WHAT IS AN AOB AND IS IT A BAD THING?
In the insurance industry, the acronym “AOB” stands for Assignment of Benefits. In Florida, insurance policy holders can assign or give the rights to insurance benefits from a claim to another party giving that other party full rights to collect those benefits just as if they were the one named in the policy. Typically, this occurs when a homeowner hires a professional, which could be a public adjuster, contractor, water mitigation company or roofer. There are many different contractual versions that can accomplish this but a typical one would read “I hereby assign to (contractor) any and all benefits from the insurer providing coverage for my home in consideration for (contractor) completing the repairs. This acts as an assignment of rights and benefits. If the insurer refuses to make full payment upon demand by me or Assignee, I hereby assign and transfer to Assignee any and all causes of action and all proceeds therefrom, and further authorize Assignee to prosecute said causes of action in my name or Assignee’s name.” The effect of the assignment from a legal standpoint is the company now steps into the shoes of the named insured and can file a lawsuit against the insurance company if full payment is not received for the services that were rendered. Many homeowners see this as an advantage because they can get the repairs done with no out of pocket expenses other than maybe a deductible and if there is a problem with the insurance company, the repair company deals with it.
While this may sound like a good idea to some, the insurance industry does not like assignment of benefits. In a recent article in the Insurance Journal dated July 19, 2018 by Amy O’Connor, the assignment of benefits issue was addressed giving the insurance company point of view. The article stated as follows:
“I think the number one thing the insurance industry can do is link AOB (assignment of benefits) to the impact that it’s having on the individual consumer and the huge impact it’s having on the premiums that the consumer’s paying,” Barry Gilway, president, CEO and executive director of Citizens Property Insurance Corp. told attendees in a recent Insurance Journal webinar on Florida AOB abuse.
Education, education, education, Gilway said, will be critical to slowing the Florida AOB epidemic that is leading to higher insurance rates, reduced coverage and a potential insurance market crisis in the state. Gilway was one of a panel of four experts participating in the “Florida AOB Crisis: Where Does the Industry Go from Here?” webinar conducted by Insurance Journal on June 26. Logan McFaddin, regional representative for the Property Casualty Insurers Association (PCI), Paul Huszar, CEO of remediation contracting company VetCor, and Patrick Wraight, director of the Insurance Journal Academy of Insurance, joined Gilway in discussing the AOB situation in Florida and ways to rein in what they all agreed is runaway abuse.
The AOB problem in Florida stems from unlicensed water remediation and roofing contractors who have homeowners sign over their insurance policy rights in exchange for needed repairs to their homes. The contractors, typically working with an attorney, file inflated or fake claims, and then pursue lawsuits against insurers when those claims are disputed or denied. Because of Florida’s one-way attorney fee statute, insurers are left footing the bill for the inflated claims and the attorney fees if the insurer is found to have underpaid the claim by any amount.
Carriers across the state have seen an increase in litigation because of these inflated claims. According to the Florida Department of Financial Services, there were 405 AOB lawsuits across all 67 Florida counties in 2006, and by 2016 that number had risen to 28,200. But Citizens, the state-run insurer of last resort, has borne the brunt of the abuse. It reported in its 2019 rate hearing in June that it would spend $70 million this year defending AOB-related litigation – equal to 17 percent of its total premium.
The article when on to say
“The bottom line is, it’s having an impact on everyone’s rates,” Gilway said.
With little movement toward change from the Florida Legislature, educating consumers is now a key to stemming the AOB problem, McFaddin said.
“That consumer awareness is really critical in preventing AOB abuse from happening in the future and to control these costs,” McFaddin said. “Our policyholders need to understand that when they sign on the dotted line of an AOB contract, they’re relinquishing their rights under their policy to a third party.”
Citizens has taken a multi-faced approach to combat abuse, including its educational “Call Citizens First” campaign to encourage policyholders to contact their insurance agent or the company directly after a loss. It will also launch a new managed repair program on Aug. 1 that incentivizes policyholders to work with contractors who have been vetted and approved by the insurer.
Gilway said thanks to policy language changes that it implemented about two years ago, AOB lawsuits in 2017 dropped to 7,600 from 10,000 the year before. Many Florida insurers are copying some of the changes Citizens has made as private industry lawsuits continue to increase. But panelists agreed the insurance industry needs to do a better job of getting the message out to consumers about what an AOB is and why they should avoid signing one. Huszar said there is no reason contractors need to use an AOB – his company will use a “direction to pay” agreement instead so they can be paid directly by the insurance company after the work has been done.
“Once people start feeling it in their pocketbook and their rate increases, then the industry needs to explain why,” he said.
This article makes it clear that the insurance company’s solution to what they deem to be a problem is to raise rates rather than fight the fraudulent claims. The insurance industry would like the public to believe that the problem with an assignment of benefits is that you are giving your rights away to an unlicensed person who then files a fraudulent lawsuit which the insurance company has to pay to defend. However, if in fact these lawsuits are fraudulent, it should be easy to prove and defend against and there are mechanisms in place for the insurance company to get back any attorney’s fees and costs from the party filing the fraudulent lawsuit to stop this kind of behavior. Based on this, the problem is not fraudulent lawsuits, but the insurance company losing the ability to dictate what should be paid on a claim.
I see all too often estimates from insurance companies that are lower than what any individual person could possibly hire a contractor for to get the same work done. Assignment of benefits allow the homeowner to get the work completed and if there is a dispute as to what should be paid for the work done, the professional who did the work takes the burden of pursuing the insurance company rather than involving the homeowner in litigation. Assignment of benefits also allow public adjusters to render their professional assistance to homeowners without the homeowner being required to pay that professional an hourly rate which could get very expensive. I am the first to advocate that we get rid of fraudulent claims and prevent fraudulent lawsuits but taking away assignment of benefits in my opinion is not the answer. Valid assignment of benefits by a reputable licensed contractor can be a huge advantage to the homeowner. In an effort to combat assignment of benefits, many insurers are now attempting to require homeowners to participate in a managed repair program, meaning the homeowner has to choose a contractor approved by the insurance company. I have talked to many homeowners who are very frustrated with this program because the contractors are so busy they can’t get to many jobs for many months or even years and when they do, the work is usually sub-standard and cause more problems. A homeowner should have the right to choose what contractor they want to fix their home and the insurance company should pay a fair price for that work to be done. Raising insurance rates in the hopes that consumers get upset and demand a change is not the solution to this problem. I would rather see insurance companies fight fraudulent claims and get their attorney’s fees and costs back from the fraudulent party filing those claims and fairly and honestly pay for those claims that have an assignment of benefit as well as others. If this approach is taken, there would be no need to raise rates in the State of Florida and both the homeowners and insurance company would win.