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Two different approaches to the Assignment of Benefits Issue

 

Date: July 18, 2017
Source: Property Insurance Coverage Law Blog
Author:  Sean Shaw

 

Assignment of Benefits (“AOBs”) has been an issue in the property insurance realm for several years. In fact, the Florida Legislature made a hard push to address the issue during the 2017 Session but was unable to do so. The two main AOB bills that gained traction last Session dealt with the issue in slightly different ways. SB 1218 was sponsored by Senator Gary Farmer. I have set forth the summary staff analysis below:

"CS/SB 1218 creates new requirements for assignment of post-loss benefits from personal residential, commercial residential, and commercial property insurance policies. The bill places various requirements and restrictions on assignments of post-loss benefits in personal residential, commercial residential, and commercial property insurance policies. The bill does not allow such policies to prohibit the post-loss assignment of benefits. It provides, however, that an agreement to assign post-loss benefits is not valid unless the agreement:

-Is in writing between the policyholder and assignee and is delivered to the insurer under specified time requirements;

-Is limited to claims for work performed by the assignee for damages claimed to be covered;

-Allows the policyholder to unilaterally rescind the assignment of post-loss benefits to a vendor within 5 days of execution of the agreement; and

-Contains an accurate and up-to-date statement of the scope of work to be performed.

The bill provides that an assignee:

-Must provide the policyholder with accurate and up-to date revised statements of the scope of work to be performed as supplemental or additional repairs are required;

-Must guarantee to the policyholder that the work performed conforms to current and accepted industry standards;

-May not charge the policyholder more than the applicable deductible contained in the policy unless the policyholder opts for additional work at the policyholder’s own expense;

-May not charge the policyholder directly, except for additional work not covered under the policy; and

-May not pay referral fees totaling more than $750 in connection with the assignment.

The bill creates a regulatory system for professional water damage restorers similar to the regulatory system for mold assessors. It prohibits unlicensed persons from practicing water damage restoration and requires assignees of water damage claims to be licensed. It requires the Department of Business and Professional Regulation (DBPR) to license professional water damage restorers if they are of good moral character, have passed an appropriate examination, and meet certain education requirements. The bill provides for fees, disciplinary rules, continuing education requirements, and insurance requirements for professional water damage restorers.

The bill provides that attorney fees and costs paid by a property insurer pursuant to s. 627.428, F.S., may not be included in a property insurer’s rate base and may not be used to justify a rate or rate change.

The bill creates new reporting requirements for insurers and claimant attorneys relating to claims in which an assignment of benefits is obtained."

The entire bill language, full staff analyses and bill history can be found here.

HB 1421 was sponsored by Representatives Jamie Grant and Rene Plasencia. The summary staff analysis is as follows:

"Current statute provides that an insurance policy may be assignable, or not assignable, as provided by its terms. Florida courts have held that an insurance policy may prohibit a pre-loss assignment of benefits; however, the courts have also held that an insurance policy may not prohibit a post-loss assignment. The bill codifies the case law that bars a residential property insurance policy from restricting the assignment of post-loss benefits.

In addition, the bill defines “assignment agreement” and establishes requirements related to the execution, validity, effect, and enforcement of an assignment agreement. Specifically, the bill requires a written agreement, a 7-day period within which the policyholder may rescind the agreement, an estimate of services, notice to the insurer when an assignment agreement has been executed, and notice to the policyholder regarding the legal implications of an assignment agreement. The bill prohibits specified fees in connection with an assignment agreement and prohibits an assignment agreement from altering a policy provision related to managed repair. The bill transfers certain duties of the insurance contract to the assignee which must be carried out before a lawsuit may be filed and duties that shift the burden to the assignee to prove why failure to carry out the duties has not limited the insurer’s ability to perform under the contract. The bill also limits an assignee’s ability to recover certain costs directly from the policyholder. The new requirements apply to assignment agreements executed after July 1, 2017.

If an assignee intends to file suit against an insurer to enforce an assignment agreement, the bill requires that the assignee give the insurer prior notice. Notice must be served at least 10 business days before filing suit, but may not be filed before the insurer has made a determination of coverage according to the timeframes and requirements of current law. Both parties must exchange specific information related to the claim, including the assignee’s presuit settlement demand and the insurer’s presuit settlement offer. If the parties fail to settle and litigation results in a judgment, the bill provides the exclusive means for either party to recover attorney fees, other than fees awarded as a sanction. The bill allows an award of attorney fees based on how much the litigation improved the amount that otherwise could have been obtained during settlement negotiations. The bill defines the difference between the insurer’s offer and the assignor’s demand as “the disputed amount.” Fees are then awarded as follows:

-If the difference between the judgment and the settlement offer is less than 25 percent of the disputed amount, then the insurer is entitled to attorney fees.

-If the difference between the judgment and the settlement offer is at least 25 percent but less than 50 percent of the disputed amount, neither party is entitled to fees.

-If the difference between the judgment and the settlement offer is at least 50 percent of the disputed amount, the vendor receives attorney fees.

The Office of Insurance Regulation is directed to require each insurer to report by January 30, 2020, and each year thereafter, specified data on claims paid in the prior year pursuant to an assignment agreement.

The bill does not have a fiscal impact on the state or on local governments. It will have an indeterminate fiscal impact on the private sector.

The bill provides an effective date of July 1, 2017."

The entire bill language, full staff analyses and bill history can be found here.

At the risk of oversimplifying, HB 1421 addressed the AOB issue from the lawsuit perspective whereas SB 1218 addressed it from a regulatory standpoint. I have maintained that there needs to be some sort of AOB reform and that this issue will be addressed during the 2018 Session. In my opinion, SB 1218 is closer to the mark than HB 1421, but both have their good parts. Hopefully, the Legislature will come up with a fair and balanced solution that attacks the bad actors, protects consumers, and preserves the ability of a policyholder to execute an AOB under the right conditions.