hurricane insurance assignment of benefits

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What is an assignment of benefits?

Tue Oct 29 2024

An assignment of benefits (or AOB for short) is an agreement that gives your claims benefits, and in some instances complete control of your claim, to someone else. It’s usually used so that a contractor can "stand in your shoes" and file a claim, make decisions about repairs, and collect insurance payments from your insurance company directly for covered repairs. In some states, the contractor will even file a lawsuit against your insurer as your assignee.

Why do homeowners agree to an assignment of benefits?

Homeowners may sign an assignment of benefits form because they think it’s more convenient and efficient than dealing with the claims process firsthand.

Once a contractor has been assigned your benefits, they tell the insurance company what work they believe is required and negotiate the claim. For example, say you have a water leak in the house. You call a home restoration company to stop the water flow, clean up the mess, and restore your home to its former glory. The restoration company may ask for an assignment of benefits so it can deal directly with the insurance company without your input. That may sound like a relief at first glance – someone else can deal with all that!

But signing away your rights in the claims process may not be worth the risk.

Assignment of benefits in Florida: A case of rampant fraud

Because the assignment of benefits takes control out of the homeowner’s hands, insurance fraud is a major concern. Some contractors may take advantage of the situation and inflate repair needs and costs or bill for work that was never completed. They may also hire attorneys to sue the insurance company if it does not pay the full amount of their estimate or denies claims.

These lawsuits became a huge problem in Florida – by 2018, there were 135,000 AOB lawsuits , a 70 percent increase in 15 years. On the whole, the FBI estimates fraudulent claims account for nearly $6 billion of the $80 billion appropriated for post-hurricane reconstruction.

Florida eventually passed a bill in 2019 to curb the abuse of the assignment of benefits.

Ultimately, AOB fraud hurts homeowners the most. It increases homeowners insurance rates across the board, and you may be stuck with incomplete work and no recourse.

What responsibilities does the AOB contractor have?

Once you sign an AOB, a contractor has full power to make all decisions about the claim without consulting you. The assignment of benefits gives contractors the ability to:

• File the insurance claim .
• Work directly with insurance claims adjusters.
• Make repair decisions.
• Complete repairs.
• Directly bill the insurance carrier for all work completed.
• Sue your insurance company regarding your claim.

Sometimes the assignment of benefits limits the scope of the work the contractor was hired for. For example, say your home has a leaky pipe. You may hire a plumber to fix the leak, a remediation company to dry the walls and carpet, and a general contractor to replace the bathroom cabinets. Each of the three contractors may have a respective assignment of benefits for their part of the job.

How assignment of benefits impact homeowners

Under some circumstances, an assignment of benefits agreement could work out for homeowners who don’t want to handle their insurance claim. If the contractor is reputable, performs the work, and knows what information the insurance company needs, it can be a big help.

For example:

• The claims adjuster will work directly with the contractor.
• The contractor would handle remediation and repairs.
• The contractor would bill the insurance company, not the homeowner.

AOB arrangements only work for covered damage in need of repair. If you must replace belongings or appliances, you’d still need to work directly with your insurer and payments would go to you.

Protecting yourself in an assignment of benefits agreement

Don’t sign an assignment of benefits agreement right off the bat. Before you hire any contractor:

• Get multiple quotes.
• Check references, licenses, and their insurance.
• Get written estimates for potential work.
• Get a guarantee to back the workmanship.
• Make sure you get to approve the completed work.
• Request copies of all paperwork sent to your insurance company.
• Require that the contractor show you the documents you are actually signing.

You might be tempted to hire the first contractor you find, but you save yourself headaches if you do some due diligence before signing an assignment of benefits. Great contractors use this to expedite repairs and spare you some work. Take a beat to find that great contractor.

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Hurricane Insurance Isn't Real. Instead, You Need This Coverage for Storm Damage

What Is Hurricane Insurance?

Hurricane insurance doesn't exist as a separate type of policy. The term usually means a hurricane deductible on a homeowners insurance policy, which is the amount a homeowner pays before the insurer covers hurricane damage. This deductible, based on a percentage of the property's value, is common in 19 hurricane-prone states and the District of Columbia.

It can also mean particular types of catastrophe insurance that cover flooding or extreme winds, which is often required in high-risk states like Florida and Texas.

Key Takeaways

• There is no such thing as hurricane insurance, strictly speaking.
• Coverage for the damage-inducing waters or winds that hurricanes cause is provided by flood insurance or windstorm insurance.
• Many homeowners insurance policies in coastal states impose a hurricane deductible, an extra out-of-pocket amount the policyholder incurs before coverage kicks in.

Understanding Hurricane Insurance

Hurricane deductibles are separate from regular homeowners insurance deductibles and are based on a percentage of the home’s value. While a regular homeowners insurance policy deductible is a fixed dollar amount—say, $500 or $2,000—a hurricane deductible might be 2% to 5% of a home’s insured value, or $2,000 to $5,000 for every $100,000 in coverage.

Hurricane deductibles first developed in 1992 after Hurricane Andrew inflicted major losses on homeowners insurance companies in Florida, but they became more widespread in 2005, in the wake of Hurricane Katrina. Insurance companies turn to reinsurers when they’re having trouble paying large amounts of claims all at once, but even reinsurance companies struggled to cope with such enormous losses. As a result, insurance companies began requiring hurricane deductibles in 19 states and Washington, D.C. Homes in these states, which are all on the Gulf of Mexico or Atlantic Coast, are susceptible to hurricane damage.

A homeowner is usually required to pay a hurricane deductible if there is a named hurricane in the area. Sometimes, a severe tropical storm triggers the deductible. The hurricane deductible is in effect for any damage that occurs until the storm is downgraded. Rules vary by state.

Even when a hurricane deductible doesn't apply, a windstorm deductible might. A windstorm deductible applies to damage from any kind of high wind. It can run slightly lower than a hurricane deductible, sometimes as low as 1% of the property's insured worth.

States Where Hurricane Deductibles Apply

The states/regions where hurricane deductibles apply are:

• Connecticut
• Massachusetts
• Mississippi
• North Carolina
• Pennsylvania
• Rhode Island
• South Carolina
• Washington D.C.  

Policies Offering Hurricane Coverage

Homeowners should also be aware that even if they pay a hurricane deductible, gaps in their coverage might exist. Most homeowners policies don't cover flooding caused by an outside natural event, like a hurricane. Property owners need a separate flood insurance policy to cover such water-related destruction or damage.

Most standard homeowners policies will cover some damage caused by hurricanes—mostly related to the heavy wind that, say, rips shingles off a roof or causes a tree branch to snap and crash into a window.

Also, homeowners insurance policies in some hurricane-prone states won’t pay for wind-related damage. So, if you want to protect your property, you must purchase separate windstorm insurance. In this case, all wind damage or destruction would fall under this policy instead of the traditional homeowners policy. On top of hurricane coverage , windstorm insurance applies to problems stemming from tornadoes, cyclones, and other types of high-speed winds.

How Hurricane Deductibles Are Calculated

To some degree, depending on the state, insurance companies dictate the level of the hurricane deductible and where it should apply. However, insurers' hurricane deductible plans are subject to state regulations. Rhode Island, for example, sets a cap of 5% on hurricane and windstorm deductibles.

In hurricane-prone Florida, the state requires homeowners to have the option of a $500 flat-rate hurricane deductible. Premiums may, of course, be higher than if you choose one of the other mandated options: 2%, 5%, or 10% of the insured value of the residence.

In some states, homeowners may pay lower insurance premiums if they make improvements to their home to minimize damage from a hurricane, such as installing storm shutters or hurricane-resistant laminated glass windows and doors.

Are Wind and Hurricane Insurance the Same?

A windstorm insurance policy may be different than a hurricane insurance policy. With a windstorm insurance, coverage is for damage caused by wind only. While there is no specific "hurricane insurance," this insurance may refer a a combination of a windstorm policy, flood insurance, and homeowners insurance.

Is Hurricane Insurance the Same as Flood Insurance?

Hurricane insurance and flood insurance may sometimes be considered the same. Flood insurance covers damage from flooding, which may include flooding caused by hurricanes, but could also cover damage from other causes, like a leaked pipe. Hurricane insurance is typically a combination of flood and windstorm insurance, which covers damage caused by wind, such as from hurricanes.

Are Hurricanes Usually Part of Homeowners Insurance?

You may have to get separate flood insurance and windstorm insurance to cover hurricane damage. These policies may not be part of homeowners insurance, however some policies may include windstorm insurance. Most standard homeowners insurance won't cover flood damage.

The Bottom Line

Hurricane insurance can be a valuable tool to protect you from financial hardship in the event your home suffers from damage from a hurricane. Whether hurricane insurance is right for you will depend on several factors, including the risk that a hurricane will damage your home and your financial situation. Consider consulting a financial advisor for guidance with your specific needs.

Insurance Information Institute. " Background On: Hurricane and Windstorm Deductibles ."

Insurance Information Institute. " Hurricane insurance FAQ ."

" 2018 Rhode Island General Laws, Title 27 - Insurance, Chapter 27-76 Weather Related Losses, Section 27-76-2 Hurricane Deductibles, Triggers and Policyholder Notice ." Accessed Mar. 5, 2021.

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Hurricane Ida: Assignment of Benefit Questions?

The process of rebuilding following a major natural disaster involves many tricky and nuanced legal issues. We are all aware of the important role that property insurance plays in helping us rebuild. Just as important are the contractors that get the work done.

Hurricane Ida has brought a large influx of out-of-state contractors into Louisiana. The plain truth is there is a significant demand for contractors, roofers, and construction workers to rebuild, and it will take quite sometime to complete the rebuilding process.

It is common for some contractors to offer to do the work under what is called an assignment of benefit. An assignment of benefit or AOB is a contract in which you transfer your insurance claim rights to the contractor. Under an assignment of benefit agreement, the contractor will have the right to payment on your insurance claim. In exchange, the contractor agrees to make repairs to your property.

If you are considering an assignment of benefits you should first have a good understanding of the repairs that need to be made to your property. It is also important to understand the scope of work the contractor is agreeing to perform. If the contractor is unwilling to repair the property to its pre-loss condition, it is a potential red flag. Your insurance company is obligated to pay to make adequate repairs to your property. Your contractor should be willing to do the same.

Assignment of benefits are not inherently good or bad. Many contractors perfrom a valid service to their customers under an assignment of benefits, and, in doing so, help others return to their homes and businesses quicker. There have been some major problems with contractors being financially unable to do the work while operating under an assignment of benefits. Some contractors simply do not have the financial ability to do the work promised while waiting for insurance companies to pay claims.

It is important for you as the property owner to do your own due diligence before hiring a contractor or signing an assignment of benefits. Get multiple bids and do your research on the contractor before agreeing to let them do the work because it is difficult to switch course once a contract is signed.

Are AOBs Enforceable in Louisiana?

As for the enforceability of assignment of benefit agreements, Louisiana does permit insurance companies to prohibit a post-loss assignment of benefits. The Louisiana Supreme Court has ruled that an insurance company seeking to restriction on assignment of benefits needs to have clear language in the policy restricting the assignment. A general restriction on all assignments of benefits is not enforceable. The policy must specifically state that a policyholder cannot assign a post-loss benefit following a loss. A post-loss assignment simply means an assignment to the rights for a specific claim. Without this exact language, the insurance company cannot prevent a post-loss assignment of benefit.

The attorneys at MyInsuranceCase have assisted both property owners and contractors with assignment of benefit issues. If you have a question about an assignment of benefit, please do not hesitate to contact us.

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Jeremiah Johns is a former insurance defense attorney who now represents plaintiffs in bad faith insurance, catastrophic injury cases, and commercial disputes. He has a unique perspective from his experience representing some of the nation’s largest insurance companies.

Jeremiah is licensed to practice law in Texas, Louisiana, Florida, and Georgia (though he is presently inactive in Georgia). He is also admitted to the 5th Circuit Court of Appeals. For his education, Jeremiah earned an LL.M. in Admiralty from Tulane University , a J.D., cum laude, from Syracuse University , and both a B.A. and B.S., magna cum laude, from Georgia State University .

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