The 4th DCA recently issued an unfortunate ruling in favor of insurance companies. The opinion hinders a contractor's ability to get insurance proceeds to make repairs. This will, in turn, hinder your ability to have your home repaired after a storm, fire, or flood. The case hinged on what is required for a valid and binding “Assignment of Benefits” to a contractor or service provider.
What Is An Assignment of Benefits?
If your home suffers damage that is covered under an insurance policy, contractors will often begin repairs immediately under what is called an Assignment of Benefits ("AOB"). The contractor basically steps into your shoes as the policyholder and has the same rights as you to recover the cost of repairs from the insurance company. Assignments of Benefits are beneficial to you because they prevent you from having to pay upfront for the repairs or deal with the insurance company on the claim. They are also beneficial to the contractor because it offers him paying work. That is, until the insurance company in this case decided to fight the contractor's right to recover.
Why Insurance Companies Do Not Like AOBs
The insurance company has incentive to make it difficult for you to assign your benefits to a contractor because contractors will then not be as eager to start repairs. The longer it takes for repairs to commence, the less likely you will discover that the true cost of repairs far exceed the payment amount. The insurance company wants to have a say in how extensive your damage is and how much it will actually cost to repair, because they want to reduce these amounts. Even the determination by the insurance company's software often does not accurately account for all of the damage and cost to repair. The insurance company has a more difficult time manipulating software estimates to your disadvantage after a competent local contractor has determined the extent of the damage, made the repairs, and sent them a bill. The bottom line is, hindering your ability to assign your benefits to a contractor gives the insurance far more control over your claim, the progress of repairs, and the amount it is required to pay for those repairs.
Insurance Companies Have Pushed for Limits on AOBs
All of these motives have encouraged insurance companies for years to lobby legislators to pass laws that limit and restrict Assignments of Benefits. It is also the reason Ark Royal Insurance Company argued in this case that an Assignment of Benefits to a contractor is not valid unless it is signed by all insureds AND THE MORTGAGEE. They want this limitation because they know it will be difficult for you, as the policyholder, to get your mortgage-holder to sign an Assignment of Benefits. This gives the insurance company more control over your claim and more opportunities to delay, deny, or underpay your claim.
Fla. 4th DCA Ruled in Favor of Insurance Companies
Unfortunately, the 4th DCA ruled in favor of Ark Royal Insurance Company, allowing insurance companies to require your mortgage-holder to sign an Assignment of Benefits before it can be considered valid. This was in direct contradiction to a case that came out of the 5th DCA earlier this year finding the mortgage-holder is NOT required to sign an Assignment of Benefits. The Florida Supreme Court has announced they intend to weigh in on this debate. Until the Florida Supreme Court rules, neither the 4th DCA or 5th DCA is binding on us here in Pensacola as we fall under the 1st DCA.
Learn Your Legal Rights When Assigning Benefits to Contractors
You should always understand your legal rights before making any decisions about an Assignment of Benefits whether you are an insured (a policyholder) or a contractor. If you have a question about your rights, give us a call. We would be happy to explain your rights and how to best protect them. (850) 438-4899 CONTACT US
You can read the 4th DCA's opinion here.