The debate in Florida over a controversial practice known as Assignment of Benefits, otherwise known as “AOB,” has ramped up in recent months as the discussion has made its way to the State’s Legislature and Supreme Court. AOB—the practice of assigning one’s right to receive benefits or make claims under an insurance policy—has long been a part of the health insurance industry, where insureds regularly assign their rights to make claims under health insurance policies to preapproved providers who then bill insurers directly for the cost of providing health care services to the insureds.
In recent years, the practice has expanded beyond health insurance policies and has become commonplace in the homeowners’ insurance space. In a typical homeowners AOB claim, a policyholder assigns his or her right to file a claim under a homeowners’ insurance policy to a third-party restoration contractor who is hired by the homeowner to perform restoration or other repair services to the insured residence. The contractor then files a claim directly with the insurer that issued the policy. Often, the contractor performs the repairs and then files the claim without giving the insurer a meaningful opportunity to assess the loss. Insurers argue these claims lead to unnecessary repairs, inflated repair costs, and increased litigation costs, which, in turn, has resulted in higher insurance premiums for all. Restoration contractors claim that AOBs facilitate speedy repairs and alleviate any need for the insured to be involved in the claims process.
While homeowners’ insurance AOB claims are occurring with greater frequency across the country, Florida has become a hotbed for AOB abuse due to its unique legal landscape, which makes it easier for unscrupulous contractors to game the system and artificially inflate claims costs. There are two key factors that have caused Florida to become ground zero for AOB abuse:
- Florida’s one-way attorneys’ fee statute; and
- Florida courts have consistently held that the Florida Insurance Code permits insureds to assign their post-loss rights to make claims under insurance policies to third-parties without insurer consent.
Most states permit insureds to assign their rights under a homeowners’ insurance policy after a loss has occurred without first securing the insurers’ consent, which makes it difficult for insurers to assess the true extent of loss that has occurred and keep costs under control. However, Florida stands apart because of its one-way attorneys’ fee statute, which is unique to the State.
In Florida, if an insured or beneficiary prevails against an insurer in a first-party lawsuit, the court may order the insurer to pay the plaintiff’s reasonable attorneys’ fees. The law, however, does not afford those same rights to the insurers. Thus, if the insurer succeeds in defending the lawsuit, the contractor owes the insurer nothing. This one-sided fee shifting scheme, which was intended to even the playing field between insurers and insureds, incentivizes contractors and their attorneys to aggressively file lawsuits against insurers without having to risk the possibility of paying the insurers’ legal costs if they fail.
While the Florida laws described herein apply without regard to the specific kind of loss that has occurred, water loss claims have presented the greatest opportunity for abuse, as they often invoke stressful situations for a homeowner and require quick action to mitigate damages. Moreover, South Florida has seen the greatest increase in litigation as a result of AOB. In 2000, roughly 1,300 AOB lawsuits statewide were reported. By 2013, that number grew to over 79,000, and by the end of 2018, nearly 135,000 lawsuits were filed in the state. That amounts to a 70 percent increase in 5 years. Water loss claims represent 75 percent of all litigation, with the tri-county area of South Florida—Miami-Dade, Broward, and Palm Beach counties—making up 96 percent.
Florida Officials and Insurance Regulators Speak Out
As unnecessary and artificially inflated claims and lawsuits have increased costs for insurers, premium rates have also risen despite loss numbers trending in the opposite direction. Insurers offering homeowners’ insurance in Florida continue to seek the approval of the Florida Office of Insurance Regulation (OIR) to increase premiums, especially for those insured in South Florida. According to OIR, the indicated water loss premium per insured property in South Florida is between $1,300 and $2,000 on average. Compared that to the rest of the state, where the average indicated water loss premiums are between $500 and $700.
The continued rise of premium rates, irrespective of loss trends, resulted in a united call to action by Florida’s state officials and insurance regulators. In his State of the State address, Florida Governor Ron DeSantis called for meaningful AOB legislative reform. Moreover, Insurance Commissioner, David Altmaier, Citizens Property Insurance CEO, Barry Gilway, and Chief Financial Officer, Jimmy Patronis have been active in their advocacy for AOB reform. Through media advisories and presentations before the Florida Legislature, these officials have expressed their support for legislation aimed at combatting AOB abuse. CFO Patronis has also called on the Florida Bar to investigate plaintiff’s firms who are involved in excessive AOB litigation.
Florida Lawmakers Pass Meaningful AOB Reform
During the 2019 legislative session, the Florida legislature passed HB 7065 by Rep. Bob Rommel, with the goal of reducing AOB abuse in the state. The legislation establishes rights and obligations of both the assignees and assignors, and perhaps most important, eliminates the one-way attorney’s fee provision for assignees. Governor DeSantis signed the bill into law on May 23, 2019. It will become effective on July 1, 2019.
The bill requires assignment agreements to be in writing and signed by both the assignee and assignor. Agreements must allow assignors to rescind without penalty within seven days of the execution of the agreement, and the agreement may not impose administrative fees. Assignees must provide a copy of an assignment agreement to an insurer within three business days of the execution of the agreement. Assignees must now provide written estimates of services to be rendered, and indemnify the assignor, to include the waiver of the right to claim a lien against the property by the assignee and any subcontractors of the assignee.
Assignees will now be required to maintain records and provide those records when requested by an insurer. Assignees will also now be required to submit to examinations under oath and alternative dispute resolution (ADR) mechanisms contained in the insurance contract.
Insurers will be entitled to written notice specifying the damages in dispute, the amount claimed, and a pre-suit settlement demand from an assignee at least 10 days prior to the assignee filing suit. An insurer must respond to the pre-suit notice within 10 days of receipt by either making a settlement offer or proposing ADR. The bill discourages forum shopping by allowing a court to award attorney’s fees to an insurer if they voluntarily dismiss an action when an assignee brings an identical claim against the insurer in another court. If the dispute continues to trial, Florida’s one-way attorney’s fee provision for policyholders suing their insurance company no longer applies to an assignee. Attorney’s fees in a suit over a property insurance claim involving an AOB will now be determined by the difference in the amount recovered and the amount offered pre-suit. Fee awards will now be determined as follows:
- If the difference between the judgment obtained and the settlement offer is less than 25% of the disputed amount, then the insurer is entitled to attorney’s fees.
- If the difference between the judgment obtained and the settlement offer is at least 25% but less than 50% of the disputed amount, neither party is entitled to fees.
- If the difference between the judgment obtained and the settlement offer is at least 50% of the disputed amount, the assignee is entitled to attorney’s fees.
Insurers will now be able to make available non-assignable property insurance policies in Florida. This provision has been likened to providing consumers with a choice similar to an HMO and PPO. Non-assignable policies must contain an 18-point font notice that the assignment of the policy is restricted.
Beginning in 2022, insurers will be required to submit claims data to OIR, including but not limited to specific data about claims adjustment, settlement timeframes, and trends, grouped by whether a claim was litigated or not litigated and by loss adjustment expenses. The Financial Services Commission will adopt a rule listing all final required data elements.
Florida Supreme Court Hears AOB Dispute
As Florida lawmakers have been working on a legislative solution to the problem, the Florida Supreme Court has agreed to take up a closely watched AOB case out of St. Lucie County. On December 27, 2018, the Court accepted jurisdiction in the case of Restoration 1 of Port St. Lucie vs. Ark Royal Insurance Company to resolve an apparent conflict between the State’s Fourth and Fifth District Courts of Appeal (DCA). At issue is whether an insurer may restrict insureds’ right to assign post-loss benefits under a homeowners’ insurance policy by requiring that all named insureds and the mortgagee sign an AOB contract before it will be recognized by the insurer. The Fourth DCA answered that question in the affirmative, while the Fifth DCA has held that insurers may not limit insureds’ right to assign post-loss benefits under a homeowners’ insurance policy.
In this case, a husband and wife contracted with a water restoration company to fix water damage to their insured home, the purchase of which had been financed through a mortgage. The wife, without the consent of her husband or the mortgagee, agreed to “an assignment of benefits agreement assigning ‘any and all insurance rights, benefits, proceeds and any cause of action under any applicable insurance policies'” to the water restoration contractor.
The homeowners’ insurance policy at issue contained a provision indicating that “[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagee(s) named in the policy.” The Fourth DCA held that this provision was not an impermissible restriction on the right to enter into post-loss AOB contracts and ruled in favor of the insurer.
This will be an important case that will be closely monitored by interested parties.
Conclusion
AOB abuse is a growing problem that seems to be gaining the attention of regulators, lawmakers, courts, and consumers across the nation. While most states must contend with state laws that permit assignment of rights without insurer consent, Florida lawmakers have struggled to address certain factors that have made it the epicenter of AOB abuse in the United States. The state’s one-way attorneys’ fee statute, coupled together with case law holding that insurers do not need to seek insurer consent before entering into AOB contracts with third-party contractors, have created a unique legal landscape that has made it far too easy for dishonest contractors and their attorneys to abuse the system.
As homeowner insurance premium rates skyrocket, interested parties will be watching closely to see how the industry, regulators, and consumers respond to the new AOB reform law. The Florida Supreme Court’s ruling in Restoration 1 of Port St. Lucie vs. Ark Royal Insurance Company may also have a profound impact on the industry. Given the current environment in Florida and the developments in Tallahassee, we could be looking at a new and improved homeowners’ insurance market by the end of 2019, but it is too early to tell. One thing is certain, if AOB reform is not successful in Florida, premium rates will continue to increase, and consumers will continue to suffer.