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Assignments of Benefits and SB 1218


Date: May 03, 2017
Source: Daily Business Review
Author:  Christine A. Gudaitis


For over a century, Florida courts have upheld the rule permitting post-loss assignments of benefits (AOBs) to third-party service providers, over insurer objections and despite anti-assignment provisions in policies. This established Florida jurisprudence has come under attack by the insurance industry. Last week, Florida's Senate Banking & Insurance Committee passed SB 1218, proposed by Sen. Gary Farmer. The bill seeks to address allegations of fraud and abuse in the property insurance context. In addition to implementing a water damage restoration services licensing program, SB 1218 adds a subsection to F.S. 627.422, stating, "a personal lines residential property insurance policy, a commercial residential property insurance policy, or a commercial property insurance policy may not prohibit the post-loss assignment of benefits." The bill thus clarifies existing law and leaves intact the law that permits assignees—who "stand in the shoes of the insured"—to recover attorney fees pursuant to F.S. 627.428. That statute, in effect since 1959 and having roots in a statute enacted in 1893, permits an insured to recover fees and costs if the insured prevails in a suit against its insurer.

Two competing insurer-backed bills (SB 1038 and HB 1421) have yet to be heard. These bills would, among other limitations, bar assignees from collecting statutory attorney fees and institute a prevailing party fee component. The industry argues AOBs and 627.428 lead unscrupulous contractors and their attorneys to submit fraudulent or inflated claims, increasing premiums. SB 1218 directly addresses the issue by mandating that any 627.428 fees paid by a property insurer, "may not be used to justify a rate or rate change."

At the hearing, Sen. Farmer highlighted the purpose of 627.428: to compensate policyholders who must sue their insurers to get them to pay valid claims and deter bad conduct by insurers. He included the rate prohibition so carriers "don't get to pass on that bad decision [of denying or underpaying claims] to policyholders." The bill also contains a section requiring carriers to furnish periodic claims-payment information to the Office of Insurance Regulation. One construction business owner appearing in support of the bill suggested the data-collecting aspect will reveal the increase in litigation is due to "abuse by the insurance industry due to their untrained adjusters, their short pay and their very very slow pay of claims." Others appearing in favor of SB 1218 expressed reservations about the rate standards provision, speculating that what may be "a short-term positive solution for consumers may [have] a negative long-term impact to consumers, i.e., we may have carriers that will no longer write [policies in Florida]."

The rule permitting AOBs is based on our society's expectation that property is freely alienable. Any restriction on this freedom will likely result in policyholders being forced to contend with lengthy adjusting delays and risk having a lien placed on their property, or expend significant out-of-pocket dollars the policyholder may not be able to afford. The standard anti-assignment clause limits only assignment of the policy, not the interest in insurance benefits due after loss. These clauses are intended to prevent an increase in risk by a change of ownership without the insurer's knowledge. But, post-loss, "the claim is the claim" regardless of who seeks to recover for it.

An AOB without the concomitant right to 627.428 fees defeats the purpose of permitting the assignment. Say a contractor with a valid assignment performs $20,000 in repairs to the insured's home. The insurer pays only $2,000. The contractor sues the carrier, expends $30,000 to litigate and prevails at trial. Without the right to fees, the contractor will not be made whole. To disallow them would remove both the carrier's incentive to pay assigned claims and the contractor's incentive to agree to repair homes via assignment. 627.428 also protects homeowners, whether suing carriers directly or assigning rights to contractors who must sue carriers to compel them to pay valid claims. Neither homeowner nor assignee recovers if he or she loses at trial, so it does not make economic sense for assignees or their attorneys to undertake a legal battle if the case lacks merit.

SB 1218 contains other industry protections. These include requiring notice to the carrier of any assignment and intent to initiate a lawsuit, a detailed estimate of the scope of work, clarification that the policyholder retains all nonassigned policy rights and responsibilities, and the right by policyholders to rescind assignments within a certain number of days. It addresses concerns about "unscrupulous vendors" by requiring contractors to guarantee their work conforms to current and accepted industry standards and maintain a license in good standing.

SB 1218 is currently in the Committee on Regulated Industries. For updates, visit https://www.flsenate.gov/Session/Bill/2017/01218.