21 Jun Assignment of Insurance Benefits: How Will Florida’s AOB Reform Affect Floridians?

An assignment of insurance benefits (AOB) allows a vendor to collect insurance proceeds directly from the insurance company instead of the insured. Many are surprised to discover that AOBs are quite common. In fact, if you ever had property damage that required a construction contractor or water remediation company, you probably signed an AOB. Surprised?

In recent years, AOBs have become common in property insurance claims. A typical example involves a property owner (the “Assignor”) assigning benefits under a property insurance policy to a contractor, water remediation company or other vendor (the “Assignee”) who repairs the damaged property and bills the insurer for the work.

According to the Florida Office of Insurance Regulation (OIR), the increasing use and abuse of AOBs are negatively impacting Florida’s property insurance market. Property insurance claims have significantly increased in frequency and severity. Claims that involve an AOB are also more likely to end up in litigation. Why is this significant? In 2018, the average cost of litigated water claims was nearly $20,000 higher than non-litigated claims.

This year, when the OIR testified that continuing post-loss AOB abuse will result in higher premiums and fewer options as insurers exit the market, the Florida Legislature was listening. The result was sweeping statutory reform that should substantially change the future AOBs in Florida. This reform includes new laws designed to address the abuse of post-loss AOBs for property insurance claims by:

• establishing requirements for AOB contracts (execution, validity, rescission, etc.);
• capping the amount an Assignee (contractor, water remediation company, etc.) can receive under an AOB for emergency residential property insurance claims;
• allowing insurance policies to limit or prohibit AOBs under certain conditions;
• transferring certain pre-lawsuit duties under an insurance policy to the Assignee;
• restructuring the statutory entitlement to attorney’s fees in litigated AOB claims; and
• requiring insurance companies to report specific AOB claim data annually.

Will these reforms be effective? Will they stop the bad actors from abusing AOBs? Will they stop the good actors from providing critical services to Floridians who suffered property damage? It’s too soon to know, but time will tell.

In the coming weeks, we will be covering some of the more substantial changes made by the new AOB laws. Stay tuned!