Wednesday, October 12, 2016

Staying Afloat in a Sea of AOBs

What is an AOB?
The Office of the Insurance Consumer Advocate provides the following definition for AOBs:
An assignment of benefits (AOB) is a legal tool that allows a third party to be paid for services performed for an insured homeowner who would normally be reimbursed by the insurance company directly after making a claim. AOB is commonly used when a homeowner experiences a water loss – such as a leaky pipe, an overflow from a sink, or a damaged appliance – and contacts a contractor or water remediation company for assistance. Most AOB agreements presented to the insured allow the contractor to stand in the shoes of the insured for insurance collection purposes.
How are AOBs trending?
Newly formed at the beginning of 2016, the Consumer Protection Coalition was created to raise awareness of AOB abuse.  The Consumer Protection Coalition reports Florida AOB lawsuits have increased 90,000 percent since 2000, with the predominance of claims in South Florida.  The increase of AOB claims and litigation became further highlighted when the state-run insurer, Citizens Property Insurance Corp., filed for a rate increase this year citing AOB abuse as the driving force.
Citizens data reveal a 46% rise in water loss claims in a 5-year period.  Additionally, the Citizen’s data shows those claims are more expensive and far more likely to lead to litigation, thereby increasing the overall cost of the claim. Citizens data also reveals geographic trends.  It shows that nearly 1 in 4 South Florida insureds are more likely to assign benefits to a third party (i.e. a contractor, water mitigation company, or public adjuster) prior to submitting a claim to their carrier.
What about judicial enforcement of contract provisions, such as an anti-assignment clause?
For almost a century, there has been a body of Florida case law that supports the position that policyholders have the right to assign post-loss claims without insurer consent.  A more recent example of this area of law was illustrated in 2015, when the Fourth District Court of Appeals entertained argument by an insured’s assignee who brought a breach of contract action against a homeowner’s insurer for failing to adequately compensate the assignee for emergency water removal services it performed in the aftermath of an August 2012 water event. Specifically, the water remediation company argued that the trial court erred as a matter of law in dismissing its complaint based on the anti-assignment and loss payment provisions of the policy and maintained that: (1) post-loss assignments of insurance are valid under Florida law even if the policy contains an anti-assignment clause; (2) the right of payment accrues on the date of the loss; and (3) the loss payment provision does not preclude an assignment of benefits and has never been construed to have any bearing on the issue of assignments.  In making its determination, the court explained:
“we are not unmindful of the concerns that [the insurer] expressed in support of its policy change, providing evidence that inflated or fraudulent post-loss claims filed by remediation companies exceeded by thirty percent comparable services; that policy holders may sign away their rights without understanding the implications; and that a ‘cottage industry’ of ‘vendors, contractors and attorneys’ exists that use the ‘assignment of benefits and the threat of litigation’ to ‘extract higher  payment form insurers.’  These concerns, however are matter of policy that we are ill-suited to address…[which] are more properly addressed to the Legislature.”
Now what?
Insurers, consumer protection groups, state agencies and - with the additional lightening of wallets resulting from the approved rate hikes - insureds are all affected by the AOB crisis in Florida.  Legislative efforts to address the AOB problem have failed.  Senate Bill 596, filed October 21, 2015, died in judiciary on March 11, 2016.  That same day House Bill 1097, filed January 4, 2016, died in the Regulatory Affairs Committee.
With the recent change of the guard from Kevin McCarty (retired May 2, 2016) to David Altmaier, as Insurance Commissioner, a watch for change begins.  The Commissioner acts as both a regulator and consumer watchdog, and takes the heat if insurance rates go up.  As the new Insurance Commissioner, Altmaier will have his hands full with this growing problem right out of the gate as he steps into a state of emergency caused by AOB abuse.