“Abuse of assignment of benefits (AOB) from water loss claims has become a full-blown Florida insurance crisis that will mean higher insurance rates next year and for the foreseeable future for every Florida policyholder.”  Some have speculated that rate hikes of as much as $1 billion will be needed.  Actuarially sound rate increases have been indicated as high as 189% for Southeast Florida, and private insurers will not write coverage where abuse is rampant. In March 2016 alone, Citizens Property Insurance Corporation had 1,000 suits based on AOB; the highest month in the past two years though Citizens’ policy count dropped by two-thirds during those two years.  Eighty-five percent of all suits involved an attorney before the claim was even reported to the insurer. 
An AOB is a legal device used to transfer the property rights of one party to another, such as the right to receive funds based on an occurrence. Service providers, such as water remediation companies and roofing contractors, rely on a line of Florida case law to “stand in the shoes” of the policyholder and directly access policy benefits without accepting the policyholder’s responsibility to comply with various concomitant duties under the policy after a loss.
Some argue that this legal arrangement allows an unscrupulous service provider to submit inflated or improper claims, causing pre-conceived legal battles between the service provider and the insurance company, unbeknownst to the policyholder. It has been reported that AOB lawsuits have increased by at least 16,000% since 2000, while all suits against insurers increased by 183% since then.  The attorney’s fee shifting statute in Florida’s Insurance Code has played no small part in encouraging attorneys and service providers to file such suits.
Background on Assignment of Benefits
An assignment is the voluntary act of transferring an interest.  “All contractual rights are assignable unless the contract prohibits the assignment, the contract involves obligations of a personal nature, or public policy dictates against the assignment.”  Once an assignment has been made, “the assignor no longer has a right to enforce the interest because the assignee has obtained all rights to the thing assigned.”  As such, the assignee may pursue causes of action deriving from the contract. 
In 1959, Florida codified the insured’s lawful ability to assign a policy. Section 627.422, Florida Statutes, provides that, “A policy may be assignable, or not assignable, as provided by its terms.” Thus, a provision in an insurance contract prohibiting assignment of the policy is enforceable under the plain language of Section 627.422.
In Maryland Casualty Company v. Murphy,  Florida’s Third District Court of Appeal held that Section 627.422 required that a “no assignment” clause be included in a policy in order to preclude assignments. “Where a policy is silent on the matter of assignment, then the silence creates an ambiguity. Generally, in contracts of insurance, ambiguities are to be construed against the insurer and in favor of the insured.”  Thus, to preclude assignment, the policy must unambiguously prohibit assignment.
The purpose of an anti-assignment provision is to protect an insurer against “unbargained-for risk.”  An assignment of the policy, or rights under the policy before a loss is incurred, would transfer the insurer’s contractual relationship to a party with whom the insurer never intended to contract or with whom it may have contracted under different terms. The insurer’s ability to proscribe the unilateral assignment of its contract thus protects the insurer from unforeseen exposure and increased liability.
In contrast, an anti-assignment provision has routinely been held not to bar an insured’s assignment of an after-loss claim.  A post-loss assignment of a benefit under a policy, such as the right to seek payment under a policy for mitigation services rendered, will not constitute an assignment of the policy to a third-party assignee.  Nearly a century ago, the Florida Supreme Court declared in West Florida Grocery Company v. Teutonia Fire Insurance Company that, “it is a well-settled rule that the provision in a policy relative to the consent of the insurer to the transfer of an interest therein does not apply to an assignment after loss.”  The court, though, provided no support for its indication of this “rule” as being “well-settled.”
In Teutonia, the assignment, not a policy provision, included the phrase “subject to the consent of the insurer.” The court deemed this condition “superfluous” as not affecting the validity of the assignment. Helpful to this conclusion was the fact that no party challenged the validity of the assignment; and, the insurer deposited the full amount of the claim, upon filing its bill of interpleader, which the court construed as “recognizing and giving tacit consent to the assignment.”  The court reaffirmed this “well-settled rule” in 1998 when it indicated that “an insured may assign insurance proceeds to a third party after a loss, even without the consent of the insurer.”  Thus, an assignment made after the loss generally is valid even if the contract states otherwise. 
Assignments of policies and post-loss AOBs receive differing treatment due to the nature of the contract. An insurance contract is a promise by the insurer to perform upon the occurrence of a determinable contingency. In trade, the insured pays for that promise and fulfills her obligations and duties under the contract. The insurer’s liability to make good on its promise is established as of the time of a covered loss.  Thus, the insured’s post-loss assignment of his correlative right does not affect the insurer’s liability for payment. The insurer’s duty under the policy is already established.  The reason for restricting assignment of the policy, i.e. “unbargained-for risk,” has ceased. Accordingly, all things being equal, the insurer’s risk should not increase by changing the identity of the party to whom payment is to be made under the policy.
The insured’s claim ripens into a right to recovery under the policy as a chose in action. A chose in action is a proprietary right, such as a debt owed by another person.  A chose in action arising out of a contract is assignable and “may be sued upon and recovered by the assignee in his own name and right.”  Thus, the right to a debt owed to another person includes the right to bring an action to recover on that debt. Where there is no provision forbidding assignment, “an insurance policy may be assigned as any other chose in action,”  unless “public policy dictates against the assignment.” 
The Fourth District Court of Appeal found such public policy in Kohl v. Blue Cross Blue Shield of Florida, Inc.,  to enforce a clause limiting AOBs under a health insurance contract. As a new patient of Dr. Kohl, the insured executed an AOB prepared by Dr. Kohl. The AOB purportedly assigned to Dr. Kohl the insured’s right to receive all health insurance benefits under her policy with Blue Cross. Though eligible, Dr. Kohl was not a participating provider in the Blue Cross network of physicians: he had no provider agreement with Blue Cross to participate in the network. Dr. Kohl performed covered chiropractic services for the insured. The Blue Cross policy included an anti-assignment provision which read as follows:
The insured is responsible for filing claims for services and supplies rendered by eligible Non-PPC Providers. BCBSF’s payment, if any, for covered services rendered by an eligible Non-PPC Provider will always be made directly to the Insured. BCBSF will not honor any assignment to an eligible Non-PPC Provider, including without limitation, any of the following assignments: an assignment of the benefits due under this Contract; an assignment of the right to receive payments under this Contract; or an assignment of a claim for damages resulting from a breach, or any alleged breach of this Contract. 
In accordance with this provision, Blue Cross paid all claimed benefits directly to the insured. The insured failed to pay Dr. Kohl though Dr. Kohl submitted benefit claim forms to Blue Cross. The court found the policy’s AOB provision to be unambiguous and, despite the “well-settled rule” disfavoring conditional AOB clauses, “public policy favors the type of anti-assignment clause at issue in this case.”  The court reasoned that, “Anti-assignment clauses prohibiting an insured’s assignments to out-of-network medical providers are valuable tools in persuading health [care] providers to keep their costs down and as such override the general policy favoring the free alienability of choses in action.”  To further substantiate its position, the court culled the following from cases in other states:
The anti-assignment clause has been deemed to advance the overarching public interest in limiting health care costs for, if the patient could assign his or her rights to payment to outside medical providers, it would undercut the pre-arranged costs with in-network providers that arerelied upon by nonprofit health services corporations in deciding the premium amount... The benefit to this system is that the insurer is able to impose cost restraints on the participating health care providers who, in return, receive quick and direct payment from the insurer. If the patient could obtain care from a non-participating [provider] and assign the patient’s right to be reimbursed under a group policy, in the teeth of an anti-assignment clause, this direct payment inducement to become a participating [provider] would be weakened or eliminated. 
Thus, the consensual management of healthcare costs, as a matter of public policy, overrode the “well-settled rule” to enforce AOBs in favor of providers without contract incentives to keep costs down. Direct payment served the public interest of providing healthcare at a responsible cost. Consequently, these pre-arranged costs directly affected decisions regarding premium amounts.
Also, Florida courts have extended the constitutional protection afforded homestead property to the proceeds of insurance recovery from that property. In Teutonia, the court enforced the insured’s homestead exemption in any residue in excess of the amount he was indebted to West Florida Grocery, as the assignee, plus attorney’s fees and court costs.  Recently, a Florida court entered summary judgment in favor of an insurer due to an invalid AOB by virtue of this constitutional protection. In reaching its decision, the court ruled that, “Under Florida law, the proceeds of any insurance recovery from homestead property are constitutionally protected to the same extent as the property itself, and a homeowner cannot be divested of those proceeds through an unsecured agreement.” 
Post-loss assignments are susceptible to other possible legal challenge, such as when the assignment violates the public adjuster statute,  when the assignment violates the statute governing insurable interests,  when the assignment fails to give the service provider control over the claim,  or when the language of the assignment is so broad that it constitutes an assignment of the entire policy in violation of a valid anti-assignment clause supported by Section 627.422. Further, no case eliminates the insured’s duty of compliance with all policy conditions, for an assignee to recover benefits on a covered loss. 
One-Way Attorney’s Fees
Under Florida common law, each party generally bears its own attorney’s fees unless a contract or statute provides otherwise.  Section 627.428, Florida Statutes, serves as a one way “fee shifting” statute that has fueled the rapid growth of AOB lawsuits. That section provides:
Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had. 
This statute “direct[s] the courts to assess attorney’s fees against only one side of the litigation in certain types of actions.”  As such, “the statute is a one-way street offering the potential for attorney’s fees only to the insured or beneficiary.”  An award under this section is available “to the contracting insured, the insured’s estate, specifically named policy beneficiaries, and third parties who claim policy coverage by assignment from the insured.” 
Section 627.428 clearly provides that attorney’s fees shall be awarded against the insurer when judgment is rendered in favor of an insured. Florida courts have extended this statute to impose these fees when an insurer settles a suit on the claim. “When the insurance company has agreed to settle a disputed case, it has, in effect, declined to defend its position in the pending suit. Thus, the payment of the claim is, indeed, the functional equivalent of a confession of judgment or a verdict in favor of the insured.”  Further, the insured may recover attorney’s fees incurred in determining whether a valid settlement agreement exists at all, such as an oral offer to settle for a certain amount.  The reasoning here is that “it would be incongruous to permit fees incurred in reaching a settlement agreement, but not allow fees to determine whether the parties reached a binding agreement in the first place.”  Thus, a person who takes an AOB is entitled to attorney’s fees if that assignee prevails in an action against an insurer, whether by judgment or by settlement of a claim subject to litigation. 
An award of fees under the statute may even be based on an implied assignment, under unique circumstances. In All Ways Reliable Building Maintenance, Inc. v. Moore,  a house repair company brought suit against both the homeowner and the insurer that covered the owner’s house for fire damage. The homeowner filed a cross-claim arguing that the insurer was responsible because the insurer’s agent had preapproved All Ways’ estimate for the repairs. The trial court awarded judgments in favor of All Ways and the homeowner and approved an award of attorney’s fees to both parties. 
The court held that, despite being neither a named insured nor a named beneficiary under the policy, All Ways was entitled to an award of its attorney’s fees based on an implied assignment from the homeowner. Upon reflection, the court later advised that, to the extent that its decision in All Ways appeared to recognize an equitable basis for recovering attorney’s fees under Section 627.428, it limited that case to its unique facts. 
The purpose of Section 627.428 “is to discourage insurance companies from contesting valid claims, and to reimburse insureds for their attorney’s fees incurred when they must enforce in court their contract with the insurance company.”  The statute “level[s] the playing field so that the economic power of insurance companies is not so overwhelming that injustice may be encouraged because people will not have the necessary means to seek redress in the courts.” However, the one-way imposition of attorney’s fees under this statute, intended to level the playing field for insureds, is now being assigned to service providers whose interests may not be aligned with those insureds it was designed to protect. The availability of attorney’s fees under Section 627.428 fuels and facilitates litigation by third parties rendering services under post-loss AOBs without consequence. In these cases, the plaintiff is not making the claim in the name of the insured but, instead, seeks attorney’s fees in his own right. In relation to AOB lawsuits, the fee statute no longer governs the relationship between the contracting parties as intended.
The court, in One Call Property Services, Inc. v. Security Fire Insurance Company, noted that, “If studies show that these assignments are inviting fraud and abuse, then the legislature is in the best position to investigate and undertake comprehensive reform.”  The Florida Office of Insurance Regulation (OIR) and Citizens Property Insurance Corporation (Citizens), as well as others, have since conducted such studies.
On October 23, 2015, the OIR issued a data call to the top twenty-five insurers, based on policies in force as of June 30, 2015, writing homeowners and dwelling fire policies in the state. Other personal residential property insurers could voluntarily participate in the data call. The responding insurers represented 80.5% of these policies in the state. The overall purpose of the data call was to assist the OIR in evaluating the impact of Florida’s closed property claims as a result of AOBs for water or roof damage repair.
On February 8, 2016, the OIR released its Report, with Citizens reporting separately as to its data (discussed infra). Claims with an AOB generally had at least 50% more severity than claims without an AOB.  The Report identified an increase of about 10% in claim severity from 2010 to 2015 for claims with an AOB, while the severity for claims without an AOB increased by only 1%.  With the exception of Southeast Florida, at least 50% of water claims were reported to the insurer within 3 days.  Since 2010, all regions of the state experienced increases in the amount of days it took to report claims to insurers.  Insurers responded that significant delays in the notification to insurers impeded insurer investigation of claims. “Anecdotally, the insurers have stated that in many cases they are not finding out about the claim until all of the final repairs have been made or when an attorney files a suit against the insurer.” 
Also at the beginning of 2016, Citizens released its report captioned “Non-Catastrophic Homeowners Water Claims.” Citizens reported that,
Non-litigated claims with AOB cost 74% more on average than claims without AOB in Tri-County [Miami-Dade, Broward and Palm Beach counties] and 116% more outside Tri-County. While the paid loss severity was higher for litigated claims with AOB than those without AOB, the differences were not as steep as for the non-litigated claims.
Litigated clams in the South East region are approximately 50% more expensive on average than elsewhere regardless of AOB. Separately, litigated claims are 182% more expensive on average statewide than non-litigated claims. 
Citizens concluded that, “The overall increase in litigation is related to an increase in the number of claims that are first being reported with representation (either an attorney and/or pubic adjuster), which is turn related to the use of AOB.” 
This data suggests that Section 627.428, coupled with AOBs unaffected by Section 627.422, has evolved into a tool for dissuading service providers and others from requiring insurer approval before rendering services rather than risk having to collect through litigation. The ability to recover attorney’s fees under Section 627.428 inherently incentivizes litigation in cases involving AOBs because an assignee can recover full attorney’s fees even if the award is small. 
The judiciary has noticed the increasing public policy implications of unrestrained litigation under the guise of AOBs. For instance, in Security First Insurance Company v. Florida Office of Insurance Regulation,  the First District Court of Appeal acknowledged Security First’s suggestion of abuse in the AOB process.
[W]e are not unmindful of the concerns that Security First expressed in support of its policy change, providing evidence that inflated or fraudulent post-loss claims filed by remediation companies exceeded by 30% comparable services; that policyholders may sign away their rights without understanding the implications; and that a “cottage industry” of “vendors, contractors, and attorneys” exists that use the “assignments of benefits and the threat of litigation” to “extract higher payments from insurers.” These concerns, however, are matters of policy that we are ill-suited to address. 
Bills have been filed during each of the past few legislative sessions to address these concerns. However, the Florida Legislature has been unable to pass legislation to address the statutory facilitation, as construed by various courts, of unhelpful AOB litigation. For example, Senate Bill 1064 was filed during the 2015 legislative session to amend the public adjuster statute’s exemption for certain contractor activity; and to void an assignment transferring authority to adjust, negotiate, or settle a claim. Second, the bill sought to amend Florida’s insurable interest statute (Section 627.405) by prohibiting assignment of an insurable interest except to subsequent purchasers after a loss. Third, the bill tried to amend the assignment statute (Section 627.422) by expressly authorizing a property insurance policy to prohibit the post-loss assignment of certain benefits or rights that apply to specified losses, and deeming void a non-compliant post-loss assignment.  This bill died in the Senate Judiciary Committee.
Several bills were filed during the 2016 legislative session. Senate Bill 596 would have added a new section to the Insurance Code, providing requirements under a property insurance policy for the post-loss assignment or transfer of rights, benefits, or policy provisions not related to liability coverage. For instance, an insured with a covered loss could not assign a claim until the insured gave notice of the loss to the insurer or their agent. The exception to this would be if repairs must be performed and paid to protect the property from further damage. Also, the bill restricted assignees from performing any services not specifically approved by the policyholder in a separate contract that spelled out the scope and cost of such repairs, and provided limitations on the assignee’s right to collect monies from, sue, or claim a lien on the property of the policyholder. The bill set forth detailed requirements, limitations and disclosure for a post-loss assignment to be valid.  This bill likewise died in the Senate Judiciary Committee.
House Bill 671 would have added a new section to a statutory chapter outside of the Insurance Code. This bill would have prohibited contractors or other parties from receiving a referral fee for doing work in which they would be compensated by an insurance policy. The bill also sought to curb such parties from interpreting or advising insureds on coverage or duties under the policy, or otherwise adjusting a claim on behalf of insureds. Insureds were to be given an itemized estimate of the cost of services and materials for repairs before the agreement authorizing repairs could be executed.  This bill died on the House Floor, on second reading, after being reported favorably out of its three committees of reference.
Senate Bill 1248, making it as far as the Senate’s Special Order Calendar, sought to expand the prohibition against a licensed contractor adjusting claims, unless the contractor were a licensed public adjuster, to include a person that performed emergency remediation or restoration services under an insurance policy and subcontractors to a licensed contractor.
The bill sought to create requirements for repair, mitigation, and restoration services; and to limit referral fees to $25. Similar to House Bill 671, the bill tried to require that persons providing emergency remediation or restoration services first provide the insured with a description of the scope of services and materials to be provided, before pressing the insured for an assignment. The insured would be notified that any assignment was limited to the scope of the work and that the insured may still have claims under the insurance policy.
A new statutory section would have been created, essentially prohibiting balance billing. The assignee could not attempt to collect money from, maintain an action at law against, or report a policyholder to a credit agency for payment for which the insurer was liable. An assignee could take action against a policyholder for payment of the amount of the deductible or upgrades ordered by the policyholder which were not covered under the policy.
The case of Security First Ins. Co. v. Florida Office of Insurance Regulation  describes an insurer’s effort to gain the OIR’s approval to amend the assignment language in its homeowners policy forms. This amendment would have restricted the ability of policyholders to assign post-loss rights without the insurer’s consent. The OIR disapproved the form filing as contrary to Florida law.  A hearing officer upheld the OIR’s decision, reasoning that a “restriction on assignments of post-loss rights in an insurance policy would be misleading as it would lead the policyholder to believe that the validity of such assignment was contingent upon the written consent of the insurer, contrary Florida law.”  The OIR filed a final order adopting the hearing officer’s findings and conclusions. The First District Court of Appeal affirmed the OIR’s order based on “an unbroken string of Florida cases over the past century [starting with Teutonia] holding the policyholders have the right to assign such claims without insurer consent.” 
On February 9, 2016, Citizens made a form filing with the OIR to address these issues but not by way of amending an assignment provision. The OIR approved this filing for both new and renewal business. The amendments seek to ensure that Citizens has the opportunity to confirm coverage and inspect damage, without affecting benefits under the policy.
Policyholders must take Reasonable Emergency Measures (previously Reasonable Repairs) solely for the purpose of protecting their property from further damage. To encourage prompt notice of losses and prevent abuse, Reasonable Emergency Measures may not exceed the greater of $3,000 or 1% of the Coverage A (the physical structure of the home) limit, unless the policyholder first receives approval from Citizens.
To prevent permanent repairs from being made before Citizens can inspect the property, except for Reasonable Emergency Measures, there is no coverage for permanent repairs that begin before the earlier of: (a) 72 hours after Citizens is notified of the loss, (b) the time of loss inspection by Citizens, or (c) the time of other approval by Citizens. Reasonable Emergency Measures may include permanent repair when necessary to protect the covered property from further damage or to prevent unwanted entry to the property. To the degree reasonably possible, the damaged property must be retained for Citizens to inspect. Citizens has no duty to provide coverage if the insured fails to comply with his duties after a loss prejudicial to Citizens.
Collapse coverage now states more explicitly that coverage for collapse of the building does not include coverage for collapse of plumbing that results only from age, deterioration or maintenance. Language in the policy, stating that Collapse is not a Peril Insured Against, now includes additional detail to better describe Collapse. Policy language as to Accidental Discharge of Water or Steamnow states that coverage will be provided for necessary access to repair only the portion or part of the plumbing system that caused a covered loss. Citizens also revised the seepage language of its policy form. 
After the OIR’s approval of these revisions, eleven property insurers immediately made similar filings with the OIR to amend their forms along the lines of the Citizens filing.  The OIR has encouraged other insurers in the state to review the Citizens filing and submit their own changes. Further, on April 12, 2016, the OIR published notice of rule development as to the possible amendment of the OIR’s Rule 69B-220.051, Florida Administrative Code, regarding the Conduct of Public Adjusters. The OIR’s proposed rule amendment would establish a presumption that the statutory requirement that a public adjuster provide “prompt notice” of a claim to an insurer is satisfied if notice to the insurer is given within five business days after the date on which the contract for adjusting services with the insured was executed. The OIR indicated that, “Requiring public adjusters to notify insurers of claims within a specified time period will assist insurers in the assessment and timely settlement of such claims.” 
All Florida policyholders should be concerned about the skyrocketing number and severity of claims filed on their behalf by service providers and their counsel. AOBs provide these parties with the means to extract compensation for unverified damages. Florida’s one-way fee statute encourages these third parties and their lawyers to sue insurers regardless of the veracity of the scope and amount of the claim.
Florida’s courts have routinely upheld post-loss assignments, deferring to the right of the insured to transfer his proprietary interests in claims on his home. However, the ramifications of AOBs are often not disclosed to the insured. Further, the AOB will not relieve the insured of his duties under the policy with respect to the claim. His duties do not follow the rights which he transfers to a third party service provider. As such, some commensurate right in the claim must be preserved for the insured.
The increased cost of responding to these claims is driving up, and will continue to drive up, premium rates. This trend, if these non-weather-related costs remain unabated, will make homeowners insurance unaffordable or unavailable for many consumers. This activity will undo much of the effort of Citizens, as the state’s insurer of last resort, to move insureds into the state’s revitalized voluntary market. Further, this activity will adversely impact the increased appetite of the reinsurance market for Florida risk.
If not the courts, the legislature must address these issues as a matter of public policy. In the meantime, insurers must act to protect their financial ability to pay all valid claims, before the occurrence of a catastrophic weather-related event. The inappropriate use of AOBs has now become an “unbargained-for risk” for homeowner insurers and the unaware insurance consuming public of this state.
* The author would like to thank John David (JD) Dickenson, his partner at Cozen O’Connor’s West Palm Beach office, for JD’s helpful insight, feedback and suggestions as to the issues discussed in this Article.