An assignment of benefits (AOB) is a legal instrument, whereby a policyholder can assign their post-claim rights and benefits to a third party. Historically, in the property and casualty insurance industry, an AOB provision typically was utilized by policyholders when they suffered a loss and subsequently wanted to sell their property before a settlement was achieved. The prospective buyer of the property would make an offer to purchase the listed property based upon the market value even though the property was still distressed. In return, the seller would assign their claim rights and benefits to the buyer, in order to offset the distressed value. After the sale of the property, if the buyer felt the insurance carrier did not make a good faith settlement, the buyer could bring a civil action to argue the merits of their claim. Additionally other industries, including medical providers and auto body repair firms, have long standing business practices, where they would perform services in exchange of an AOB thereby allowing these providers the claim rights and benefits for those related services that were provided. There are roughly 100 years of case law substantiating these legal practices. However, over the past decade the State of Florida has seen a systematic increase of over 1000% of lawsuits filed by restoration contractors utilizing an AOB provision within their agreements with policyholders.
While many within the Florida restoration industry are ethical entities providing a valuable service for both consumers and insurers, it is clear that there is a growing trend of abuses that is impacting Florida’s insurance marketplace and policyholders. Insurers have argued that many of the repair bills they receive from restoration contractors utilizing an AOB provision are often over-inflated. According to Citizens Property Insurance Corporation, the average loss adjustment expenses were 60% higher on litigated claims brought by restoration contractors with an AOB provision compared to litigated claims without an AOB provision. Ultimately, higher claim pay outs based upon over-inflated restoration bills get transferred back to all of Florida’s policyholders in the form of higher insurance premiums.
It has been widely reported, even by some restoration contractors, that it is standard business practice to pay thousands of dollars in kick-backs to certain individuals, including but are not limited to AC contractors, plumbers and property managers, for the purposes of assisting in the securement of an AOB agreement. Although Florida statute stipulates that restoration contractors shall not rebate the deductibles of policyholders, consumer complaints have confirmed that restoration contractors rarely collect the policyholder deductible when they execute their AOB agreements with a policyholder. These practices would tend to support the need to over-inflate repair estimates to cover such costs, as suggested by many insurers.
Currently, the State of Florida provides no licensing requirements or regulations for emergency services contractors. Consumers have complained that restoration contractors rarely explain their agreements to the policyholder; rather, they broadly state that by signing their agreement the restoration contractor will be able to bill the insurance company directly for their services rendered. However, the AOB agreements utilized by many restoration contractors often have the policyholder transferring 100% of their claim rights and benefits to the restoration contractor. Many consumers have described this solicitation practice as predatory and deceptive.
Moreover, as evidenced by complaints referred to the Florida Department of Financial Services (FLDFS), restoration contractors often hold themselves out as insurance claim experts, claiming they can interpret insurance contracts and achieve higher claim adjustments for policyholders if the policyholder agrees to signs their AOB agreements. The FLDFS reports that they have received 459 opened case actions and have issued 22 cease and desist orders so far, in order to curb a number of business practice violations. These practices are not only predatory and deceptive, they are illegal. Only attorneys approved by the Florida Bar, and public insurance adjusters licensed by the Florida Department of Financial Services, are allowed to adjust property insurance losses on behalf of a policyholder.
The Florida Association for Insurance Reform recommends the following reforms:
- Require any restoration contactor agreement utilizing an AOB provision to provide a detailed estimate at the time of the execution of the agreement
- Limit referral fees to $25.00, with a three-strike enforcement policy:
- Strike 1: fine
- Strike 2: increased fine, possible misdemeanor
- Strike 3: loss of license, felony charge
- Require any restoration contactor agreement with an AOB provision to provide a 5 day right of rescission period that only begins to run once the loss notice has been given to the insurer
- Require licensure and professional standards for emergency/restoration contractors
- Require IICRC certifications for emergency/restoration workers
- Increase enforcement of the unauthorized practice of public adjusting