What is insurance assignment of benefits (AOB)?
Assignment of benefits is a legal tool meant to ensure vendors receive prompt payments for their services in repairing damage to property without the homeowner having to pay money up front. At the time of service, a customer fills out an AOB form provided by the vendor, taking the policyholder out of the payment process.
What is the problem?
In recent years, unscrupulous trial lawyers and vendors – often water remediation firms, roofing companies and plumbers – have used AOB to inflate claims and file costly lawsuits against insurance companies. The cases are clogging up the courts, and homeowners face higher insurance premiums to cover the cost of fraudulent claims and legal fees. The abuse is especially prevalent in South Florida, Orlando and the Tampa Bay area, where some water extraction companies pay plumbers referral fees as high as $1,500 to get business to boost their profits using assignment of benefits.
How dire is the situation?
Bad and getting worse. According to the Florida Department of Financial Services, the number of AOB lawsuits grew nearly 1,000 percent between 2005-06 and 2013-14, from 9,424 to 92,521. The number of AOB lawsuits involving just homeowner property claims rose from 70 in 2009 to 2,014 last year, an increase of more than 2,700 percent in five years. In December 2014 alone, Citizens Property Insurance Corp., the state-run insurer, was hit with 562 AOB lawsuits, nearly all of them from third-party vendors rather than individual policyholders. The state has seen a dramatic increase in water damage claims despite the fact that Florida has enjoyed nine years without a hurricane.
Why so many lawsuits?
The single biggest factor driving the explosion of AOB-related lawsuits is that trial attorneys can collect “one-way attorney fees’’ when suing insurance companies over claim disputes. Enacted under state law, one-way attorney fees allow attorneys suing insurers to collect legal fees if they win but, if they lose, insurers can’t collect the fees. One-way attorney fees were intended to level the playing field between consumers and big insurance companies but have become an incentive for attorneys and contractors to file fraudulent lawsuits. In the vast majority of these AOB suits, the policyholder has already been made whole and had their home or auto repaired. Rather than a “David versus Goliath’’ situation, it has become a battle between attorneys and vendors against insurance companies.
What’s the impact on the state?
Abuse of AOB is driving up homeowners’ insurance rates and hindering the state’s efforts to prepare for a catastrophic storm. For every dollar Citizens collected in premium in 2012, it paid 28 cents in water damage claims, according to the most recent figures available. In areas of South Florida, it paid 50 cents. That was well above the 18 cents Citizens was setting aside for claims relating to a future hurricane.
What’s being done about it?
Legislators have filed three bills in the 2015 legislative session to address AOB fraud and abuse. House Bill 669 by Rep. John Tobia, which was approved by the Insurance & Banking subcommittee March 18, would allow policyholders to assign their benefits for claims up to $3,000. For any claim exceeding that, a vendor would not be able to use AOB. The bill also would allow policyholders to assign their benefits when paying a public adjuster or attorney for services rendered in adjusting a claim. Senate Bill 1064 by Sen. Dorothy Hukill would allow policies to be assignable and non-assignable, depending on the terms. Senate Bill 1210 by Sen. Alan Hays would address one-way attorney fees.
What happens if we do nothing?
AOB abuse is already out of control in South Florida and is spreading to Tampa Bay, Orlando and other parts of central Florida. Left unchecked, it threatens to become a full-scale consumer crisis, on par with PIP fraud and sinkhole claims abuse. Attorneys in South and Central Florida are holding well-attended seminars to train contractors on how to collect more money through AOB, and the number of lawsuits is on the rise. Claims that use AOB are averaging $32,000 in areas of South Florida, nearly triple the amount of claims that don’t use an AOB. Unless action is taken soon, homeowners across Florida can expect increases in their insurance premiums.