- March 14, 2023
Issue. Businesses say lawsuit-friendly Florida is a drag on the economy.
Key. Make state laws more business-friendly in the courtroom.
A bevy of facts dramatically support the notion that Florida is a haven for “bad-faith” lawsuits that allow a jury to award up to hundreds of times more than an insurance policy covers. Perhaps the most telling fact is this: one out of every five bad faith claims in the United States arises in Florida.
That costs insurance companies millions, but it ultimately costs consumers and businesses millions as well because insurance companies make up those losses in premiums. It's a lose-lose situation.
So then how did a measure that would reform the bad-faith statute get nixed in a House committee 8-7? Through the power and influence of a group that wins under the state's current law: trial lawyers.
But the bad-faith bill victory is far from the only win for what some consider the state's most effective special interest group in Tallahassee.
According to groups representing businesses, trial lawyers in Florida represent one of the biggest obstacles to economic and job growth — and are part of the reason the state ranks 42nd in legal climate for businesses, according to the Harris Interactive Poll.
Indeed, mention lawyers to almost any business owner and the groans say it all. The same can be said for the organizations in Tallahassee that represent businesses in Florida.
Relatively easy and costly lawsuits are one part of the trifecta that have become the bane of Florida businesses that is rounded out with over-regulation and high taxes. Lawsuits cost untold millions of dollars in lawsuits and the threat of lawsuits, which require inefficiencies and heavy insurance premiums.
According to NERA Economic Consulting, the tort liability price tag for small businesses in America in 2008 was $105.4 billion — not including medical malpractice.
In a 2007 national Harris poll, 62% of business owners or managers said they make business decisions to avoid lawsuits; 61% said the fear of lawsuits made their products and services more expensive and 45% said the fear of lawsuits made a product or service unavailable to customers.
How real is the impact on companies and jobs?
If targeted in a lawsuit, 71% of small businesses say they would very likely have to hold back on hiring new employees, according to a national poll conducted in 2010 by Bill McInturff and Doug Schoen for the U.S. Chamber Institute for Legal Reform.
Trial lawyers as a group make up one of the wealthiest demographics in Florida. They know the system in the courts and in the halls of power in the Capitol. They have a small army of about 20 lobbyists, but more importantly they can field a phalanx of high-powered trial lawyers who persuade legislators privately while debating public bills vigorously.
“The trial lawyers are overwhelming,” says Bill Herrle, Florida executive director of the National Federation of Independent Businesses. He says he is going up against their lobbyists and lawyers at every turn in Tallahassee.
The frustration over the apparent power of trial lawyers and their ability to use the system and block reform can verge on the personal. Listen to Mark Wilson, president and CEO of the Florida Chamber of Commerce:
“There are those people who make things, services, products and employ people. And there are those people who take...trial lawyers don't make anything. All they do is take.”
Debra Henley, executive director of the Florida Justice Association -- the trial lawyers' lobbying arm in Tallahassee — veritably scoffs at the idea that trial lawyers have overwhelming influence in Tallahassee.
“We're still outnumbered by interests that would close the door to the courthouse,” she says.
Indeed, the number of registered lobbyists for business groups exceed that of trial lawyers by a long shot. But part of the reason for that is that the trial lawyers' FJA makes extensive use of its lawyer members to lobby in Tallahassee. Unlike most business lobbyists, those lawyer members are not paid, and only those who are paid are registered as lobbyists.
But the FJA is not as partisan as one might expect. While trial lawyers as a group give much more to Democrats, Henley says that she is a Republican, as are the past two presidents of the FJA.
Outnumbered or not, the insurer's bad-faith bill is an example of how well the trial lawyers play the system, both in Tallahassee and during the 10 months of the year when the Legislature is not in session.
Florida's bad-faith law has been a financial boon for the state's trial lawyers. The lawsuits are allowed when lawyers claim that an insurance company did not settle a claim in the proscribed timeframe — which can be as little as a few days. The plaintiffs typically go for many times more money in a payout than was covered in the insurance policy. A $10,000 policy can turn into a $10 million payout.
Businesses say lawyers game the system by asking for so much background data in such a short timeframe that it becomes impossible for an insurance company to settle within the time limit. Then the lawyers sue the insurance companies for not settling the lawsuits in a timely manner.
“What we've got here is a statute that forces almost every claim into litigation,” former Florida Supreme Court Justice Charles T. Wells told the House subcommittee. “The only ones making money consistently off this are lawyers.”
But Fred Cunningham, president of the Florida Justice Association and a Palm Beach personal injury lawyer who, it just so happens, focuses on insurance company bad-faith litigation, assured the panel that there is “no crisis” in the current law. “This is a draconian solution in search of a problem.”
And FJA's Henley says the current bad-faith law protects businesses, and it is insurance companies pushing for the change so they are not on the hook for amounts beyond policy limits.
For years, trial lawyers have successfully fought to retain the current law that is so profitable for their business — and, they say, good for their clients. Last year, a procedure was used to sideline a reform bill without a vote being taken. That gave cover to legislators who would have voted against it to go home and tell businesses that they were for it.
This year, backers wanted to make legislators vote and were able to do that in the House Civil Justice Subcommittee.
But the bill was already dead before the vote. Those following it closely knew that the trial lawyers had persuaded three Republicans to side with Democrats and trial lawyers. Those Republicans were Matt Gaetz, R-Fort Walton Beach; Shawn Harrison, R-Tampa; and Jose Oliva, R-Miami Lakes.
None of the three Republicans responded to requests for an explanation of his vote. While they all have received campaign donations from lawyers, it is a small percentage of the totals for each of them.
Rep. Kathleen Passidomo, R-Naples, author of the bad-faith bill, said she could not explain the votes of her Republican colleagues. “I have no idea. They didn't articulate any reasons I thought were credible.”
Bad faith is far from the only bill on which the trial lawyers are fighting the business community.
Each year there is a multitude of bills that fall under the category of tort reform — altering laws in an attempt to hold down outrageous lawsuits and payouts.
That is not how Henley sees it. “Tort reform means the legal system won't be there when you need it,” she says. She claims the system is already weighted in favor of businesses.
Businesses clearly don't agree.
A bill to reform no-fault insurance, which is costing insurance companies and ultimately consumers more than $1 billion annually and forcing premiums to rise up to 70% in the past two years, is being fought by the FJA and its members. They oppose the caps on attorneys' fees, the repeal of the attorney fee risk multiplier, the ability of insurers to require testimonies under oath, independent medical exams and additional time for insurers to investigate suspicious claims.
They also oppose legislation changing the expert witness standards to conform them to the federal law and what 36 other states already use. Business interests say that the current law allows “junk science” to be allowed and has caused damage to many Florida businesses.
When that bill came up in committee recently, several trial lawyers from around the state who have successfully used the current standard spoke against the change. They did not prevail in the end, but Rep. Richard Steinberg, D-Miami Beach, who opposes the bill, voted in favor so he could use a parliamentary procedure known as “retaining” to keep the bill in the committee at least until the next committee meeting. Only someone voting in the majority can ask it be retained. Steinberg, an attorney, and others had tried to delay the vote the entire meeting.
This points to how well the trial lawyers play the game. If they cannot win on votes, they try to kill bills any other way, from working to have an unfriendly bill sent to as many committees as possible — a potential death sentence because of the nine-week time constraint of the session — to procedural moves such as “retaining.”
Others use these maneuvers, but FJA seems to be particularly effective at it.
Henley admits that trial lawyers are usually on the opposite side of the groups representing businesses, but she asserts that the bills being pushed under tort reform will not improve the state's economy. “None of the things they propose would bring more jobs to Florida,” she says.
The business model
NFIB's Herrle says power in Tallahassee is essential to the trial lawyers' business future.
“Their business model depends on favorable statutes to sue people,” he says bluntly.
And they have been successful in Florida. The state laws governing bad-faith lawsuits are a prime example of that.
Henley says the trial lawyers' business is giving people who have been wronged some redress in court. “We're trying to protect people when the unthinkable happens,” she says.
She says some trial lawyers do very well financially, but most of them are middle-class lawyers. Like any industry, the top-earners are usually the best at what they do.
“The most successful lawyers monetarily take the biggest risks and take on top corporate interests,” she says. “They have to be at the top of their game.”
Trial lawyers make their money by taking a percentage of a settlement or jury award, normally about one-third, but it can go higher. So a $300,000 award nets the lawyer $100,000. A $10 million claim, $3.3 million.
The money adds up when a law firm has dozens of suits active at any given time. And that is why the trial lawyers are so aggressive in protecting the laws that favor their business. Henley says they are looking out for people in tragic situations. But they also undeniably profit personally.
There has been another effect of Florida's favorable lawsuit climate. The state has a lot of lawyers.
The Bureau of Labor Statistics tracks a “location quotient” to measure the concentration of jobs in that industry compared with the rest of the country. The country's average being one, Florida's quotient is 1.32, making it the second highest concentration of lawyers in the nation, behind only New York state. By comparison, California's is 1.10 and Texas' is 0.75.
There's something lawyers find attractive in Florida.
But other than on TV, trial lawyers are not popular with the public.
In a survey conducted by the American Tort Reform Association, 83% of Americans held a negative view of trial lawyers. That may explain why FJA changed its name from the Academy of Florida Trial Lawyers in 2007 -- two years after the Florida Justice Reform Institute was created.
The group's online belief statement says:
“We passionately believe that all Floridians benefit when deserving individuals have a fair chance to seek justice in our state's courts and that Florida's consumers are made safer when large corporations and industries are held to a high ethical standard and accept fair responsibility for their actions.”
Home field advantage
Lawmakers are creating or fixing laws by the hundreds each year. Lawyers' lifeblood is knowing the law and making the most of it on behalf of their clients and themselves.
As such, trial lawyers have a bit of a home field advantage in Tallahassee over businesses by understanding the intricacies of law. And they are often talking to other lawyers when they are talking to lawmakers -- speaking the same language. The familiarity doesn't hurt their influence.
Further, there is a whole different dynamic at work between the trial lawyers and businesses.
Most business people are focused on running their companies — product development and sale, production, distribution, hiring, credit, regulatory compliance, customer service, expanded facilities and so on. As such, they rarely understand how proposed laws in Tallahassee might affect their business down the road until they have run into them over the years, according to William Large, president of the Florida Justice Reform Institute. By then, it is often difficult to change.
One of Large's major tasks is to educate business owners on the threat of new laws for their business. “Trial lawyers understand it in a millisecond,” he says. “They (the FJA) don't have to explain why a bill is important.”
Large can sound almost envious of their prowess.
“They're very well organized, articulate, smart. They understand the effects of laws on their business,” he says.
Further, businesses are always asking for many different statutory changes during a session, from regulatory changes to tax shifts. “Tort is part of the white noise effect of the many 'asks,”' Large says.
Not for the trial lawyers.
“Trial lawyers are focused one thing,” Large says. “Stop tort reform.”
And they're pretty darn good at it, year after year.
THE FINANCIAL COSTS
While big companies get headlines for lawsuit payouts, most of the liability payouts fall to small businesses. NERA Economic Consulting found the following:
• The tort liability price tag for small businesses in America in 2008 was $105.4 billion. This does not include medical malpractice, which was another $29.8 billion.
• Small businesses bore 81% of total business tort liability costs.
• Small businesses paid $35.6 billion of their tort costs out of pocket as opposed to through insurance.
Further, Tillinghast/Towers Perrin predicted that tort costs would reach $183.1 billion in 2011 for all businesses, suggesting a trend that is not sustainable long-term.
THE PRODUCTIVITY COSTS
In a 2007 Harris poll, 62% of business owners/managers said they make business decisions to avoid lawsuits. These decisions had the following effects:
• 61% said the fear of lawsuits made their products and services more expensive.
• 45% said the fear of lawsuits made a product or service unavailable to customers.
• 23% said the fear of lawsuits forced them to cut employee benefits.
• 11% said the fear of lawsuits decisions forced them to lay off employees.
More than a third of the business people had a lawsuit filed against them in the past 10 years. These suits had the following effects:
• 73% said business suffered because litigation was very time consuming.
• 64% said business suffered because litigation was very expensive.
• 61% said they felt more constrained in making business decisions generally.
• 45% said they changed business practices in ways that do not benefit customers.
In a separate 2010 Harris poll, 67% of business owners or managers said that the litigation environment in a state is likely to impact important business decisions at their companies, for instance, where to locate or do business.
Bad-faith lawsuits result when a consumer's lawyer claims that an insurance company did not settle a claim in an appropriate time.
Under current Florida law, an insurance company is presumed to be in bad faith if it does not settle in 60 days. And plaintiff lawyers are allowed to shorten the time to as little as a week.
A bill addressing the problem was defeated 8-7 in committee. It would have limited claims for excess damages beyond a policy limit to only the insured, not to third parties; created a 90-day notice for commencement of a bad-faith lawsuit, rather than the current 60-day period; and if a good-faith effort is made to settle the policy up to the maximum payout within the time period, that should be proof of no bad faith.