The controversial 'hot' topic of Assignment of Benefits (AOB) is a decades-old practice throughout the insurance world, and the countdown has officially begun for its much-needed insurance reform. Taking effect July 1, 2019, the new, revamped, and consumer-friendly legislation signifies the end of a seven-year battle between the insurance industry and reform advocates.
AOB Abuse by the Numbers
AOB is a legal contract that allows a property owner to sign over his coverage and grant contractors permission to directly collect a claim payment from insurance companies for services rendered. Once an AOB is in place, the insurance company can no longer discuss the claim with the property owner, and the contractor can invoice and sue on the policyholder's behalf, without consent or knowledge.
While AOB may seem convenient for policyholders, it is an expensive headache for all involved, thanks to widespread, systematic, and fraudulent abuse. Over the years, many contractors have padded or falsified claims, such as residential water-damage, to collect money from insurance companies.
In 2000, there were roughly 1,300 filed AOB lawsuits throughout Florida. In 2013, there were more than 79,000. In 2018, the number of lawsuits filed significantly increased to approximately 153,000. That is a 94 percent increase in five years. These massive volumes of lawsuits and inflated claims have led to less coverage and skyrocketing insurance rates. For example, auto and homeowners rates rose $2.5 billion over 12 years. That does not even count the billions more in excess claim settlements. And consumers often do not even know that these claim settlements are driving cost increases. The abuse acts as a hidden tax.
New Legislative Benefits
In Florida, AOB abuse has fueled an insurance crisis. Reforming how AOBs are executed in property insurance should have a significant impact in Florida. The new legislation seeks to address and alleviate the rampant problem and protect residential and commercial property owners from predatory insurance practices, escalating fraud, and excessive litigation. It will also make it harder for contractors to convince property owners to sign over insurance claim benefits.
The bill allows property owners to have 14 business days to opt out of an AOB agreement and requires contractors to provide insurance companies ten business days before filing an AOB suit on a claim. Additionally, it incentivizes insurers, contractors, and restoration companies to come to the table with reasonable offers of settlement and creates a system that effectively limits attorney fees in AOB lawsuits.
With the passage of this law, Florida will see a new litigation landscape in the area of AOBs and the greedy, abusive methods found within the system will begin to fade.