the No-Fault statute.  Some of these
decisions have differed from the historical application of the statute.  The
following example (Perez vs. State Farm) limited an insurer's ability to
investigate potentially fraudulent claims.

    The PIP statute requires that medical bills be paid within 30 days.
Previously, if an insurance company disputed the amount of a bill for any
reason, an investigation was started within the first 30 days and a decision
on payment was made as quickly as possible.  If it was determined that the
bill should have been paid, but the 30 days had lapsed, the insurance company
paid the amount of the bill plus interest.

    The Perez vs. State Farm decision dictates that insurance companies must
pay all claims (fraudulent or legitimate) within 30 days of notification of
services rendered.  If the insurer is unable to conclude its investigation
within the 30 days, they have waived their right to refuse payment of the
claim, even if they obtain proof on day 31 that the claim is fraudulent or
otherwise not owed. This ruling does not allow insurance companies adequate
opportunity to review bills or investigate claims in order to determine if
charges were reasonable or necessary.

    Because these interpretations of the statute are applied retroactively,
attorneys have used this ruling to file lawsuits on thousands of claims that
were handled appropriately and in accordance with the interpretation of the
law at the time.

    In a review of PIP lawsuits settled by Progressive last year, the company
found that court interpretation of the PIP law in Perez and other cases
applied retroactively has fueled approximately 90 percent of all the lawsuits
reviewed.  Also, 60 percent of the suits involved claims for nominal amounts
of benefits and interest.

    To remedy the situation in Florida and to help control the cost of auto
insurance for consumers, Progressive and other insurance companies are
supporting a number of PIP No-Fault reform measures including instituting a
pre-suit notification to insurers, developing anti-fraud tools and seeking
Legislative clarification of case law and statutory intent.