As the Florida auto dealer bond market stands today, surety companies are losing much more than the aggregate $25,000 bond amount required of auto dealers within the state. This is due to certain Florida law firms who have a tradition of manipulating their client’s bond claim cases by purposely racking up outlandish attorney fees which puts more money in the attorney’s pockets; but at the same time this harms new and established business owners and sureties.

There are many cases on record concerning attorney’s accumulating huge fee’s while working on small surety bond claim cases, the most recent case being Orlando’s Auto Specialists, Inc. Vs. Platte River Insurance Company. Ms. Hykes, a customer who put a claim out on Orlando’s Auto Specialists, Inc.’s auto dealer bond , racked up $151,000 in attorney fees (at $800 per hour) in order to prosecute the claim. The fees are outrageously disproportionate to the actual claim amount which was only $12,828.28. The auto dealer bond claim cases are a vast source of income for these lawyers, so they often skip the pre-suit proof of loss process and go straight to court with the claims trying to keep the surety companies out of the loop. The attorneys often accuse sureties of deliberately delaying the investigative claim process to hinder a payout when in reality it’s in the sureties interest to fully investigate whether claims are legitimate since it’s money potentially coming out of their pocket. The court ruled that there was no misconduct by Platte River Insurance Co. in regards to the claim investigation process but a verdict is still pending.

These steps that are taken by the attorneys are no mistake; they are purposely racking up the massive fees knowing their clients won’t be able to pay them. They then look to the surety companies with the deep pockets to pay the attorney fees for an easy and lucrative payday. The only problem is sureties will only reimburse up to the aggregate bond amount ($25,000 for Florida auto dealer’s) when any claims go out on a bond which is stated in the bond language. In the case with Platte River Insurance Co., although the claims are well within the aggregate bond amount, the fees alone are well beyond it and these attorneys are arguing that the surety companies need to pay them as well. It’s unreasonable simply because these lawsuits often have little to do with the bond claims at hand and all to do with the attorney fees. As of now Florida judges are deciding whether or not this is a fair practice by the attorneys; but if one looks at the numerous cases carefully, it seems to be an obvious answer. Surety bonds are in place to protect the public, not insure that attorney’s get paid generously.

As a result of the attorney’s strategic fee accumulation, auto dealers, sureties and the car buying public all get the shaft. Since surety companies are losing so much money on Florida auto dealer bonds, it’s very possible that many of them will decide to brush their hands of the situation and stop writing the bonds altogether. A few years ago numerous sureties pulled out of the D.C. mortgage broker bond market because a judge awarded a claim on a bond that was much larger than the aggregate $12,500 bond amount. Speaking from JW Surety Bonds, Inc.’s experience, with the numerous markets we had available, we were still unable to write the D.C. mortgage broker bonds because all of the sureties we worked with wanted no part of them; this lasted for a couple years until the mortgage broker bond form was changed. Should something like this happen in Florida, there is an alternative to a surety bond in order to register an auto dealer with the state; a letter of credit (LOC). A LOC meet’s the same requirements as their bond counterpart, but are generally harder to obtain and are more expensive. This is exactly how both new and established auto dealers are negatively affected; with sureties out of the auto dealer market, it leads them towards the pricier LOC alternative. With no bonds in place the automobile buying public within the state will no longer be protected.

Surety bonds exist to guarantee that a company will follow the rules. Putting personal opinions aside on whether surety companies should be responsible for attorney fees, if this issue isn’t resolved Florida may also experience a similar D.C. mortgage broker bond “evacuation” which is something sureties, business owners and the public don’t want to see.

Assembly Bill 1939 was originally written to increase the cap on the document processing charge for leased vehicles by $20 to $65 and for purchased vehicles by $10 to $65. Opponents to this bill expressed concerns on behalf of the consumers, who have faced many rising costs lately in other areas, and that this increase would be unjustified. Opponents also expressed that an increase in fees, if necessary, should be in some way linked to furthering consumer protection.

In response to opposition, the author of AB 1939 amended the bill in June. First changing the increase for the document processing charge for leased vehicles by $10 to $55 and dropping the increase for purchased vehicles.

The amendment also included a change in the surety bond requirement for dealers and remanufacturers. Currently, dealers and remanufacturers must file a $50,000 bond with their license. If the bill were to pass, the surety bond requirement would be increased to $100,000. The Surety Bond of Motorcycle Dealer, Motorcycle Lessor-Retailer, All-Terrain Vehicle Dealer, or Wholesale-Only Dealer (Less than 25 Vehicles per Year) would remain at $10,000.

These amendments failed to appease the original opponents of the bill and brought on additional opponents because of the increase in the surety bond requirement. Among these opponents, The Surety & Fidelity Association of America (SFAA) raised concerns that the increased bond amount would make it even more difficult for dealers to obtain or maintain their bonding requirements. Others expressed concerns that the increased bond amount would serve as another barrier to dealers just getting started, especially used car dealers.

Fortunately, thanks to the efforts of the SFAA, AIA, and other local surety associations, the bill died in Senate after the hearing was cancelled by the author of the bill.

This topic reinforces the importance of keeping yourself informed of the latest activities of your state legislation. There may be other bills introduced in the future that could be unfavorable to your industry. It is essential that they hear your opinions, so that decisions can be made in the best interests of everyone involved.

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