The storms of 2017 not only affected lives and property, they occasioned a flurry of litigation in Florida that has revived perennial calls for reform.
During hurricane Irma, strong winds blew trees onto roofs, and heavy rains flooded homes. When it had passed, homeowners and contractors set about repairs. Some contractors dropped in on homeowners unannounced and promised to make quick storm repairs on one condition: the homeowner signs away their insurance benefits. Assignment of benefits (AOB) is the legal term, and it means the contractor collects his payment from the insurer as if the policy were his own.
The AOB process is controversial in this context and, the insurance industry says, rife with abuse. In many cases, insurance industry representatives say, the contractor overcharges. If the insurance company contests the bill, the contractor hires a lawyer. If a court finds an insurer has underpaid by any amount, the insurance company is required to pay the legal fees.
A lucrative practice
As a practical matter, the arrangement is viewed as a “sure thing” for lawyers who participate in the AOB practice. Homeowners generally aren’t concerned about how much the contractor is charging for the repairs since that’s between the insurance company and the contractor. The insurance industry views the law as an unfair burden that affects what their policy holders must pay.
The number of Florida AOB lawsuits grew from 405 in 2006 to more than 28,000 in 2016, according to the Florida Department of Financial Services. Claims with an AOB have a much higher severity than claims without one (nearly 85 percent), according to the Florida Office of Insurance Regulation. And 11 lawyers reportedly get 25 percent of the AOB work from 2013 to 2016.
“We will continue to see homeowners’ insurance companies raise their rates for our consumers in a best-case scenario, and in a worst case scenario just simply stop offering their products in certain regions of the state,” Insurance Commissioner David Altmaier told the Florida Cabinet last year.
The key to AOB reform
“The linchpin of the AOB problem is one-way attorney’s fees,” explained Ft. Lauderdale attorney Gary Baumann. Contractors’ attorneys can collect legal fees from insurers when insurers are found to have underpaid by any amount. Win or lose, insurers pay their own legal fees.
“Assignment of benefits started out as a convenience for Florida residents, allowing them to sign over the benefits of their property insurance policy to a vendor to facilitate direct payment for repairs,” State Farm Florida Spokesperson Michal Brower said last year. “However, it has become a vehicle for fraud and claim build-up by some vendors escalating the scope and cost of remediation or repairs beyond actual damage to the home.”
“The repercussions include excessive litigation, full dockets and potentially higher insurance rates,” said Baumann. “And if the construction work is subpar – a fair assumption given high post-storm demand – we can expect more litigation in the future for construction defects.” One could envision the AOB cycle simply continuing as new contractors propose to correct others’ mistakes.