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Assignment of Insurance Benefit(s)

With the worst of Hurricane Hermine behind us, you may need to seek out storm clean up or water-loss restoration companies. The Property Insurance Coverage Blog through the Merlin Law Group make some very strong recommendations:

“Be very cautious and make sure you don’t unintentionally give away your benefits for the insurance claim if that was not intended. Ask whether the work authorization is limited or whether it is a complete assignment of insurance benefits. Don’t let a company bully you into giving away your entire claim. It is absolutely appropriate that you find out a range of costs before you hire any company. Don’t just sign documents because you are flustered or stressed. You have rights and choices when it comes to who can fix your property and often times the dry-out company should be limited to doing the dry-out but is ill-equipped to do the construction. But with your insurance proceeds that company will hold the power. Again, don’t just sign documents without careful thought and review.” [1]

What is an Assignment of Benefits?

Merlin Law Group is referencing Assignment of Benefits. An assignment of benefits (AOB) is a legal tool that allows a third party to be paid for services performed for an insured homeowner who would normally be reimbursed by the insurance company directly after making a claim. [2] Most AOB agreements presented to the homeowner allow the contractor to stand in the shoes of the homeowner for insurance collection purposes.

Real Life Scenario and Implications

A typical scenario that results in an AOB law suit goes something like this:

As referenced above, AOB is commonly used when a homeowner experiences a water loss – such as a leaky pipe, an overflow from a sink, or a damaged appliance that causes water to seep into the baseboards, flooring and furniture – and contacts a contractor or water remediation company for assistance. The water mitigation company sends a technician with air blowers, dehumidifiers and other equipment, removes the baseboards and dries the inside of the house.

Typically, prior to the dry-out process, the restoration company presents the homeowner with documents including an AOB, in which the insured assigns all of his or her rights under the policy to recover insurance proceeds to the contractor;

Days or weeks later, the insured files a claim with the insurance company.

The lawsuits arise when the claim is either denied or the insurance company refuses to pay the full amount owed to the mitigation company, known as a “short pay.” This results in the water mitigation company left with an unpaid bill so the company then files suit against the insurance company.

Policy Argument

The practice and utilization of AOB agreements is a hot topic in the state of Florida.

If you do a quick google search you will be inundated with insurance backed webpages crying foul that this legal arrangement allows unscrupulous contractors to overinflate or submit improper claims, causing legal battles between the contractor and the insurance company, with the consumer left out of the picture. [3] As a result, insurance rates in Florida are going up and insurance companies have thus far been fighting a losing battle to change the law.

Various courts have shot down multiple legal arguments made by the Insurance companies. To date the law remains largely unchanged. The Court has outlined the competing policy arguments:

Turning to the practical implications of this case, we note that this issue boils down to two competing public policy considerations. On the one side, the insurance industry argues that assignments of benefits allow contractors to unilaterally set the value of a claim and demand payment for fraudulent or inflated invoices. On the other side, contractors argue that assignments of benefits allow homeowners to hire contractors for emergency repairs immediately after a loss, particularly in situations where the homeowners cannot afford to pay the contractors up front. [4]

In any event, you should be aware of any document you sign, especially in reference to insurance benefits. While time is of the essence in water-loss scenarios, you should work with companies you trust, that follow industry standards. Not all mitigation companies are looking to inflate prices and hold homeowners hostage over fees as the insurance company and supporters of the industry would have you believe. Under the law, as it stands now, the homeowner is allowed to hire a contractor in case of emergencies after a loss. The AOB can be especially useful in situations where homeowners cannot pay directly upfront.



[1] https://www.propertyinsurancecoveragelaw.com/2016/09/articles/consumer-protection/hurricane-hermine-has-vast-impact/

[2] https://www.myfloridacfo.com/Division/ICA/AssignmentofBenefits.htm

[3] https://www.myfloridacfo.com/Division/ICA/AssignmentofBenefits.htm

[4] https://www.claimsjournal.com/news/southeast/2015/06/23/264117.htm
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