When consumers experience water damage unconnected to hurricanes, they usually call a plumber, a roofing specialist or their insurance company to repair the damage. The plumbing or roofing contractor will probably suggest that the consumer assign the insurance benefits, so that payment for any work will go directly from the insurer to the contractor – a process known as Assignment of Benefits, or AOB.
Like in 49 other states across the U.S., the process is supposed to help consumers fix things quickly and let the insurer seamlessly settle claims, but Florida’s process is having some serious problems that are leading to higher consumer prices. The problems started small but have metastasized and now require the immediate attention of honorable elected officials.
A new report from Citizens, the state-owned insurer, details mounting AOB fraud. The report, “Non-Catastrophic Homeowner Water Claims” reveals that homeowners would have seen premium decreases in 2016 had it not been for AOB costs increasing sharply.
The process has become a way for contractors and attorneys to wring dollars from insurers well beyond the actual costs of repair. Some vendors (e.g. extraction companies or mold remediators) are so highly motivated to obtain an AOB that they sometimes offer roofers and plumbers a referral fee of up to $1,500. The vendors’ bills sometimes include costs for unnecessary work or for work that is never performed. That extra cost leads to an increase the insurance premiums that consumers pay and they deplete reserves set aside to repair damage from hurricanes.
When insurers question these costs, some attorneys will sue the insurance company on behalf of the repair contractor. The insurer is faced with paying the AOB invoice or paying the AOB invoice plus attorney fees. Florida law allows contractors’ attorneys to collect litigation fees from the insurer, if the attorney prevails in court. On the other hand, if the insurer prevails, the insurer cannot collect litigation costs from the attorney. This encourages insurers to pay for suspicious vendor charges in order to avoid lawsuits. Other states allow for AOB arrangements, but none allow these inexplicable one-way attorney fees, which have turned AOB malignant in Florida.
From 2013 to 2014, Florida was inundated with 92,521 AOB lawsuits – a 1,000-percent increase from 2005/2006. Out of every insurance premium dollar, 18 cents go for future hurricane costs and 28 cents go to defray non-hurricane water damage costs. In southeast Florida where AOB lawsuits are concentrated, 50 cents of each premium dollar is spent on non-hurricane water damage costs.
Floridians may have some hope, thanks to an AOB reform bill in the Florida Senate (Senator Hukill’s SB 596) and a House bill that is emerging as well. Whatever comes out of the Legislature this session, reforming this festering abuse of laws governing AOB and one-way litigation costs is a must, if we ever hope to get homeowner insurance premiums under control in the state.