By Ryan Maloney, JBA Construction Law Committee chair
An assignment of benefits is an agreement by which an insured transfers homeowner’s or property insurance claim rights or benefits under an insurance policy to a third party, most often a construction or restoration contractor.
An AOB typically gives the third party authority to file a claim, make repair decisions and collect insurance payments directly, without the insured’s involvement.
The process can be beneficial to insureds by allowing repair work to be done quickly, with the insured then not obligated to pursue recovery directly from the insurance company.
However, in recent years there has been concern that the AOB process was being abused. According to the insurance industry, that abuse was driving up costs and, therefore, premiums.
This was due in large part to the increasing number of AOB lawsuits against insurers, driven by Florida’s one-way statutory right to attorney’s fees for prevailing-party insureds against insurers.
According to a recent statement from Gov. Ron DeSantis related to new AOB legislation, in 2008, there were approximately 90 property AOB lawsuits filed statewide, but by 2018, the number of lawsuits had increased by more than 19,000%.
Against this background, the 2019 Florida Legislature made sweeping changes to assignment of insurance benefits laws for residential and commercial property insurance policies, effective July 1.
One of the key changes is a major adjustment to the attorney’s fee recovery framework in AOB lawsuits.
First, at least 10 business days before filing suit under the policy, the AOB assignee must provide the insurer with a detailed invoice or estimate and a notice of intent to initiate litigation that specifies the damages in dispute, the amount claimed and the assignee’s pre-suit settlement demand.
The insurer is then required to respond to the notice within 10 business days either by making a presuit settlement offer or requiring the assignee to participate in appraisal or another method of alternative dispute resolution under the policy.
The AOB assignee can only recover prevailing-party attorney’s fees if the damages judgment ultimately obtained by the assignee is 50 percent or more than the “disputed amount” – the difference between the insurer’s pre-suit settlement offer and the assignee’s pre-suit demand.
However, if the judgment obtained is less than 25 percent of the disputed amount, the insurer will be entitled to recover its attorney’s fees from the assignee.
If the damages judgment is between 25 and 50 percent of the disputed amount, no party is entitled to recover attorney’s fees.
Another significant change to the AOB law is that to be enforceable, the agreement must be in writing and executed by the assignor insured and the assignee.
The AOB agreement also must contain provisions that allow the assignor insured to rescind the AOB in writing, within certain time frames, and the assignee is required to provide a copy of the executed AOB agreement to the insurer within three business days after the AOB is executed or the date on which work begins, whichever is earlier.
The AOB agreement also must contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee.
In addition, under the new law, on or after July 1, insurers will be able to issue policies that restrict or eliminate the ability of insureds to enter into AOB agreements. However, the insurer is required to also offer a policy that provides the same coverage without AOB restrictions and must charge a lower premium for the policies with the AOB restrictions.
Time will tell if the recent changes to the AOB law will have the desired effect of reducing insurance costs and premiums, but they certainly will greatly change the landscape related to assignment of property insurance benefits.
Ryan Maloney is a Jacksonville attorney with a focus on construction law.
