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Florida’s New Hurricane Claim Law and What It Means for Filers

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How Long Do You Have to File a Hurricane Claim in Florida?

Florida House Bill 7065 went into effect on July 1, 2019, and it has the potential to have a significant impact on homeowners and contractors who rely on hurricane claims to rebuild after a storm devastates their community. 1

What does this new hurricane insurance claim law mean for you?

Targeted at Assignment-of-Benefits (AOB) Agreements for Hurricane Damage Claims

The law is specifically targeted at the practice of using assignment-of-benefit agreements to pay for hurricane damage repairs. An assignment-of-benefit agreement essentially entails signing your insurance claim payment over to a contractor to act as payment for hurricane damage repairs they perform. These agreements often meant it was the contractors who ended up battling the insurance company for claim settlements rather than the homeowners themselves having to deal with the insurance company. 2

The insurance industry has been crying foul in recent years, arguing that some bad-apple contractors and their attorneys were taking advantage of homeowners and their policies, artificially inflating and exaggerating damages to get more out of insurance claims than the hurricane damage actually cost to repair.

From the homeowners perspective, a properly drafted assignment-of-benefits agreement with a reputable, honest contractor is a huge benefit. Without an assignment-of-benefits agreement, homeowners had to deal with the insurance company themselves and many weren’t able to afford repairs until after the claim was settled, which could potentially take months or even years.

With the agreements, homeowners could get repairs in a timely matter, even if the claim hadn’t settled. This also saved the homeowners from having to deal with the insurance company’s antics.

The new law makes it harder for contractors to collect on AOB agreements by increasing the claimant’s evidentiary standards, shifting some of the burden of proof from the insurance company to the contractor and applying a number of restrictions and conditions to the assignment of these agreements.

The law also requires the contractor and attorney to inform the policyholder of AOB lawsuits and makes it more difficult for attorneys who file frivolous AOB lawsuits to collect fees.

Previous to the law, contractors could bring lawsuits against a policyholders’ insurance company without the policyholder even realizing their name and insurance policy was being used to file a potentially frivolous lawsuit, which could negatively impact their standing with the insurance company and, potentially, their future rates and eligibility for coverage. 3

As a Homeowner, Should You Be Worried About the New Florida Hurricane Claim Law?

There’s good and bad news for homeowners.

The good news is the new law will discourage bad actors in the contracting and restoration industry from filing frivolous AOB lawsuits. Previously, those contractors and their attorneys were taking advantage of homeowners and insurance companies by inflating AOB agreements and then filing a wave of frivolous lawsuits that Florida’s court system was struggling to manage.

Some insurance companies have also promised lower insurance premiums that will reflect the reduced costs on their end thanks to the elimination of frivolous lawsuits that will result from the new law.

The bad news is the law may discourage even honest contractors from accepting AOB agreements due to the more stringent standard and rules surrounding them. The law does have the potential to increase the chance policy holders will be handed lowball claims more frequently, which will make it harder for them to pay reputable contractors to do quality repair and restoration work.

This Doesn’t Affect YOUR Ability to Take the Insurance Company to Court for Fair Claim Payments

The new law only affects lawsuits filed with an assignment-of-benefits agreement, meaning lawsuits filed by contractors and their attorneys. It doesn’t discourage lawsuits filed by homeowners and their hurricane damage attorneys who are trying to get the actual policyholder the fair claim payment they need to pay a contractor for repairs.

Will My Insurance Rates Be Reduced Thanks to the New Bill?

Whether or not you will enjoy a reduced homeowners insurance premium due to the new law will be highly reliant on which insurer you have. State Farm Florida, which stopped writing new homeowners policies following the costly hurricanes in 2004 and 2005, is proposing a premium rate cut of 14.4 percent. Approximately 300,000 of Florida’s State Farm policyholders could potentially see a reduction in their premiums. 4

Roughly 117,000 People’s Trust Insurance policyholders may get a 9.9 percent reduction in rates, if the rate cut is approved by Florida insurance regulators.

However, there are some clouds on the horizon, specifically in the form of reinsurance rate hikes on the insurance companies. Insurance companies are required to carry insurance themselves, known as reinsurance, specifically to prevent them from becoming insolvent in the event of a major catastrophe like a serious hurricane.

Reinsurance companies have been proposing rate increases in the range of 10 to 30 percent on their insurance company customers, and the insurance companies will likely be passing those rate increases on to policy holders.

The Bottom Line

If your home has suffered hurricane damage, you are still entitled to a fair settlement. The new law doesn’t change that or prevent you from hiring an independent insurance claims adjuster or a hurricane damage attorney if your insurance company is trying to lowball your claim.

If you find yourself in a situation where you can’t pay for the hurricane damage repairs you need because your insurance company is holding up your claim or denying legitimate damages that should be covered, it is likely still in your interest to reach out to a property damage attorney or an independent claims adjuster.

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Consumer Insight

Sept. 13, 2023

Assignment of Benefits: Consumer Beware

You've just survived a severe storm, or a tornado and you've experienced some extensive damage to your home that requires repairs, including the roof. Your contractor is now asking for your permission to speak with your insurance company using an Assignment of Benefits. Before you sign, read the fine print. Otherwise, you may inadvertently sign over your benefits and any extra money you’re owed as part of your claim settlement.

The National Association of Insurance Commissioners (NAIC) offers information to help you better understand insurance, your risk and what to do in the event you need repairs after significant storm damage.

Be cautious about signing an Assignment of Benefits. An Assignment of Benefits, or an AOB, is an agreement signed by a policyholder that allows a third party—such as a water extraction company, a roofer or a plumber—to act on behalf of the insured and seek direct payment from the insurance company.  An AOB can be a useful tool for getting repairs done, as it allows the repair company to deal directly with your insurance company when negotiating repairs and issuing payment directly to the repair company. However, an AOB is a legal contract, so you need to understand what rights you are signing away and you need to be sure the repair company is trustworthy.

• With an Assignment of Benefits, the third party, like a roofing company or plumber, files your claim, makes the repair decision and collects insurance payments without your involvement.
• Once you have signed an AOB, the insurer only communicates with the third party and the other party can sue your insurer and you can lose your right to mediation.
• It's possible the third party may demand a higher claim payment than the insurer offers and then sue the insurer when it denies your claim.
• You are not required to sign an AOB to have repairs completed. You can file a claim directly with your insurance company, which allows you to maintain control of the rights and benefits provided by your policy in resolving the claim.

Be on alert for fraud. Home repair fraud is common after a natural disaster. Contractors often come into disaster-struck regions looking to make quick money by taking advantage of victims.

• It is a good idea to do business with local or trusted companies. Ask friends and family for references.
•  Your insurer may also have recommendations or a list of preferred contractors.
• Always get more than one bid on work projects. Your adjuster may want to review estimates before you make repairs.

Immediately after the disaster, have an accurate account of the damage for your insurance company when you file a claim.

• Before removing any debris or belongings, document all losses.
• Take photos or video and make a list of the damages and lost items.
• Save damaged items if possible so your insurer can inspect them, some insurance companies may have this as a requirement in their policy.

Most insurance companies have a time requirement for reporting a claim, so contact your agent or company as soon as possible. Your  state insurance department  can help you find contact information for your insurance company, if you cannot find it.

• Insurance company officials can help you determine what damages are covered, start your claim and even issue a check to start the recovery process.
• When reporting losses, you will need insurance information, current contact information and a  home inventory or list of damaged and lost property . If you do not have a list, the adjuster will give you some time to make one. Ask the adjuster how much time you have to submit this inventory list. The NAIC Post Disaster Claims Guide has details on what you can do if you do not have a home inventory list.

After you report damage to your insurance company, they will send a claims adjuster to assess the damage at no cost to you . An adjuster from your insurance company will walk through and around your home to inspect damaged items and temporary repairs you may have made.

• A public adjuster is different from an adjuster from your insurance company and has no ties to the insurance company.
• They estimate the damage to your home and property, review your insurance coverage, and negotiate a settlement of the insurance claim for you.
• Many states require public adjusters to be licensed. Some states prohibit public adjusters from negotiating insurance claims for you. In those states, only a licensed attorney can represent you.
• You have to pay a public adjuster.
• The NAIC Post Disaster Claims Guide has information on the different types of adjusters.

Once the adjuster has completed an assessment, they will provide documentation of the loss to your insurer to determine your claims settlement. When it comes to getting paid, you may receive more than one check. If the damage is severe or you are displaced from your home, the first check may be an emergency advance. Other payments may be for the contents of your home, other personal property, and structural damages. Please note that if there is a mortgage on your home, the payment for structural damage may be payable to you and your mortgage lender. Lenders may put that money into an escrow account and pay for repairs as the work is completed.

More information. States have rules governing how insurance companies handle claims. If you think that your insurer is not responding in a timely manner or completing a reasonable investigation of your claim, contact your  state insurance department .

About the National Association of Insurance Commissioners

As part of our state-based system of insurance regulation in the United States, the National Association of Insurance Commissioners (NAIC) provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers. The U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally.

Handling Assignment of Benefit (“AOB”) Claims in the Wake of Hurricanes Irma and Harvey

Overview | Blog Posts | First-Party Coverage | Timothy Engelbrecht , T. Nicholas Goanos , L. Andrew Watson | Related | Print | Share

Timothy Engelbrecht

Partner | First-Party Coverage , Extra-Contractual 813-281-1900 [email protected]

T. Nicholas Goanos

Partner | Extra-Contractual , Arson & Fraud , Casualty Defense Litigation , Third-Party Coverage , First-Party Coverage 704-940-9811  [email protected]

L. Andrew Watson

Partner | First-Party Coverage , Extra-Contractual , Casualty Defense Litigation , Arson & Fraud , Third-Party Coverage 704-543-2321 [email protected]

September 12, 2017

Hurricanes Irma and Harvey have damaged large areas of Florida, Texas, and Louisiana, as well as brought heavy rain and wind to Georgia, North Carolina, and South Carolina. As insurers handle thousands of property damage claims in these areas, they will undoubtedly be presented with claims that have been assigned from insureds to damage-repair contractors. These are often referred to as assignments of benefits or “AOB” claims. This article explains briefly what an AOB claim is, how Florida, Texas, Louisiana, Georgia, North Carolina, and South Carolina address AOB claims, and the best practices for handling AOB claims.

WHAT IS AN AOB CLAIM?

The classic example of an AOB claim is the following: an insured suffers property damage and hires a repair contractor to repair that damage. The repair contractor requires the insured to execute a written document, usually entitled “Assignment of Insurance Benefits”, which says something to the effect of “for and in consideration of the contractor’s agreement to protect the property from further damage and/or make repairs, the insured assigns his/her/its insurance benefits to the contractor.” The contractor thereafter makes a claim directly to the insurer using the AOB.

HOW DOES FLORIDA, TEXAS, LOUISIANA, GEORGIA, NORTH CAROLINA, AND SOUTH CAROLINA ADDRESS AOB CLAIMS?

Florida  has allowed AOB claims for over 100 years. Sec. First Ins. Co. v. State, Office of Ins. Regulation , 177 So. 3d 627, 628 (Fla. 1st DCA 2015). Post-loss property damage claims are freely assignable in Florida regardless of whether the insurer consents or not.   Start to Finish Restoration, LLC v. Homeowners Choice Prop. & Cas. Ins. Co. , 192 So. 3d 1275, 1276 (Fla. 2d DCA 2016). An insurance policy that has a “non-assignment” clause only bars the assignment of the entire insurance policy, not an assignment of a post-loss insurance claim. Bioscience West, Inc. v. Gulfstream Prop. & Cas. Ins. Co. , 185 So. 3d 638, 640-41 (Fla. 2d DCA 2016). 

Texas  has adopted the opposite approach to AOBs. The general rule in Texas is that an insured cannot assign an insurance claim if the insurance policy has a non-assignment clause. ARM Props. Mgmt. Group v. RSUI Indem . Co., 642 F.Supp.2d 592, 609-10 (W.D. Tex. 2009) relying on  Tex. Farmers Ins. Co. v. Gerdes , 880 S.W. 2d 215, 218 (Tex. App. 1994). This is true even if the non-assignment clause is general and broadly worded.

Louisiana  takes a hybrid approach to AOBs. Louisiana allows an insurer to place a clause in an insurance policy that prohibits post-loss assignments.   In re Katrina Canal Breaches Litig ., 63 So. 3d 955, 962-63 (La. 2011). However, in order for such a clause to be enforceable, the clause must clearly and unambiguously express that it applies to post-loss assignments.   Id . The general and a broadly worded non-assignment clause that has traditionally appeared in most insurance policies is not sufficient. Id. 

Georgia , much like many of the States above and across the Country, permits AOBs.  See Santiago v. Safeway Ins. Co. , 196 Ga. App. 480, 481, 396 S.E.2d 506, 608 (App. Ct. 1990). Unlike North Carolina and South Carolina, which are discussed below, an assignee in Georgia may pursue his own extra-contractual claim only after first establishing a breach of the insurance policy.  Southern Gen. Ins. Co. v. Holt , 262 Ga. 267, 416 S.E.2d 274, 276-77 (1992). Further, before pursuing an extra-contractual claim, an assignee (or insured) in Georgia must provide the insurer an opportunity to “cure” the alleged “bad faith”. See  Ga. Code Ann. § 33-4-6.

Lastly,  North Carolina  and  South Carolina  also allow AOBs. In upholding the validity of an assignment, courts in these States have ruled not only that assignments of benefits are indeed valid, but also, that they are governed by each State’s general contract law. See e.g., Alaimo Family Chiropractic v. Allstate Ins. Co. , 155 N.C. App. 194, 197, 574 S.E.2d 496, 498 (App. Ct. 2002);  Gray v. State Farm Auto. Ins. Co. , 327 S.C. 646, 491 S.E.2d 272 (App. Ct. 1997). The “rubber” meets the proverbial “road”, though, when an extra-contractual claim is alleged. In North Carolina and South Carolina, a plaintiff may assert an extra-contractual claim, even if the insurer has not breached the insurance policy. See  Tadlock Painting Co. v. Maryland Cas. Co. , 322 S.C. 498, 473 S.E.2d 52 (1996);  Kielbania v. Indian Harbor Ins. Co., 2012 WL 3957926 (M.D.N.C. 2012). However, an assignee is limited in the sense that it may pursue only his own extra-contractual claim, and not the assignors.  Horton v. New S. Ins. Co. , 122 N.C. App. 265, 268, 468 S.E.2d 856, 858 (1996);  Davis v. Liberty Mut. Ins. Co. , 2015 WL 6163243, at *4 (D.S.C. 2015).

WHAT ARE THE BEST PRACTICES FOR HANDLING AN AOB CLAIM?

First, as noted above, an adjuster needs to know if the state law where the AOB claim is being made allows for AOB claims. 

Second, assuming the state allows for AOB claims, the adjuster needs to carefully read what the actual AOB document says. They are not all the same. Some AOBs assign the entire claim. Other AOBs only assign part of the claim. For example, imagine an insured’s property is damaged by water. The insured needs the water extracted and the structure rebuilt. An AOB might assign both the water extraction and the rebuild claim to a single contractor. Or, the insured might execute one AOB to a water extraction contractor and a separate AOB to a different rebuild contractor. Or, an insured might execute an AOB to a water extraction contractor and the insured will retain the remaining rights to make the rebuild claim. If the AOB is unclear what – exactly – is being assigned, it is important for the adjuster to speak with the insured and the contractor to ensure everyone is on the same page.

Third, the adjuster should speak to the insured to gather information necessary to understand and adjust the assigned claim. In Florida, an adjuster likely cannot require a contractor to perform the insurance policy’s post-loss conditions of giving documents, executing a sworn statement in proof of loss, or appearing for an examination under oath. Shaw v. State Farm Fire & Cas. Co.,  37 So. 3d 329, 332-33 (Fla. 5th DCA 2010) disapproved on other grounds in  Nunez v. Geico Gen. Ins. Co. , 117 So. 3d 388 (Fla. 2013). However, the insured is still responsible for fulfilling those conditions even with regard to the assigned claim. Id. The insured’s failure to do so may bar the assigned claim. Id. 

Fourth, assuming payment will be made on the assigned claim, the adjuster should determine who will be listed on the settlement check. If there is a valid AOB, it may be improper to list the insured on the settlement check since the insured’s rights have been assigned to the contractor. Many AOBs will state that only the contractor be listed on the settlement check. However, it is good for an adjuster to confirm with the insured that the insured understands that he/she/it will not be listed on the settlement check. It is also important for the adjuster to correctly determine if a mortgagee needs to be listed on the settlement check. Situations vary depending on the nature of the work that the contractor is doing (damage prevention versus repair) and whether the work has been completed or is still to be done. The adjuster should discuss the situation with the insured, the contractor, and the mortgagee if the adjuster is at all unsure if the mortgagee needs to be on the settlement check.

Fifth, an adjuster should know whether an assigned claim can be resolved using the insurance policy’s appraisal provision. Appraisal can be an inexpensive and expedient way to resolve a claim. In Florida, an insurer usually can require a contractor with an assigned claim to go to appraisal if the insurance policy provides for the mandatory appraisal upon request.  Certified Priority Restoration v. State Farm Florida Ins. Co ., 191 So. 3d 961, 962 (Fla. 4th DCA 2016).

Insurers will continue to be presented with AOB claims in the wake of Hurricanes Irma and Harvey. We have been helping insurers and adjusters navigate the unique issues associated with AOB claims for many years. Please contact us if you have any questions or need assistance.

For any further questions, please contact Timothy Engelbrecht, T. Nicholas Goanos, or L. Andrew Watson.

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Florida CFO Calls for Ban on Assignments of Benefits, Limits on Public Adjusters

In the wake of Hurricane Ian, Florida’s chief financial officer has taken a hard line on insurance claims litigation, calling for an outright ban on assignments-of-benefits agreements.

At a press conference in Cape Coral, a city hit hard by the hurricane this month, and in a statement Wednesday, CFO Jimmy Patronis also urged Florida lawmakers to establish a statewide insurance fraud prosecutor and to disincentivize public adjusters after a storm.

“We have bad public adjusters swarming impacted areas, soliciting, and trying to make a quick buck,” Patronis said. “Not only do individuals need more time to get out of a public adjuster contract during a state of emergency, we need to reduce the percentage a public adjuster is entitled to immediately following a storm, ensuring their motives are aligned with helping Floridians get back on their feet.”

Patronis, whose Department of Financial Services regulates adjusters, did not say what he based the “bad adjusters” assertion on. But some Florida insurers have long complained about public adjusters working closely with contractors and promising homeowners free roofs after a windstorm, leading to exaggerated claims and litigation.

The CFO also did not provide details on his proposed schedule of fees for adjusters.

The call for an end to assignments of benefits, or AOBs, has already met with support from one insurance industry leader.

“We commend the CFO for calling attention to ongoing abuse of assignment-of-benefits tools by shady vendors whose goal is profit above all else,” said Michael Carlson, president of the Personal Insurance Federation of Florida, which represents a number of insurance carriers. “Eliminating post-loss assignments that transfer consumer rights to vendors is a good idea. We also believe that addressing exorbitant public adjuster fees is another good idea and a means to reduce predatory behavior by these licensees.”

Several Florida insurance executives in recent years have called for statutory changes that would allow insurance policies to bar AOB agreements, noting that thousands of lawsuits in recent years have resulted from disputed AOB claims. Data from CaseGlide, a litigation management software firm, shows that as much as 41% of litigated claims against Florida’s largest insurers resulted from assignees of benefits, usually from restoration contractors. In July, the AOB share of new litigations reached an 18-month high, the company said. That came despite 2019 Florida legislation that aimed to reduce AOB suits.

A number of other states allow insurance policies to include non-assignment of benefits clauses.

Carlson said that claims litigation is “the storm after the storm,” and that one-way attorney fees also need to be addressed to disincentivize unnecessary lawsuits.

The Florida Association of Public Adjusters pushed back on Patronis’ agenda.

“We are concerned that the recent release misrepresents the important role and work of licensed public adjusters,” FAPIA President Chris Cury said in a statement Thursday.

Instead of bad actors in the hurricane zone in southwest Florida, “it appears there is a focus on lawful and licensed insurance professionals who are truly working to help policyholders in their time of need.”

Cury noted that, following a declared emergency, adjuster fees already are limited to no more than 10% of any claim made in the first year after the loss.

“Licensed public adjusters, who are regulated by the Department of Financial Services, adhere to strict standards and continue to serve in an essential capacity for the sake of policyholders,” Cury said.

Insurance industry advocates have often blamed the adjusters for advertising heavily after storms and encouraging inflated claims. Insurance agents have reported that homeowners in the Hurricane Ian strike zone have fielded dozens of calls and door-knocks from public adjusters. But some adjusters and claimants’ attorneys have maintained that public adjusters help homeowners achieve a fair payout on claims, while insurance companies sometimes try to minimize the extent of damages.

“The insurance company has adjusters trained to interpret policies and assess a loss but want to preclude an insured from retaining professionals to assist them in doing the same,” said West Palm Beach attorney Gina Clausen Lozier, who has represented policyholders in claims disputes.

She pointed out that many insurance policies require insureds to submit statements within a short timeframe attesting to the amount of losses. Failure to submit can result in denial of the claim. If it’s overstated, insurers have been known to allege fraud. A public adjuster can help provide a timely estimate.

Lozier agreed that Florida’s insurance market is facing a number of problems, but said that licensed adjusters are not to blame.

“The public adjusting industry in Florida is highly regulated, despite ongoing insinuations that public adjusters are operating without legal or ethical restraints by ‘preying’ on insureds,” she said.

Patronis did not call for another special session of the Florida Legislature to adopt his reform ideas, as some industry advocates have done, but referred to “this coming legislative session.” The 2023 regular session begins in March.

Patronis also reiterated his call for a $3 million anti-fraud and public education campaign.

“Policyholders need to understand what they are signing, and that litigation will only slow down their claims and could result in liens on their property,” Patronis said.

Top photo: Workers atop a building that was heavily damaged by Hurricane Ian at Fort Myers Beach. (AP Photo/Jay Reeves)

Topics Florida

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Written By William Rabb

Rabb is Southeast Editor for Insurance Journal. He is a long-time newspaper man in the Deep South; also covered workers' comp insurance issues for a trade publication for a few years.

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Assignment of Benefit Changes: Know These Should a Hurricane Hit

Florida property owners, listen up: The rules have changed on how you can get your home repaired after a hurricane or other natural disaster by letting a contractor deal directly with your insurance company.

The legislation, CS/HB 7065, is the biggest change to Florida law on assignment of insurance benefits in years.

Whenever Florida is struck by a hurricane or other natural disaster, contractors flock to the area, going door to door and offering to start immediate repairs on homes and businesses if the property owner will sign over their insurance benefits to the contractor.

These “assignment of benefits” contracts, also known as AOB, can result in a high-quality repair at a fair price by a licensed, insured contractor.

But in recent years, insurers have been pressuring lawmakers to rein in abuses of these AOB contracts, especially lawsuits arising from disputes between contractors and insurers over how much to pay for repairs.

In early 2019, Florida insurance regulators testified to the legislature that that such lawsuits were skyrocketing, driving up insurance costs and threatening to drive some insurers out of the Florida market.

Meanwhile, property owners have complained that insurers take too long to inspect property, approve repairs or authorize immediate temporary repairs to prevent future damage. The new law sets new time limits for insurers, property owners and contractors.

Here are some of the major provisions of the new law:

• If you sign an AOB agreement with a contractor, the contractor (called an “assignee” in the new law) must provide your insurer with an itemized, per-unit cost estimate of the work to be done. The contractor also must provide the insurer a copy of the AOB agreement within three days.
• Often, roof damage to a home or business can result in water leaks, which can later turn into major mold and mildew problems. Homeowners sometimes agree to sign over benefits to contractors for a quick temporary repair to head off future loss. The new law limits these temporary repair agreements to $3000 or 1 percent of the coverage limit on such storm damage in your policy, whichever is greater.
• If a dispute arises between the insurer and the assignee over how much of the loss will be covered, the assignee has to notify the insurer of intent to file a lawsuit over the dispute at least 10 days before the lawsuit is filed. Insurers have 10 days to respond, but insurers can get extra time if an emergency has been declared in your area because of a storm.
• If your contractor sues your insurer to force them to pay more than they’re offering for the repair, and the final judgment in the lawsuit is up to 25 percent more than the insurer’s initial offer, your insurance company now will have the right to collect their attorney’s fees from the assignee. If the final judgment in a lawsuit is between 25 and 50 percent higher than the insurer’s initial offer, neither side can recover attorney’s fees. If the insurer’s initial offer was more than 50 percent lower than the final judgment in a lawsuit, the assignee can recover attorney’s fees from the insurer. This provision was meant to discourage lawsuits in cases where the disputed portion of the insurance settlement is relatively minor.

However, if an insurer doesn’t inspect the property or authorize repairs within seven days of notification of a loss, the insurer must give up its right to recover attorney’s fees from a resulting lawsuit.

• Previously, Florida courts had held that you had a right to sign over your insurance benefits to a contractor after a loss. Under the new law, insurers now can sell you an insurance policy that doesn’t allow you to assign your benefits to a contractor, although the insurer also must offer you a policy that does allow AOB contracts – possibly at a higher cost.

PS: Here's a HUGE tip we learned during a Facebook Live with the Tasha Carter of CFO Jimmy Patronis's Office: The document you sign that *is* the Assignment of Benefit does NOT have to state Assignment of Benefit at the top ... and likely won't.

Read the legislature’s analysis of the bill’s provisions here.

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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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Viewpoint: Florida Begins New Era with Major Property Insurance Reforms

For the fourth time since 2019, the Florida Legislature has enacted property insurance reforms aimed towards stabilizing a beleaguered insurance market. The bill, S.B. 2-A , creates a reinsurance assistance program, establishes additional oversight for insurers with high volumes of hurricane claims, and reforms many aspects of the claims process, including the timing for paying and adjusting claims. The reforms further eliminate one-way attorney fee awards to policyholders and ban assignment-of-benefits agreements. In this article, we will focus on the changes to the claim adjustment process and coverage and bad faith litigation.

In the first round of property insurance reforms in 2019, the Legislature established a pre-suit notice process and two-way attorney’s fee shifting in assignment of benefits (AOB) litigation against admitted carriers. In the second round of property insurance reforms, the Legislature established a procedure requiring pre-suit notice for policyholders. The second round of reforms also set stricter time limitations for giving notice of claims. In the third round of property insurance reforms, the Florida Legislature took a more direct shot at the problem and eliminated statutory attorney fee shifting in suits brought by assignees, created a statutory presumption against attorney’s fee multipliers, and established a requirement that claimants prove a breach of contract in order to prevail on a claim for statutory bad faith against a property insurer. The new fourth round of reforms is discussed in detail below.

No Statutory Attorney’s Fee Shifting in Property Insurance Litigation

The prior reforms attempted to curb frivolous and excessive litigation by establishing a pre-suit notice process and a sliding scale for attorney’s fee awards based on success in the lawsuit. But even with a diminished prospect for an award of attorney’s fees, policyholders still had the leverage of asymmetric litigation. Giving a litigation advantage to one party encourages more litigation.

The Florida Legislature has now eliminated the statutory attorney’s fee shifting in residential and commercial property lawsuits for both admitted and surplus lines carriers, adding the following language to both Sections 627.428 and 626.9373: “In a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.” The fee-shifting statutes remain in effect for other types of insurance, and there is still potential that policyholders recover attorney’s fees through sanctions motions or proposals for settlement.

Adjustment of Claims

The new reforms reduce the time for insurers to issue undisputed payments. Section 626.9541, unfair methods of competition and unfair or deceptive acts or practices, has been amended to reduce the time for which undisputed payments should be made. Undisputed payments must now be paid within 60 days, down from 90 days, unless payment of the undisputed benefits is prevented by factors beyond the control of the insurer as defined in Section 627.70131(5).

The Florida Legislature also made further amendments to Section 627.70131, which will take effect on March 1, 2023. Changes include:

• Reducing the time from 14 calendar days to 7 calendar days for insurers to review and acknowledge receipt of communications, unless payment is made within that time or unless the failure to acknowledge is caused by factors beyond the control of the insurer.
• Reducing the time from 14 days to 7 days after the insurer received proof-of-loss statements for the insurer to begin such investigation as is reasonably necessary, unless otherwise provided by the policy or by law, or unless the failure to begin such investigation is caused by factors beyond the control of the insurer.
• Reducing the time from 45 days to 30 days after receiving proof-of-loss statements for the insurer to conduct a physical inspection of the property.
• Permitting insurers to use electronic methods to investigate losses. Such electronic methods may include any method that provides the insurer with clear, color pictures or video documenting the loss, including, but not limited to, electronic photographs or video recordings of the loss, video conferencing between the adjuster and the policyholder which includes video recording of the loss, and video recordings or photographs of the loss using a drone, driverless vehicle, or other machine that can move independently or through remote control. The insurer also may allow the policyholder to use such methods to assist in the investigation of the loss. An insurer may void the insurance policy if the policyholder or any other person at the direction of the policyholder, with intent to injure, defraud, or deceive any insurer, commits insurance fraud by providing false, incomplete, or misleading information concerning any fact or thing material to a claim using electronic methods. The use of electronic methods to investigate the loss does not prohibit an insurer from assigning a licensed adjuster to physically inspect the property.
• Requiring the insurer to send the policyholder a copy of any detailed estimate of loss within 7 days after the estimate is written by the insurer’s adjuster, removing the requirement that the policyholder first request a copy of the estimate.

Section 627.70131(4) has been amended to require insurers to maintain certain records, including dates of:

• Any claim-related communication made between the insurer and the policyholder or the policyholder’s representative;
• The insurer’s receipt of the policyholder’s proof of loss statement;
• Any claim-related request for information made by the insurer to the policyholder or the policyholder’s representative;
• Any claim-related inspections of the property made by the insurer, including physical inspections and inspections made by electronic means;
• Any detailed estimate of the amount of the loss generated by the insurer’s adjuster;
• The beginning and end of any tolling period provided for in subsection (8) of Section 627.70131; and
• The insurer’s payment or denial of the claim.

“Factors beyond the control of the insurer” means:

• The Office of Insurance Regulation issued an order finding that all or certain residential property insurers are reasonably unable to meet the time requirements of the statute in specified locations and ordering that such insurer or insurers may have additional time as specified by the Office.
• Actions by the policyholder or the policyholder’s representative which constitute fraud, lack of cooperation, or intentional misrepresentation regarding the claim for which benefits are owed when such actions reasonably prevent the insurer from complying with any requirement of this section.

This definition of “factors beyond the control of the insurer” is important because it is also used in the section requiring timely payment of claims. The reformed statute now requires coverage determinations within 60 days:

(7)(a) Within 60 days after an insurer receives notice of an initial, reopened, or supplemental property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay is caused by factors beyond the control of the insurer…. Any payment of an initial or supplemental claim or portion of such claim made 60 days after the insurer receives notice of the claim, or made after the expiration of any additional timeframe provided to pay or deny a claim or a portion of a claim made pursuant to an order of the office finding factors beyond the control of the insurer, whichever is later, bears interest ….

Accordingly, the exception to the interest payment requirement has been limited to instances where the Office of Insurance Regulation determined that there are factors beyond the control of the insurer. An insurer can no longer make that determination. However, the time requirements of Section 627.70131 are tolled if a policyholder or a policyholder’s representative fail to provide material claims information requested by the insurer within 10 days after the request, if the request is made at least 15 days before the insurer is required to pay or deny the claim.

The time requirements are also tolled during any statutory mediation proceeding of any alternative dispute resolution proceeding provided for under the policy.

Deadlines for Notice of Claims

The Florida Legislature has again amended Section 627.70132, which is applicable to both admitted insurers and surplus lines insurers and applies to claims arising from any peril. The amended statute reduces the time to report a claim or reopened claim from 2 years after the date of loss to 1 year. The time to report a supplemental claim is reduced from 3 years after the date of loss to 18 months.

Pre-Suit Notice Process

The parts of Section 627.70152 pertaining to attorney’s fees have been removed. The pre-suit notice and resolution process have otherwise been left intact.

Assignments of Benefits

At the end of 2022, assignments of benefits to service providers will be prohibited:

Except as provided in subsection (11), a policyholder may not assign, in whole or in part, any post-loss insurance benefit under any residential property insurance policy or under any commercial property insurance policy as that term is defined in s. 627.0625(1), issued on or after January 1, 2023. An attempt to assign post-loss property insurance benefits under such a policy is void, invalid, and unenforceable.

This prohibition will apply to admitted carriers only.

Breach of Contract Necessary for Bad Faith

Florida Statutes Section 624.155 permits claimants to file bad faith claims under first-party property insurance policies. Before a claimant can file a bad faith suit, the existence of coverage and the extent of damages, the amount of loss, must be determined. Over the past decade, numerous Florida courts have held that an appraisal award is a sufficient determination of coverage and amount of loss to permit a bad faith suit. Therefore, even if an insurer properly issued payment under the terms of the policy, and had not been found to have breached any part of the policy, it could still face a bad faith suit if an appraisal award resulted in any additional payment to the insured. Consequently, appraisals have become a popular tool for bad faith setups.

The Florida Legislature attempted to fix this issue in its third round of reforms, but the language in the new Section 624.1551 was too vague as to what it means to establish a breach of contract. The Legislature has now replaced Section 624.1551 with more precise conditions for asserting a bad faith claim against a property insurer:

624.1551 Civil remedy actions against property insurers.—

Notwithstanding any provision of s. 624.155 to the contrary, in any claim for extracontractual damages under s. 624.155(1)(b), no action shall lie until a named or omnibus insured or a named beneficiary has established through an adverse adjudication by a court of law that the property insurer breached the insurance contract and a final judgment or decree has been rendered against the insurer. Acceptance of an offer of judgment under s. 768.79 or the payment of an appraisal award does not constitute an adverse adjudication under this section. The difference between an insurer’s appraiser’s final estimate and the appraisal award may be evidence of bad faith under s. 624.155(1)(b), but is not deemed an adverse adjudication under this section and does not, on its own, give rise to a cause of action.

With this amendment, the Legislature has ended the “appraisal to bad faith” setup, and made clear a simple, reasonable proposition—an insurer that has abided by the terms of the insurance policy should not have to defend a bad faith suit.

Offers of Judgment

The Florida Legislature amended Section 768.79, the offer of judgment statute, to permit the making of joint offers that are conditioned on mutual acceptance. This amendment eliminates the “spousal loophole,” which allows spousal co-plaintiffs, and other closely related policyholders, to avoid offers of judgment conditioned on their joint acceptance.

Submission of Claims to Appraisal as a General Business Practice

The bill amends Section 624.418, which provides grounds for the suspension or revocation of an insurer’s certification of authority, to include instances where an insurer, as part of a general business practice, without cause, compels insureds to participate in appraisal in order to secure full payment of their claims. Appraisal is a mechanism for resolving genuine disputes over the amount of loss for a given claim, and the decision to invoke appraisal should be made based upon the facts and circumstances of a particular claim. This amendment to Section 624.418 should alleviate concerns about appraisal being used as a means for avoiding bad faith liability as a result of the breach of contract requirement added to Section 624.1551.

Flood Insurance is Encouraged

The Legislature amended the warning language required in homeowner’s insurance policies that do not provide flood coverage. Instead of advising homeowners that they “may also need to consider” flood coverage, the new disclaimer will advise policyholders that they “should consider” flood coverage.

Mandatory Binding Arbitration Endorsements Authorized

The new law creates Section 627.70154, which codifies that insurers can issue optional mandatory binding arbitration endorsements. The policyholder must sign a form electing binding arbitration, and the premium for the policy must include an actuarially sound discount for the mandatory binding arbitration endorsement. But, insurers must also offer the policyholder a policy that does not require participation in mandatory binding arbitration.

Effective Dates

These statutory reforms became effective upon being signed into law by Governor DeSantis on December 16, 2022, which means the changes apply to policies issued after that time. The amendments to Section 627.70131 take effect on March 1, 2023. Because the old laws will apply to policies that have already been issued, we anticipate a high volume of litigation on older claims, and of claims for damage from Hurricane Ian and Hurricane Nicole. Following the third round of reforms, we saw an uptick of litigation from assignees hoping to litigate under the older, more favorable laws.

Assignments of benefits will be prohibited on January 1, 2023, but this prohibition will likely only apply to admitted carriers.

Closing Thoughts

These reforms represent the most significant changes to Florida’s current Insurance Code since its inception in 1982. In particular, the elimination of attorney’s fee awards has been on the radar of the Office of Insurance Regulation for a number of years now. These insurance reforms benefit both policyholders and insurers. Policyholders will receive quicker claim decisions and payments, and insurers should eventually see fewer abusive lawsuits. The Florida Legislature is encouraging prompt and open adjustment of claims, while discouraging attorneys and contractors from abusing the insurance claim process. We believe these reforms will have a positive impact on the insurance market in Florida, but it will take at least a few years before we see the true impact of this legislation on the volume of property insurance litigation.

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Assigning Your Insurance Benefits

Floridians whose homes were damaged by Hurricane Irma or other tropical storm or hurricane activity are eager to repair their properties. But some insurers are worried that homeowners looking for quick and easy repairs might be vulnerable to assignment of benefits abuse. They urge homeowners to proceed with caution in assigning their insurance benefits. But restoration professionals also deserve to be compensated for their services.

What Is an “Assignment of Benefits”?  

When a homeowner hires a contractor to repair property damage, the contractor may ask the owner to sign an affidavit transferring the benefits from their home insurance policies. This is called an assignment of benefits (AOB), and the contractor might not begin repairs until the AOB is signed. When that happens the insurance company must reimburse the contractor for the repair work instead of directly reimbursing the homeowner for the property damage.

According to the Personal Insurance Federation of Florida, “an assignment is not required for work to begin” and homeowners should be cautious of “unscrupulous vendors promising free roofs or other quick repairs following the storm.” Insurers worry that contractors sometimes inflate their rates, which has led to increased insurance rates.  

However, homeowners often do need quick repairs to prevent additional damage, especially when flooding is an issue. The ability to assign their benefits helps property owners who need emergency repair services. Examples of such services include water and mold remediation, debris removal and fire and smoke damage restoration.

Calls for AOB Reform

Hundreds of thousands of insurance claims have been filed in the wake of Hurricane Irma, and the Florida Office of Insurance Regulation warned homeowners that disputes between contractors and their insurance companies could embroil them in legal battles and leave them paying the difference between what the company is willing to pay and what the contractor demands.

“Homeowners are encouraged to file a claim directly with their insurance company to maintain control of the rights and benefits provided by their insurance policy in resolving a claim,” Insurance Commissioner David Altmaier said in a news release.

There have been numerous calls for AOB reform, by insurance companies, lawmakers and other government officials. The legislature introduced a reform bill last year, an effort supported by Altmaier that ultimately failed. He has indicated that his agency will consider regulatory action to address the alleged abuses.

There are some common sense measures that homeowners can take to prevent AOB fraud. Never assign all of your benefits over to one contractor who can’t address all of the repair work that needs to be done. For example, you might need both plumbing and electrical work done, and a plumber won’t be able to address the electrical issues.

Let Us Assist You with Your Case

Contact a Fort Myers insurance attorney at The Pendas Law Firm today for a free consultation if your property has sustained hurricane damage. We will guide you through the insurance claims process and help you recover for your losses. We can also help contractors who have had insurance benefits assigned to them.

The Pendas Law Firm also represents clients in the Tampa, Orlando, West Palm Beach, Fort Lauderdale, Jacksonville, Miami, Daytona Beach and Bradenton areas.

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Assignment of Benefits: What It Is, and How It Can Affect your Property Insurance Claim

Table of Contents

What is an Assignment of Benefits?

In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work .  In exchange, the contractor agrees that it will not seek payment from you for that scope of work, except for the amount of any applicable deductible.  In other words, you give part of your insurance claim to your contractor, and your contractor agrees not to collect from you for part of its work.

The most important thing to know about an assignment of benefits is that it puts your contractor in control your claim , at least for their scope of work.  Losing that control can significantly affect the direction and outcome of your claim, so you should fully understand the implications of an AOB (sometimes called an assignment of claims or AOC) before signing one.

How Does an Assignment of Benefits Work in Practice? 

Let’s say you’re an insured homeowner, and Hurricane Ian significantly damaged your roof.  Let’s also assume your homeowner’s policy covers that damage.  A roofer, after inspecting your roof and reviewing your insurance policy, might conclude that your insurer is probably going to pay for a roof replacement under your insurance policy.  The only problem is that it’s early in the recovery process, and your insurer hasn’t yet stated whether it will pay for the roof replacement proposed by your contractor. So if you want your roof replaced now, you would ordinarily agree to pay your roofer for the replacement, and wait in hopes that your insurer reimburses you for the work.  This means that if your insurance company refuses to pay or drags out payment, you’re on the hook to your roofer for the cost of the replacement.

As an alternative to agreeing to pay your roofer for the full cost of the work, you could sign an assignment of benefits for the roof replacement.  In this scenario, your roofer owns the part of your insurance claim that pertains to the roof replacement.  You might have to pay your roofer for the amount of your deductible, but you probably don’t have to pay them for the rest of the cost of the work.  And if your insurance company refuses to pay or drags out payment for the roof replacement, it’s your roofer, and not you, who would be on the hook for that shortfall.

So should you sign an AOB?  Not necessarily.  Read below to understand the pros and cons of an assignment of benefits.

Are There any Downsides to Signing an Assignment of Benefits?

Yes.  

You lose control of your claim . This is the most important factor to understand when considering whether to sign an AOB.  An AOB is a formal assignment of your legal rights to payment under your insurance contract.  Unless you’re able to cancel the AOB, your contractor will have full control over your claim as it relates to their work. 

To explain why that control could matter, let’s go back to the roof replacement example.  When you signed the AOB, the scope of work you agreed on was to replace the roof.  But you’re not a roofing expert, so you don’t know whether the costs charged or the materials used by the roofer in its statement of work are industry appropriate or not.  In most cases, they probably are appropriate, and there’s no problem.  But if they’re not – if, for instance, the roofer’s prices are unreasonably high – then the insurer may not approve coverage for the replacement.  At that point, the roofer could lower its prices so the insurer approves the work, but it doesn’t have to, because it controls the claim .  Instead it could hold up work and threaten to sue your insurer unless it approves the work at the originally proposed price.  Now the entire project is insnared in litigation, leaving you in a tough spot with your insurer for your other claims and, most importantly, with an old leaky roof.

Misunderstanding the Scope of Work.   Another issue that can arise is that you don’t understand the scope of the assignment of benefits.  Contractor estimates and scopes of work are often highly technical documents that can be long on detail but short on clarity.  Contractors are experts at reading and writing them.  You are not.  That difference matters because the extent of your assignment of benefits is based on that technical, difficult-to-understand scope of work.  This can lead to situations where your understanding of what you’re authorizing the contractor to do is very different from what you’ve actually authorized in the AOB agreement.

In many cases, it’s not necessary .   Many contractors will work with you and your insurer to provide a detailed estimate of their work, and will not begin that work until your insurer has approved coverage for it.  This arrangement significantly reduces the risk of you being on the hook for uninsured repairs, without creating any of the potential problems that can occur when you give away your rights to your claim.

Do I have to sign an Assignment of Benefits?

No.  You are absolutely not required to sign an AOB if you do not want to. 

Are There any Benefits to Signing an Assignment of Benefits?

Potentially, but only if you’ve fully vetted your contractor and your claim involves complicated and technical construction issues that you don’t want to deal with. 

First, you must do your homework to fully vet your contractor!  Do not just take their word for it or be duped by slick ads.  Read reviews, understand their certificate of insurance, know where they’re located, and, if possible, ask for and talk to references.  If you’ve determined that the contractor is highly competent at the work they do, is fully insured, and has a good reputation with customers, then that reduces the risk that they’ll abuse their rights to your claim.

Second, if your claim involves complicated reconstruction issues, a reputable contractor may be well equipped to handle the claim and move it forward.  If you don’t want to deal with the hassle of handling a complicated claim like this, and you know you have a good contractor, one way to get rid of that hassle is an AOB.

Another way to get rid of the hassle is to try Claimly, the all-in-one claims handling tool that get you results but keeps you in control of your claim.  

Can my insurance policy restrict the use of AOBs?

Yes, it’s possible that your Florida insurance policy restricts the use of AOBs, but only if all of the following criteria are met:

• When you selected your coverage, your insurer offered you a different policy with the same coverage, only it did not restrict the right to sign an AOB.
• Your insurer made the restricted policy available at a lower cost than the unrestricted policy.
• If the policy completely prohibits AOBs, then it was made available at a lower cost than any policy partially prohibiting AOBs.
• The policy includes on its face the following notice in 18-point uppercase and boldfaced type:

THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7153 OF THE FLORIDA STATUTES.

627.7153. 

Pro Tip : If you have an electronic copy of your complete insurance policy (not just the declaration page), then search for “policy does not allow the unrestricted assignment” or another phrase from the required language above to see if your policy restricts an AOB.  If your policy doesn’t contain this required language, it probably doesn’t restrict AOBs.

Do I have any rights or protections concerning Assignments of Benefits?

Yes, you do.  Florida recently enacted laws that protect consumers when dealing with an AOB.

Protections in the AOB Contract

To be enforceable, a Assignments of Benefits must meet all of the following requirements:

• Be in writing and executed by and between you and the contractor.
• Contain a provision that allows you to cancel the assignment agreement without a penalty or fee by submitting a written notice of cancellation signed by the you to the assignee:
• at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or
• at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.
• Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier.
• Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee .
• Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
• Contain the following notice in 18-point uppercase and boldfaced type:

YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.

• Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees.

Contractor Duties

Under Florida law, a contractor (or anyone else) receiving rights to a claim under an AOB:

• Must provide you with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required.
• Must perform the work in accordance with accepted industry standards.
• May not seek payment from you exceeding the applicable deductible under the policy unless asked the contractor to perform additional work at the your own expense.
• Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, submit to examinations under oath and recorded statements conducted by the insurer or the insurer’s representative that are reasonably necessary, based on the scope of the work and the complexity of the claim, which examinations and recorded statements must be limited to matters related to the services provided, the cost of the services, and the assignment agreement.
• Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, participate in appraisal or other alternative dispute resolution methods in accordance with the terms of the policy.
• If the contractor is making emergency repairs, the assignment of benefits cannot exceed the greater of $3,000 or 1% of your Coverage A limit.

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Florida’s “Assignment of Benefits” Bill: A Guide Through the New Statutory Framework

Florida H.B. 7065 , expected to take effect July 1, 2019, makes several key statutory changes designed to curb AOB practices. We discuss a few of those highlights here.

The bill establishes several new sections of the Florida Statutes, including Fla. Stat. § 627.7152. § 627.7152(2)(a) sets requirements for a proper assignment of benefits:

627.7152 Assignment agreements.—

(2)(a) An assignment agreement must:

1) Be in writing and executed by and between the assignor and the assignee.

2) Contain a provision that allows the assignor to rescind the assignment agreement without a penalty or fee by submitting a written notice of rescission signed by the assignor to the assignee within 14 days after the execution of the agreement, at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.

3) Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier. . . .

4) Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee. . . .

Under § 627.7152(2)(a), contractors will no longer be able to blindside their customers and insurers with exorbitant bills with the expectation that an insurance company will eventually pay it. Now, contractors will be required to provide detailed estimates in advance of performing the work in order to effectively obtain an assignment of insurance benefits. Further, the assignee must promptly notify the insurer of the assignment. Insurers will now be able to monitor costs as they are incurred and ensure contractors are not performing unnecessary repairs.

In the event of litigation, § 627.7152(3) addresses the burden of the assignee:

(3) In a claim arising under an assignment agreement, an assignee has the burden to demonstrate that the insurer is not prejudiced by the assignee’s failure to:

(a) Maintain records of all services provided under the assignment agreement.

(b) Cooperate with the insurer in the claim investigation.

(c) Provide the insurer with requested records and documents related to the services provided, and permit the insurer to make copies of such records and documents.

(d) Deliver a copy of the executed assignment agreement to the insurer within 3 business days after executing the assignment agreement or work has begun, whichever is earlier.

Like a policyholder, assignees must cooperate with the insurer. If an assignee fails to maintain records, provide the insurer requested documents, or deliver the agreement as required by § 627.7152(2)(a), the assignee will bear the burden in litigation of demonstrating a lack of prejudice to the insurer.

In order to even get into a courtroom, however, § 627.7152(9)(a) requires assignees to serve written notice at least 10 business days prior to filing suit. The notice must include, among other things, the amount of damages in dispute, the amount claimed, and a pre-suit settlement demand. The assignee must also provide a detailed written invoice or estimate of services, the number of labor hours, and in the case of work performed, proof that the work has been performed in accordance with “accepted industry standards.” Upon receipt of the notice,

(b) An insurer must respond in writing to the notice within 10 business days after receiving the notice specified in paragraph (a) by making a presuit settlement offer or requiring the assignee to participate in appraisal or other method of alternative dispute resolution under the policy. An insurer must have a procedure for the prompt investigation, review, and evaluation of the dispute stated in the notice and must investigate each claim contained in the notice in accordance with the Florida Insurance Code.

Insurers have an opportunity to avoid litigation through negotiation or appraisal. Assignees are encouraged to make reasonable settlement demands and to consider reasonable offers because failure to do so can trigger an award of attorney’s fees in the insurer’s favor:

(10) Notwithstanding any other provision of law, in a suit related to an assignment agreement for post-loss claims arising under a residential or commercial property insurance policy, attorney fees and costs may be recovered by an assignee only under s. 57.105 and this subsection.

 (a) If the difference between the judgment obtained by the assignee and the presuit settlement offer is:

1) Less than 25 percent of the disputed amount, the insurer is entitled to an award of reasonable attorney fees.

2) At least 25 percent but less than 50 percent of the disputed amount, no party is entitled to an award of attorney fees.

3) At least 50 percent of the disputed amount, the assignee is entitled to an award of reasonable attorney fees.

Fla. Stat. § 627.428 is the one way attorney’s fee shifting statute in Florida’s insurance code.  This statute generously provides fee-shifting to “prevailing” policyholders and claimants, including following negotiated settlements in contravention of the general American rule. Under the new AOB statute, § 627.7152(10), awards of attorney’s fees are discretionary in suits against insurers by assignees.  Further, § 627.7152(10) requires assignees to obtain a judgment of an amount at least 50% greater than the insurer’s pre-suit settlement offer in order to obtain an award of attorney’s fees. For additional encouragement to accept reasonable settlement offers, assignees who fail to obtain a judgment at least 25% greater may be required to pay the insurer’s attorney’s fees.

Last, insurers can avoid “assignment of benefits” issues altogether by prohibiting AOBs in their policies. The bill creates a new § 627.7153, which allows “[a]n insurer may make available a policy that restricts in whole or in part an insured’s right to execute an assignment agreement” if certain conditions are met.  Those conditions include that the insurer must also provide unrestricted coverage, the restricted policy is available at a lower cost than the unrestricted policy, policies prohibiting assignment in whole cost less than policies prohibiting assignment in part, and restricted policies must contain notice on its face.

With the passage of this new law, Florida will see a new litigation landscape in the area of assignment of benefits. The law is prospective only, so it will not technically impact existing AOB litigation.  However, through passage of this law, Florida has disincentivized unscrupulous contractors and leveled the courtroom playing field and the presently rampant AOB litigation should begin to fade. Ultimately, these changes are expected to benefit Florida policyholders with reduced insurance premiums.

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Assignment of Benefits for Contractors: Pros & Cons of Accepting an AOB

22 articles

Insurance , Restoration , Slow Payment

When a property owner files an insurance claim to cover a restoration or roofing project, the owner typically deals directly with the insurance company. They may not have the funds available to pay the contractor out of pocket, so they’re counting on that insurance check to cover the construction costs.

But insurance companies often drag their feet, and payments can take even longer than normal. Contractors often wish they could simply deal with the insurance company directly through an assignment of benefits. In some circumstances, an AOB can be an effective tool that helps contractors collect payment faster — but is it worth it?

In this article, we’ll explain what an assignment of benefits is, and how the process works. More importantly, we’ll look at the pros and cons for restoration and roofing contractors to help you decide if an AOB is worth it . 

What is an assignment of benefits? 

An assignment of benefits , or AOB, is an agreement to transfer insurance claim rights to a third party. It gives the assignee authority to file and negotiate a claim directly with the insurance company, without involvement from the property owner. 

An AOB also allows the insurer to pay the contractor directly instead of funneling funds through the customer. AOBs take the homeowner out of the claims equation.

Here’s an example: A property owner’s roof is damaged in a hurricane. The owner contacts a restoration company to repair the damage, and signs an AOB to transfer their insurance rights to the contractor. The contractor, now the assignee, negotiates the claim directly with the insurance company. The insurer will pay the claim by issuing a check for the repairs directly to the restoration contractor. 

Setting up an AOB

A property owner and contractor can set up an assignment of benefits in two steps: 

• The owner and the contractor sign an AOB agreement
• The contractor sends the AOB to the insurance company

Keep in mind that many states have their own laws about what the agreement can or should include .

For example, Florida’s assignment of benefits law contains relatively strict requirements when it comes to an assignment of benefits: 

• The AOB agreements need to be in writing. The agreement must contain a bolded disclosure notifying the customer that they are relinquishing certain rights under the homeowners policy. You can’t charge administrative fees or penalties if a homeowner decides to cancel the AOB. 
• The AOB must include an itemized, per-unit breakdown of the work you plan to do. The services can only involve how you plan to make repairs or restore the home’s damage or protect the property from any further harm. A copy must be provided to the insurance company. 
• A homeowner can rescind an AOB agreement within 14 days of signing, or within 30 days if no work has begun and no start date was listed for the work. If a start date is listed, the 30-day rule still applies if substantial progress has not been made on the job. 

Before signing an AOB agreement, make sure you understand the property owner’s insurance policy, and whether the project is likely to be covered.

Learn more – Assignment of Benefits: Ultimate Guide for Contractors & Policyholders

Pros & cons for contractors

It’s smart to do a cost-benefit analysis on the practice of accepting AOBs. Listing pros and cons can help you make a logical assessment before deciding either way. 

Pro: Hiring a public adjuster

An insurance carrier’s claims adjuster will inspect property damage and arrive at a dollar figure calculated to cover the cost of repairs. Often, you might feel this adjuster may have overlooked some details that should factor into the estimate. 

If you encounter pushback from the insurer under these circumstances, a licensed, public adjuster may be warranted. These appraisers work for the homeowner, whose best interests you now represent as a result of the AOB. A public adjuster could help win the battle to complete the repairs properly. 

Pro: More control over payment

You may sink a considerable amount of time into preparing an estimate for a customer. You may even get green-lighted to order materials and get started. Once the ball starts rolling, you wouldn’t want a customer to back out on the deal. 

Klark Brown , Co-founder of The Alliance of Independent Restorers, concedes this might be one of the very situations in which an AOB construction agreement might help a contractor. “An AOB helps make sure the homeowner doesn’t take the insurance money and run,” says Brown.  

Pro: Build a better relationship with the homeowner

A homeowner suffers a substantial loss and it’s easy to understand why push and pull with an insurance company might be the last thing they want to undertake. They may desire to have another party act on their behalf. 

As an AOB recipient, the claims ball is now in your court. By taking some of the weight off a customer’s shoulders during a difficult period, it could help build good faith and further the relationship you strive to build with that client. 

Learn more : 8 Ways for Contractors to Build Trust With a Homeowner

Con: It confuses payment responsibilities

Even if you accept an AOB, the property owner still generally bears responsibility for making payment. If the insurance company is dragging their feet, a restoration contractor can still likely file a mechanics lien on the property .

A homeowner may think that by signing away their right to an insurance claim, they are also signing away their responsibility to pay for the restoration work. This typically isn’t true, and this expectation could set you up for a more contentious dispute down the line if there is a problem with the insurance claim. 

Con: Tighter margins

Insurance companies will want repairs made at the lowest cost possible. Just like you, carriers run a business and need to cut costs while boosting revenue. 

While some restoration contractors work directly with insurers and could get a steady stream of work from them, Brown emphasizes that you may be sacrificing your own margins. “Expect to accept work for less money than you’d charge independently,” he adds. 

The takeaway here suggests that any contractor accepting an AOB could subject themselves to the same bare-boned profit margins. 

Con: More administrative work

Among others, creating additional administrative busywork is another reason Brown recommends that you steer clear of accepting AOBs. You’re committing additional resources while agreeing to work for less money. 

“Administrative costs are a burden,” Brown states. Insurers may reduce and/or delay payments to help their own bottom lines. “Insurers will play the float with reserves and claims funds,” he added. So, AOBs can be detrimental to your business if you’re spending more while chasing payments. 

Con: Increase in average collection period

Every contractor should use some financial metrics to help gauge the health of the business . The average collection period for receivables measures the average time it takes you to get paid on your open accounts. 

Insurance companies aren’t known for paying claims quickly. If you do restoration work without accepting an AOB, you can often take action with the homeowner to get paid faster. When you’re depending on an insurance company to make your payment, rather than the owner, collection times will likely increase.

The literal and figurative bottom line is: If accepting assignment of benefits agreements increases the time it takes to get paid and costs you more in operational expense, these are both situations you want to avoid. 

Learn more: How to calculate your collection effectiveness 

AOBs and mechanics liens

A mechanics lien is hands down a contractor’s most effective tool to ensure they get paid for their work. Many types of restoration services are protected under lien laws in most states. But what happens to lien rights when a contractor accepts an assignment of benefits? 

An AOB generally won’t affect a contractor’s ability to file a mechanics lien on the property if they don’t receive payment. The homeowner is typically still responsible to pay for the improvements. This is especially true if the contract involves work that wasn’t covered by the insurance policy. 

However, make sure you know the laws in the state where your project is located. For example, Florida’s assignment of benefits law, perhaps the most restrictive in the country, appears to prohibit an AOB assignee from filing a lien. 

Florida AOB agreements are required to include language that waives the contractor’s rights to collect payment from the owner. The required statement takes it even further, stating that neither the contractor or any of their subs can file a mechanics lien on the owner’s property. 

On his website , Florida’s CFO says: “The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.”

That sounds like a contractor assignee can’t file a lien if they aren’t paid . But, according to construction lawyer Alex Benarroche , it’s not so cut-and-dry.

“Florida’s AOB law has yet to be tested in court, and it’s possible that the no-lien provision would be invalid,” says Benarroche. “This is because Florida also prohibits no-lien clauses in a contract. It is not legal for a contractor to waive their right to file a lien via an agreement prior to performance.” 

Learn more about no-lien clauses and their enforceability state-by-state

Remember that every state treats AOBs differently, and conflicting laws can create additional risk. It’s important to consult with a construction lawyer in the project’s state before accepting an assignment of benefits. 

Best practices for contractors 

At the end of the day, there are advantages and disadvantages to accepting an assignment of benefits. While it’s possible in some circumstances that an AOB could help a contractor get paid faster, there are lots of other payment tools that are more effective and require less administrative costs. An AOB should never be the first option on the table . 

If you do decide to become an assignee to the property owner’s claim benefits, make sure you do your homework beforehand and adopt some best practices to effectively manage the assignment of benefits process. You’ll need to keep on top of the administrative details involved in drafting AOBs and schedule work in a timely manner to stay in compliance with the conditions of the agreement. 

Make sure you understand all the nuances of how insurance works when there’s a claim . You need to understand the owner’s policy and what it covers. Home insurance policy forms are basically standardized for easy comparisons in each state, so what you see with one company is what you get with all carriers. 

Since you’re now the point of contact for the insurance company, expect more phone calls and emails from both clients and the insurer . You’ll need to have a strategy to efficiently handle ramped-up communications since the frequency will increase. Keep homeowners and claims reps in the loop so you can build customer relationships and hopefully get paid faster by the insurer for your work.

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Hurricane Matthew Reminded Us What Insureds Can Lose When They Give Assignments of Benefits

November 3, 2016

Hurricane Matthew has brought out repair contractors offering services to property owners who have suffered damages to their homes, businesses and condominiums.  Already we’ve seen one form of agreement between a repair contractor and a condominium association with hurricane damage, which contains an “assignment of benefits”.  This is language assigning to the contractor, the condominium association or other building owner’s rights to recover compensation from its insurance company for storm damage.  Under the assignment, the contractor would take control of  the building owner’s right to collect payments for hurricane damage under the under the insurance policy.

Requesting assignments of benefits is a common practice for water damage or storm damage repair which in the judgment of this writer has become pernicious and abusive, and ultimately costly to consumers.  Under Florida law, insured homeowners have a right to enforce their insurance policy, and if the insurance company refuses to pay or otherwise perform, the insured may recover attorney’s fees.  However, the attorney’s fees are a one way remedy: the insurer can’t recover fees from the insured if the insured’s claim is found to be excessive or wrongful.  The legislature believed this was an appropriate counter-balance to the insurance companies’ perceived ability to take an too long to pay a claim, or not pay at all, while the homeowner was in need of the money and lacked the financial ability to enforce the contract.

The unintended consequence of this law has been that some hurricane damage repair providers and their lawyers have figured out how to manipulate the system.  The storm damage repair company takes control of the attorney’s fees remedy and use it as leverage to collect questionable fees for other services.  Contracts with consumers (for services like windshield repair or repair of storm damage like Hurricane Matthew) will often include an “assignment of benefits”.  The repair company then takes control of the homeowner’s rights under the policy arising out of the incident, including the right to recover attorney’s fees in the event of nonpayment.  It is easy to see how this could lead to the practice of the repair provider/assignee making excessive or unreasonable claims against the insurer.  It knows that if there is a dispute, even a legitimate dispute over excessive prices or unreasonable services, the insurer risks paying attorney’s fees.  It’s cheaper for the insurance company to not dispute a claim even if it is excessive, than to pay two sets of lawyer – its own and the repair company’s – to litigate the issue.

As an example, suppose a repair contractor’s bill for fixing Hurricane Matthew damage were to include charges for gasoline to get to the job of $10 a gallon, calling it an “administrative markup.”  Most people would call this gouging.  The insurer would face the risk of disputing the claim and possibly paying attorneys’ fees many times greater than the disputed amount.

The author has personally seen claims go to litigation where an assignee service provider filed suit over a few hundred dollars a day after a bill was sent to an insurer and not paid.  A search of the public records disclosed that that same provider had pending dozens of lawsuits in each of the surrounding counties filed by the same lawyers in the same form against multiple insurance companies, over small amounts in dispute, each of these carrying an attorney’s fee entitlement.  In the case the writer is aware of, the service provider presented an attorney’s fees claim of $3,000.00 for filing a small claims court lawsuit over an amount in dispute of about $260.00.  Multiple this by dozens of hundreds of times – as this practice is very common in both storm repairs and windshield repair – and it comes to a lot of money.  Ultimately, this cost is passed back onto the consumer.  Which is why signing an assignment of benefits may appear convenient to the insured, but ultimately may not be a good deal.

First, the insured losses control of the claim for payment.  The claim may end up in litigation between the repair provider holding the assignment, and the insurance company, with repercussions on the insured’s claim history in future premiums and renewals.  In a tight insurance market in the future, this could create problems.

Second, it’s unclear what happens when there is hidden hurricane damage later discovered which is or should have been a part of the initial claim, which has now been assigned away to the repair provider.  Depending on the language of the assignment of benefits – which is drafted by the repair provider and not particularly with the interests of the insured in mind – the insured may have assigned away all of its rights arising out of a particular incident or event, for compensation under the insurance policy.  Whether the insured would honor claims for later emerging or under discovered damage arising out of the same event is a gray area.

The insurance market is cyclical.  Some years it’s not hard to get insurance; other years it’s next to impossible.  Wind storm insurance is almost always hard to get.  Assigning a claim to a repair provider who may disrupt the business relationship between the building owner and the insurer by filing a lawsuit over a small amount of money that reasonable people could have settled may create future problems for the building owner getting renewals or negotiating a premium.

Service providers may portray the assignment of benefits clause as simply an administrative convenience to allow the provider to file the paperwork and collect the money and sparing the building owner the administrative hassles.  We believe the same result could be accomplished by simply having the repair provider file out the claim form and present it to the building owner for signature, receiving the check, endorsing it over to the provider, and putting it in the mail.

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Assignment of benefits (AOB) helped to drive hurricane loss creep

• 14th December 2018 - Author: Artemis

But by 2013 the number of AOB lawsuits had risen to 79,000 and the abuse of this legal loophole has continued to rise, with a 70% increase to almost 135,000 in 2018 by November 9th.

This accelerating growth of assignment of benefits in connection with property insurance claims has a knock on effect on reinsurance, retrocession and ILS fund players, as evidenced by the loss creep associated with hurricane Irma.

The way AOB case numbers have been increasing in recent years makes it no surprise that the outcome from hurricane Irma and the way that loss has escalated for the industry and some markets has been unprecedented.

In fact, to all those markets, ILS or traditional reinsurance and retro, who have been chastised for reporting repeated increases to hurricane Irma loss reserves, don’t feel so bad, the worsening abuse situation with AOB cases has clearly been a factor in this loss creep.

Making it even more difficult is the further removed nature of some reinsurance and retrocession contracts, as well as with catastrophe bonds, where the ultimate capacity providers may not always be the first to see the emergence of AOB related loss creep, making estimation of losses particularly hard at times for collateralised markets and investors.

Of course the majority of AOB cases remain in personal injury space, largely automotive, but the expansion into property lines of business is where the reinsurance and ILS space has been hit so badly.

AOB cases related to property insurance more than tripled from 2013 to 2016, which was a period when hurricane activity wasn’t even that high.

There were more than 9,000 property insurance related AOB cases in Florida in 2016, but that number jumped to around 11,000 in 2017 as hurricane activity ramped up.

But as the hurricane activity was quite late in the year, it is 2018 where the AOB related loss creep really kicked in.

There were a 16,521 cases of AOB related litigation on property insurance claims in 2018 up to November 9th.

This huge increase has likely been responsible for significant uncertainty in reinsurance and ILS players loss reserving throughout this year and with hurricane Michael still relatively recent as well, it looks likely that the escalation of assignment of benefits (AOB) abuse and the knock-on effects it has on reinsurance capital providers could continue.

If reinsurers and ILS funds have only got industry loss estimates to go on, but the early estimates aren’t able to factor in this kind of escalation in legal cases it is easy to see why some have had a very hard time this year, with repeated reserve increases and resulting impacts to net asset value required through 2018.

Hurricane Michael isn’t likely to drive the kind of AOB related loss creep as has been seen with hurricane Irma, given the majority of AOB abuse is typically in the southern hurricane exposed states. But it is something that reinsurance firms and ILS funds need to be aware of .

As our sister publication Reinsurance News wrote yesterday, Florida Citizens has proposed to increase its average insurance premium rates by 8.2% in 2019 , with the driver being expensive water-damage claims in South Florida, many of which could have been inflated due to assignment of benefits (AOB) cases. That increase was approved yesterday by the Florida Citizens Board.

While AOB can’t be blamed for all of the loss creep, other issues such as the lack of loss adjusters to deal with claims from both Harvey and Irma at the same time have also been a factor. It has added extra uncertainty and made the job of estimating claims and reserving for hurricane Irma losses particularly challenging.

Given the rate that AOB abuse has been increasing, it seems likely this will remain a factor that reinsurers, retrocessionaires and ILS funds need to bear in mind when setting rates at the next Florida renewals.

It’s a man-made risk that exacerbates catastrophe exposure and as such needs to be priced for in the original coverage underwritten.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

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Tagged as: assignment of benefits , Collateralized reinsurance , Florida Citizens , Insurance linked securities , reinsurance , Retrocession , risk transfer

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Understanding the Florida insurance market

Learn more about the steps your clients can take to improve and maintain their property’s insurability, whether in Florida or elsewhere.

By Beth DeWalt, Florida Client Advisory and Operations Leader Erika Almquist, Client Relationship Manager

The population of Florida has grown more than 1.25 million residents between 2017-2022. During the same time period, five of the top ten  most costly hurricanes  hit the U.S. including 2022’s Hurricane Ian, which caused  $41 to $70 billion of damage  with up to $17 billion of uninsured flood damage, the majority of which was in Florida. With millions of Florida properties in high-risk areas, these families and homes are potential targets for severe weather-related insurance claims.

While hurricanes have become more frequent and severe in recent years, the threat of damage from catastrophic weather events is not the only thing that is driving a decrease in capacity and increased insurance costs in the state. Excessive and frivolous legislation has increased the cost of claims.  The Florida Office of Insurance regulation reports  that Florida accounts for only 9% of the nation’s homeowners claims but 79% of homeowners insurance lawsuits. Over a 10-year period 71% of the $51 billion  paid by Florida insurers  went to attorneys’ fees and public adjusters. In total, these parties have received more claims settlement money than the policyholders received. In both 2020 and 2021 the net underwriting losses for Florida’s homeowners' insurers exceeded $1 billion. As a result, insurance has become scarcer and more expensive.

With the potential for increased tropical storm activity and mounting cost of claims in the state, the Florida homeowners insurance market continues to be in what is known as a ‘hard’ market. When an insurance market turns hard, it means increases in price and decreases in product availability, both of which make it harder for homeowners to find the coverage they need. 

The law of large numbers

A hard insurance market is a reminder that insurance is based on the law of large numbers. When losses increase by frequency, severity, or both, then the overall pool of premium must increase to offset those losses. The simple fact that a policyholder was not directly impacted by a recent storm or other loss event does not solely determine the impact to their premium or insurability. For example, in Florida, the year a property was built, its location, and its wind mitigation features are the biggest factors driving rates and insurability. So, while those with a higher risk profile will see the greatest impact, all homeowners in the state are still affected. 

What Florida homeowners are experiencing

Many Florida homeowners have been receiving non-renewal notices and the “lucky ones” are experiencing unprecedented rate increases. Insurance companies are looking to reduce the exposure for losses in the state and are passing on their increased costs to the consumer.

Further, the ability to obtain new or replacement coverage has become increasingly difficult, with many insurers implementing extremely strict new business guidelines. For example, policies may cost significantly more to obtain, exclude wind coverage, or include an extremely high wind deductible. Rate and policy changes like this can be challenging to understand, so let’s take a more detailed look at some of the contributing factors.

Reconstruction costs and additional living expenses

Many people are surprised to learn that the amount they should insure their home for is based on how much it would  cost to rebuild  the home, rather than the market value. In Florida,  reconstruction costs  increased over 12% from January 2022 to January 2023, largely because of supply chain issues with steel and lumber, inflation, and labor issues. Plus, after a hurricane, there is often a local shortage of materials and skilled labor, which impacts reconstruction costs and the time it takes to repair or rebuild a home. These factors all result in higher premiums for both new and renewal business.

In addition, if you are not able to reside in your home due to a covered loss, the cost to rent a similar home is often much higher in Florida than in many other states. The high demand for rental properties in season drives up the additional living expense portion of the loss resulting in higher claim payments.

Hurricane losses

Because of the severity of the loss potential, a separate deductible typically ranging from 2% to 15% of the insured value for the home applies to hurricane-related claims. Policyholders should be aware that the hurricane deductible in Florida is per calendar year rather than per incident. Thus, it is important to report all hurricane claims even if the loss is below the deductible, as there may be multiple storms during the year. Often the policy terms also include a condition that shutters or other hurricane protection must be in place during a named storm.

Flood coverage

The threat of damage caused by flooding also increases with hurricanes.  Storm surge  is a threat for properties near the coast, but inland properties can also face the risk of flooding due to considerable amounts of rainfall as they experienced in the aftermath of Hurricane Ian. Homeowners policies do not typically include  coverage for flood , and separate coverage should be secured before a pending storm as there is up to a 30-day waiting period for flood insurance.

Assignment of Benefits Clause

Insurance companies in the state of Florida have also increased premiums due to fraud and higher claims payments related to the assignment of benefits (AOB) clause. This clause in the Florida Homeowners policy allows a homeowner to assign the right to receive insurance proceeds to a third party. Unfortunately, unscrupulous contractors were submitting inflated claims to insurance companies and then filing lawsuits under a Florida law that guaranteed payment of their legal fees if they prevailed. The carrier would adjust the claim, offering a lower settlement to reflect true costs, only to be served with a lawsuit. 

Legislative landscape

Florida Governor Ron DeSantis  signed  a property insurance reform bill on December 16, 2022 to help stabilize the Florida property insurance market, increase competition, and strengthen consumer protections. The bill provides significant legal reforms to reduce litigation and prohibits the use of assignment of benefits for policies issued on or after January 1, 2023. The deadline for a policyholder to file a claim is reduced to one year from the date of loss. It also tightens the time for an insurance company to respond to a claim and make a determination of coverage. Among other things, the legislation will help insurers obtain reinsurance.

Regulators, insurance companies, industry trade groups, and lawmakers continue to encourage policyholders to report claims directly to their broker or insurance company, so they don’t unknowingly sign away their rights to a third party (for polices issued prior to 1/1/2023). It is always a good practice to thoroughly review and understand any contracts with repair companies, as signing an AOB may put the claim settlement at risk.

Buying a home in Florida

To avoid overpaying to be underinsured, it is important to have the most complete information available about a property. Having specific reports and documentation is vital to providing the full picture of a home’s risk profile.

One key determining factor is the year that a home was built, as the  Florida Building Code (FBC)  changed for most of the state on September 1, 2002. Homes built after this date usually meet updated guidelines and go through a less stringent review process.

If a home has been renovated, it is important to ask for details about the extent of the renovation. In Florida, a home can be taken down to the studs but keep two original walls standing to maintain tax status of the property, so some insurance companies will agree to consider the year of the renovation as the year built of the home instead of looking at the original year it was built.

If the home is built before 2006, ask for a wind mitigation inspection report. While a home built after the FBC change should have all these characteristics, some insurers are looking to confirm these standard requirements:

• Roof covering (asphalt shingles, clay or concrete tiles, etc.) meets FBC or is FBC equivalent
• Roof to wall attachment is a minimum of clips; single straps are better
• Roof deck attachment is 8d 6x6 (8d is the length of the nail, 6x6 is a pattern of nailing that is closer together)
• All windows and exterior doors have Class A-rated protection; most homes built after 2002 will have impact glass, but homes before 2002 can achieve this protection with the use of hurricane shutters
• Garage doors rated to sustain impacts at a certain speed and not be compromised

Buyers should ask for a 4-Point Inspection on a home built prior to 2002. This report notes the age of the home’s electrical panels, wiring, HVAC (Heating, Ventilation and Air Conditioning), plumbing, and roof.

Insurance companies are also concerned about a roof that is more than 15 years old, even though certain roof covering materials have a useful life of 25 or 30 years.

Buyers should also ask for an elevation certificate if the home is in a high-risk flood zone (Zone A or V). Most insurance companies need to confirm the home is positively elevated to be eligible for coverage. Homes built prior to 1970 might not be positively elevated and this will impact premium. Flood, wind, and hurricane protection program coverages are all important considerations, regardless of the flood zone of the property.

All these reports are in addition to the standard home inspection typically performed as part of the real estate transaction process. Some of this information may still be required even if the homeowner wants to self-insure for wind coverage, such as renovation information, a wind mitigation inspection report, a 4-Point Inspection, and an elevation certificate.

Additionally, when there is a mortgage, it is important for the buyer to confirm it will be insurable at a reasonable cost before making an offer or finalizing the closing. Just because a property is currently insured by the seller does not guarantee the home will continue to be insurable in current market conditions. Likewise, if you are planning to sell your home, a prospective buyer may want to make sure coverage can be obtained on the property before making an offer or closing.

Policyholder considerations

Despite this challenging time of change in the insurance marketplace, there are some steps current homeowners can take to help maintain their insurability no matter where they live:

• Make payments on time to avoid a lapse in or complete loss of coverage. Ensure that both your broker and your insurer have your current billing address and contact information on file.
• Consult with your insurance advisor before submitting a claim to consider the potential impact on future insurability.
• Discuss any home renovation projects with your insurance advisor early in your planning stage before signing an agreement or beginning construction. Home renovations can change the risk profile of a property, which may trigger a mid-term cancellation or non-renewal.
• Speak to your insurance advisor before turning your primary home into a secondary residence or rental property. A change in occupancy may be considered an increase in risk, which also can trigger a mid-term cancellation or non-renewal.
• If you haven’t  completed a comprehensive review of your personal insurance  recently, now is a good time to schedule one with your insurance advisor.

Working with a broker

Clients faced with the challenges of a hard market often benefit from the expertise provided by a professional insurance advisor who works with multiple insurance companies and can provide counsel and advocacy. Whether you are buying a new home, looking for new coverage after a non-renewal, or considering changing insurers after a steep premium increase, Marsh McLennan Agency Private Client Services is happy to assist you in navigating your insurance options. 

To learn more, contact us by filling out the form.

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Commentary: Beware of abuse of your insurance policy this hurricane season

Florida’s hurricane season is here again, putting Floridians at risk of damage to their homes and property.

Residents took advantage of the recent sales tax holiday to stock up on hurricane supplies, but they also should be on the alert for insurance policy abuse and scams, and not become one of the thousands of victims of what the Wall Street Journal calls “Florida’s trial bar hurricane.”

Hurricanes and storms can cause major hardship and aggravation for consumers, but for those who sign away their insurance rights, that hardship often turns into nightmares. I’ve seen the misery it can cause first hand.

As a public service to all Floridians, please stop and read before you sign your name on any paperwork. Call your insurance agent first. If a repair contractor says something that sounds too good to be true, it likely is.

Too many repair contractors use a scheme called Assignment of Benefits (AOB) to make it sound as if they’ll take care of everything for you. What they won’t tell you is that by signing your rights away, you’ll transfer all your insurance benefits to the repair contractor — cutting you out of the discussions between the contractor and your insurer.

Unfortunately, when that happens, more often than not, unscrupulous repair contractors team up with trial lawyers for their own financial gain. They inflate the cost and scope of repair work, then sue your insurance company — and add your name to the lawsuit — without you even knowing they’ve done so.

In the meantime, you’re often left with a home still in shambles — an unrepaired roof, a non-functioning kitchen, and sometimes, a house that has been stripped to the studs. The horror stories are real; they’ve been exposed on local news channels throughout Florida, and even the Wall Street Journal has on numerous times exposed this scheme for what it is — fraud.

AOB abuse was virtually nonexistent 15 years ago, but has spiraled into a statewide crisis costing consumers. AOB-related property insurance lawsuits in Florida skyrocketed from 405 in 2006 to 28,200 in 2016, according to the state’s Department of Financial Services. What initially was thought to be a South Florida problem has spread across the state, putting the dream of owning a home out of reach for many Floridians and impacting the accessibility of affordable insurance.

The Consumer Protection Coalition, led by the Florida Chamber of Commerce, is leading the charge and encouraging lawmakers to take action. The Florida House of Representatives has been a strong advocate for enacting reforms. The Florida Senate has yet to put homeowners ahead of scammers. That may change with new leaders in charge.

Evidence is mounting that something must be done to curb the abuse — and quickly. The Florida Office of Insurance Regulation estimates that, unless AOB laws are changed, owners of a $150,000 home can expect their insurance premiums to increase an average of 29 percent by 2022. For some people, that could make the difference between owning a home and not.

It’s disappointing that Florida must endure another hurricane season without AOB reform. Forecasters have predicted major storms again this year, and Florida already had its first storm with Alberto over Memorial Day weekend. Now more than ever, it’s vital that consumers be on the lookout for AOB abuse. Don’t become another victim. Call your insurance agent before signing anything.

In the meantime, use this election season to your advantage. Ask the candidate where they stand on protecting consumers from this abusive tactic that’s become a huge payday for a cottage industry of trial lawyers.

After all, hardworking Floridians shouldn’t have to endure another season without real AOB reforms.

Mark Wilson is the president and chief executive officer of the Florida Chamber of Commerce

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Print edition, assignment of benefits abuse a concern in hurricane irma’s aftermath.

As Florida residents return home after being evacuated by Hurricane Irma, the pressure is on the insurance industry to keep a bad situation regarding assignment of benefits (AOB) abuse in the state from getting worse.

Florida regulators, carriers, industry trade groups and lawmakers are all echoing the same advice to policyholders: Now is the time to contact your agent or insurer and file claims.

“CFO Jimmy Patronis and Insurance Commissioner David Altmaier encourage Floridians to be prompt in notifying their insurance companies and cautious of repair deals that sound too good to be true,” the Florida Office of Insurance Regulation (OIR) alerted consumers in a statement released Tuesday.

While Florida was spared the worst-case scenario by Hurricane Irma in terms of the storm’s strength, the state still suffered significant damage from wind and coastal flooding. Agents and carriers are just starting to deploy resources to affected areas, and stakeholders say timing will be of the essence as “bad actors” will be on the prowl for homeowners willing to assign to them the right to obtain insurance benefits to deal with damage to their homes.

“All consumers need to be on alert as they recover from Irma for fraudulent schemes and assignment of benefit scams so they don’t unknowingly sign away their rights,” said Chris Gardner, chairman of the board of governors for Citizens, the state-run insurer of last resort. “If unsure, agents are prepared to advise you and guide you through the claims process.”

The assignment of benefits scams the industry is warning against stem from certain contractors and attorneys cashing in on homeowners who are dealing with a water loss—most commonly a burst pipe or roof leak. The “bad actors,” as they have been dubbed by the industry, use an AOB to acquire the homeowners insurance benefits, file inflated claims, and then pursue lawsuits against insurers when those claims are disputed or denied.

Because of Florida’s one-way attorney fee statute, insurers are left footing the bill for the inflated claims and the attorney fees. Carriers across the state have seen an increase in litigation because of these inflated claims, but Citizens has borne the brunt of the abuse. It reported an average of 693 lawsuits per month between January and July 2017. As of July 31, 2017, the company had 10,666 lawsuits pending—a 33 percent increase compared to the same time last year—with 93 percent of those lawsuits coming out of south Florida.

Escalation Concern

Many in the industry have worried that a significant catastrophe event will escalate the assignment of benefits abuse for Citizens and the private insurance market. Regulators aren’t wasting any time getting the word out to consumers to be wary of anyone asking them to assign benefits, and they’ve sent out numerous communications and created an information site on how to file claims as well as an AOB Fact Sheet . OIR encouraged agents to use these resources to educate their clients.

Christopher Hackett, senior director for Personal Lines Policy for the Property Casualty Insurers Association of America (PCI), said agents will play an important role in informing policyholders about the risks associated with AOB.

“Policyholders should understand they are relinquishing rights under their policy to a third party. A vast majority of insurance claims can be quickly and fairly settled without the involvement of a third party,” he said. “Third parties enter the picture for a reason—and it may not be the right reason.”

Jeff Grady, president of the Florida Association of Insurance Agents (FAIA), said his group hadn’t yet heard of the abuse occurring related to Irma, but he expects it won’t be long as evacuees return to their homes, inspect damage and begin efforts to repair damage.

Most of the damage he’s heard of so far is coastal flooding and some structure damage from wind.

“That likely means many property losses will be uncovered,…[either] below the wind deductible or no flood coverage,” he said.

Grady added that the early advisories from regulators are important in helping to stem fraud and abuse, and FAIA agents are doing their part to educate their customers.

The Florida Property & Casualty Association (FPCA), which represents Florida domestic companies, said it echoes the warnings and advice issued by Florida regulators regarding ways to avoid scams and fraudulent contractors.

“The most important guidance our association has stressed is for homeowners to contact their agent and/or insurance company first, especially before signing anything. Agents should advise the same,” said William Stander, FPCA executive director. “Our members are ready to go and working diligently to handle claims and make customers whole again.”

The Florida Chamber and the Consumer Protection Coalition, a group of stakeholders formed to fight AOB abuse, also encouraged agents to join the chorus of those educating Florida homeowners and auto owners so they know that they don’t have to sign an AOB to get needed repairs made.

“We’re working to protect Floridians from AOB scams, and the more Floridians know and are informed, the better we can protect them,” said the Florida Chamber of Commerce’s Vice President of Public Affairs Edie Ousley.

Ousley said agents can visit FightFraud.Today or FloridaChamber.com/Hurricane for more details on how they can help their clients.

Scott Johnson, president of consulting firm Johnson Strategies in Florida, who is currently working with FAIA, said agents are making their way back to their own offices, executing their catastrophe plans, fielding calls, assisting with “First Notice of Loss” completion, explaining how deductibles work and explaining flood insurance.

He said FAIA has been advising agents to “never recommend a vendor that uses an AOB” because most reputable vendors use an approach called “direction to pay,” which eliminates the need for the homeowner to front money but does not usurp all of their rights and benefits.

“There is always a water extraction firm, roofer, rebuild contractor available in every town in Florida that will do a good quality job, guarantee their work and not require an AOB be signed,” Johnson said.

FAIA also entered into a partnership with a statewide water mitigation firm that doesn’t use AOBs and is endorsed by carriers.

“Hopefully agents are following FAIA advice in this regard and recommending [the firm] whenever they’re in doubt about what a carrier might prefer them to do,” Johnson said.

Managed repair programs became a sore subject for some in the restoration industry early in the summer when Citizens announced it was seeking approval from Florida regulators for a $10,000 cap on non-weather-related water damage for clients who chose not to use a Citizens-approved contractor. They argue policyholders were being penalized for using their own contractors.

But the insurer said it was doing what it had to do to slow losses from AOB claims.

“We can’t sit back and do nothing while we dip deeper into reserves,” said Citizens CEO Barry Gilway in an open letter to Insurance Journal in July. “These new initiatives will allow us to be there for our customers when they need us most while helping to lower costs for all our policyholders and the people of Florida. The bottom line is that policyholders who Call Citizens First after a water loss can be assured prompt, hassle-free emergency services at no cost and warrantied permanent repairs to get them quickly back on their feet.”

OIR approved Citizens’ policy change request for the managed repair program on Aug. 15.

This article previously appeared in our sister publication, Insurance Journal.

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Assignment of benefits

Assignment of benefits is an agreement that gives your claims benefits to someone else.

What is an assignment of benefits?

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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An AOB? Can we do that? – Assignment of Benefits in North Carolina

The widespread devastation of Hurricane Florence brought to a recent discussion the question of whether assignment of benefits contracts for property insurance proceeds are enforceable in North Carolina. This is a great question. In a general setting, vendors, services providers and contractors begin their work with a down payment and receive additional payments as work progresses, with many jurisdictions recognizing a contractor’s lien or service lien against the benefactor if they are not paid in full.

In the wake of a natural disaster, many of the affected are struggling to meet their basic needs as they put their lives back together and are relying heavily on insurance proceeds and benefits to begin the work to repair their homes. The realty of the time it takes to receive an insurance payment has led to the institution of a well-worn-page out of the medical insurance practice book—the assignment of benefits.

An assignment is “a transfer of property or some other right from one person to another, which confers a complete and present right in the subject matter to the assignee.” 1 Insurance policy benefits are contractual rights belonging to the insured. The leading case in North Carolina recognizing the validity of transferring insurance proceeds by an assignment of the policy benefit is Alaimo Chiropractic. 2 The patient in Alaimo Chiropractic executed an “Assignment of Proceeds, Lien and Authorization” in favor of Alaimo. Allstate refused to recognize the assignment, ignored the notice of assignment, and settled directly with the patient for less than the claims submitted by Alaimo. Alaimo sued Allstate. The court held that the assignment was valid and “obligated the Defendant to acknowledge the rights of the Plaintiff to receive payment out of the insurance proceeds for the medical treatment the Plaintiff provided.” 3

The court found that an assignment is a formal transfer of property or property rights from one person (the assignor) to another (the assignee). 4 And that “Principles of general contract law determine whether an assignment is valid.” 5 So, yes, in North Carolina you can do that with property insurance proceeds. You can receive the immediate services of a contractor by assigning the benefits of the insurance policy proceeds to the contractor, so he may seek direct payment from the insurer for services rendered. As easy as that may seem, it comes with many additional considerations and sometimes complications. For one, the insurer now has an additional party to the contract, which is not always well-received.

So, in typical fashion, since this ruling, many insurance contracts have been written with anti-assignment clauses, which prohibit assignment of benefits without the insurer’s consent. Jurisdictions across the country differ regarding the validity of anti-assignment clauses. Some jurisdictions invalidate pre-loss assignments but allow post-lost assignments. The well-known treatise, Couch on Insurance, clearly explains the rationale: “[t]he purpose of a no assignment clause is to protect the insurer from increased liability, and after events giving rise to the insurer’s liability have occurred, the insurer’s risk cannot be increased by a change in the insured’s identity.” 6

Assignment of benefits is generally valid in North Carolina. There are prohibitions on the transferability of some rights. Some rights are deemed to be so personal as not to transfer. For example, the right to recover in tort for personal injury, bad faith refusal to settle a claim, and breach of fiduciary duty are personal to the one injured by that conduct and only the one directly affected should recover. 7 So, even though a policyholder may be forced into a position to assign his insurance proceeds to a contractor in exchange for a timely repair, the duty of the insurer to act in good faith and to treat its insured fairly is not extinguished with the transfer of those policy benefits.

If this option presents itself, remember well, every contract should be read carefully to understand the proposed assignment and the terms of the contract before signing it. Some of the assignment of benefits contracts I have reviewed are overly broad for the service proposed. For example, I have seen poorly drafted assignments of benefits, intended to transfer insurance proceeds to a roof contractor only for the replacement of the roof, but the terms of the assignment provide for the assignment of all policy benefits and proceeds. The intent of parties in that instance was for the assignment of insurance proceeds to the roof contractor for his work related to the roof replacement, and not also the insurance proceeds related to repair of floors, ceilings and walls, which work was not to be performed by the roof contractor. There are many policy benefits available to the insured. Assignments can be beneficial to both parties in working through a catastrophe, but they should be narrowly tailored to the services to be provided. And with that consider:

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Florida's property insurance market was already under stress. Ian could make it worse

Becky Sullivan

A man stands in front of his destroyed house in the aftermath of Hurricane Ian in Matlacha, Fla., on Oct. 3. Ricardo Arduengo/AFP/Getty Images hide caption

A man stands in front of his destroyed house in the aftermath of Hurricane Ian in Matlacha, Fla., on Oct. 3.

Even before Hurricane Ian made landfall in Florida last week, the state's property insurance market was already in its own state of disaster.

Homeowners in Florida pay the highest premiums in the country: nearly three times the national average, according to the Insurance Information Institute , an industry group. And Floridians' premiums are rising much faster — about 33% each year — than the typical American's annual increase of 9%.

But in Florida, hurricanes aren't the only factor driving up costs. Rampant litigation and soaring reinsurance costs are other components, experts say.

Six insurance carriers have declared insolvency this year alone. Others have dropped customers or stopped writing new policies. As a result, the number of policyholders on the state-backed insurer of last resort, Citizens Property Insurance, has ballooned.

The Picture Show

See aerial pictures that show hurricane ian's toll.

Now, as Floridians look to recover from an estimated tens of billions of dollars in damage caused by the Category 4 storm, some have worried that Ian could be the final straw for even more private insurers, driving up costs and sending Florida's precarious insurance market closer to catastrophe.

"The simple truth is you can't be the most hurricane-prone state and the most litigious state, and expect lower property insurance rates," said state Sen. Jeff Brandes, whose district covers part of Pinellas County in the Tampa Bay region, which avoided the worst of Ian.

Even though no hurricane made landfall on Florida in 2020 or 2021, the state's insurance industry reported net underwriting losses exceeding $1 billion each year . Even before Ian, 2022 was already projected to be the same .

The average premium for homeowners has topped $4,000 per year in five different Florida counties, mostly in the Miami and Palm Beach areas, according to a state report from July . In Monroe County, home to the Florida Keys, the average premium is $6,700. Nationally, home insurance costs about $1,600 per year on average .

"We were in crisis three years ago. But we are in wholesale collapse at this point," Brandes said.

Florida accounts for most of the country's insurance lawsuits

A major piece of the problem in Florida is insurance litigation. "What we've been facing in Florida for many years is a man-made crisis, nothing to do with hurricanes," said Mark Friedlander, a spokesperson for III, in an NPR interview this week . "We've got a real problem on our hands here."

Florida's population has skyrocketed. That could make Hurricane Ian more destructive

According to the state's insurance regulator , nearly 80% of all homeowners' insurance lawsuits in the U.S. come from Florida. By contrast, the state accounts for only 9% of all homeowner claims.

A handful of different factors unique to Florida have combined to create such a litigious environment, experts say, including unique rules around attorneys' fees and lax regulation of "assignment of benefits" agreements for policyholders.

The lawsuits often originate like this: A contractor contacts a homeowner about potential damage, perhaps to their roof. The homeowner signs what's called an assignment of benefits agreement, which allows the contractor to handle the insurance claim. The insurance company can then deny the claim or dispute the amount, and then the contractor can file suit against them — sometimes even without the knowledge of the policyholder.

Climate change fueled extreme rainfall during the record 2020 hurricane season

Attorneys' fees can dwarf the size of the disputed claim. In 2019, the III estimated that excess litigation had collectively cost Floridians policyholders $1.6 billion . The number of lawsuits has risen even higher over the past two years.

Insurance companies operating in Florida say they have been forced to raise rates to cover the costs of handling lawsuits. "We're all paying for that frivolous litigation," said Lisa Miller, a former deputy Florida insurance commissioner who now works as an insurance industry consultant in Tallahassee.

A member of the City of Miami Florida Task Force 2 Search and Rescue team checks a home for victims in the wake of Hurricane Ian in Fort Myers Beach, Florida on October 3, 2022. Joe Raedle/Getty Images hide caption

A member of the City of Miami Florida Task Force 2 Search and Rescue team checks a home for victims in the wake of Hurricane Ian in Fort Myers Beach, Florida on October 3, 2022.

Costlier storms have helped raise rates, too

Hurricanes in Florida have gotten costlier in recent years. That's due partly to climate change , which can intensify hurricanes and cause more rain and flooding .

Florida's population growth is another factor. No state in the eastern U.S. is growing as rapidly as Florida. And its fastest-growing metro areas include Orlando, Tampa and Cape Coral-Fort Myers — all areas affected by Ian.

Climate change makes storms like Ian more common

These days, Florida's private insurance market is primarily made up of small, regional companies, or Florida affiliates of national insurers.

Smaller companies aren't able to build the same kinds of capital reserves as large ones. As a result, they often rely on their own form of insurance — known as reinsurance — to pay out claims during major costly events.

But as storms have grown more destructive, reinsurance costs have grown significantly . Some reinsurers are pulling back from Florida . Others are raising rates — reinsurance costs for Florida insurers rose by as much as 50% this year, according to a report.

Those costs get passed along to consumers, Miller said. Between 35% and 50% of a homeowner's insurance premium goes toward the cost of reinsurance.

Extreme weather in the U.S. cost 688 lives and $145 billion last year, NOAA says

Hurricane Ian's havoc is forcing some Florida families to give up the family pet

Citizens, the state-backed insurer, recently crossed the 1 million policyholder mark — more than double its number of policies two years ago — as a result of private insurers raising costs or dropping customers.

Because Citizens is state-backed, it is limited in its ability to increase rates and is often significantly cheaper than competitors. Private insurers say that makes it difficult to compete, especially in storm-prone ZIP codes where only a handful of insurers offer policies.

Hurricane Ian could cause even more insurers to leave the Florida market

Even as damage estimates rise, officials have expressed confidence that insurers will be able to pay out Hurricane Ian claims.

It is too early to know exactly how much the claims will cost. One analytics firm estimated that wind and storm surge losses would be between $28 and $47 billion . Another estimate of the total loss to private insurers put the total as high as approximately $63 billion.

Ian cut off residents of Florida's Pine Island. They are just now taking stock

It's possible the state could see a million total claims across all types of insurance, including flood insurance, said Miller, the insurance industry consultant. (Most Florida homes affected by Ian did not have flood insurance, and there are likely to be legal disputes over whether damage was caused by wind or flood.)

The fear is that such a massive payout from a single storm could be the final straw for companies already struggling to deal with the other challenges of doing business in Florida.

If rates continue to rise by 30% or more, as they have done for many Floridians in recent years, some Florida homeowners may end up paying more for insurance than they do for their mortgage, said Brandes, the state legislator.

"You're going to price the middle class out of residential homeownership. That's just not sustainable," said Brandes, who said the cost of his own home insurance has risen about 60% in the past two years. "It is the Achilles heel of our real estate market across the state."

The state legislature held a special session in May in which legislators passed a bill addressing some of the issues with roofs and attorneys' fees . Afterward, some Democrats complained that the bill did not do enough to provide immediate relief to homeowners.

The May session "treated the flu when the property insurance market had stage 4 cancer," said Brandes, a Republican, who added that he hoped another session could be convened before January.

"This is the perfect opportunity to make some really tough decisions," he said. "You're going to have to do some things that historically have just not been on the table, but have to be on the table in order to save this market going forward."