AOB Scandals Push Up Homeowner Insurance Prices in Florida
Assignment of benefit (AOB) scandals have pushed up homeowner insurance prices in Florida over the last decade and have been a thorn in the side of Florida lawmakers as they have struggled to pass legislation that effectively deals with the scams.
We thought it might be helpful to look at just how AOB scams work so here is a quick overview of how AOBs are impacting the insurance market in the Sunshine State:
Storms bring canvassers
After a major (or even minor) storm, canvassers who are hired by less than honest general contractors or even lawyers (who hope to cash in on lawsuits) are sent into impacted neighborhoods to knock on doors, hoping to drum up roofing business.
“I’m here to get you a new roof,” the canvasser says according to a recent Claims Journal article. They tell these homeowners that there is a good chance they have roof damage due to the storm and that they are entitled to 20% more for “general contractor overhead and profit,” even if no general contractor is necessary for their job.
They then go up on the roof, find or fabricate damage to the roof and ask the homeowner to sign an AOB form. They promise the homeowner they will get a new roof and there will be no cost to them and that the contractor will take care of everything. These canvassers sign up thousands of homeowners across various zip codes and turn the information over to their lawyer partner.
Lawyers file a lawsuit
Once a number of homeowners have signed an AOB, a lawsuit is quickly filed against the insurance according the Claims Journal article. In many cases this can happen before the insurer is given notice of a claim. Policyholders are often given false information while the contractor inflates damages to the house.
All of this has led to homeowners getting caught up in unnecessary lawsuits related to their roofing claim. As the cost of these lawsuits has mounted over the years, insurance companies have had to pass these legal costs onto customers via higher premiums or in some cases, pulling out of the market altogether.
What an AOB form does
An AOB is a legal agreement that is signed by the insured homeowner. This form transfers the insurance claim benefits and rights of the policy to a third party, which in this case is usually the contractor doing the work.
The AOB gives the contractor the legal right to file a claim, make decisions on the repairs and collect insurance payments, all without the homeowner being involved. In the end the homeowner ends up being caught between the insurance company and the contractor in a fight over the claim.
AOB forms transfers the following rights to the assignee:
- File an insurance claim
- Make decisions about the repairs
- Collect insurance payments
- File a lawsuit against the homeowners’ insurance company seeking damages and attorneys’ fees
After the AOB has been filed, the insurance company can only communicate with the contractor, which leaves the homeowner in the dark about what is happening with the repairs to their home. In addition, some AOB forms allow the contractor to collect payment from the homeowner if the insurance payment doesn’t cover their fees or the insurer denies the claim. If the homeowner is unable to pay, the contractor may place a lien on the home.
Basically, once an AOB is signed, the contractor has the right to charge the insurer whatever they want because if the claim is denied they can sue the insurer over what is called short payments. Legally, the insurance company is responsible for all legal fees (both theirs and the contractors) so it makes more fiscal sense to settle and pay out the higher (inflated) claim amount then fight it in court.
Water damage is becoming a problem
While AOB scams got their start in the roofing industry, residential water loss claims are quickly becoming an issue as well. Water remediation companies are getting homeowners to sign an AOB forms when investigating water leak issues.
In many cases, this leads to added fees, higher prices and even unnecessary work being done. After the insurance company denies the claim or questions the costs, the water remediation company sues.
There are even reports of water remediation companies paying referral fees to plumbers who get homeowners to sign an AOB. In Florida, the Office of Insurance Regulation has claimed that the ever increasing costs related to water loss claims will cause some homeowners insurance premiums to double within five years.
What has been done?
Florida legislators were finally able to pass legislation that addresses AOB in July of 2019. Florida’s Governor Ron DeSantis signed SB 122, which addresses some of the issues created by AOB forms.
The new law allowed insurers to offer a different policy which restricts the insured’s ability to assign their insurance rights to another person. The law also defines an AOB agreement and includes a provision that warns the homeowner that they are signing over their insurance policy rights when they sign an AOB agreement.
The new law also allows the insured to cancel the AOB under certain circumstances. In addition, it requires the contractor to serve both the insured and the insurance carrier with a notice of intent to sue the insurance company, keeping the homeowner in the loop which was not required before. The notice of the intent to sue must specify the damages that are in dispute, the amount claimed as well as a settlement demand.
The contractor is now required to provide a detailed invoice that covers information related to equipment, materials, supplies, and labor hours. They must also provide proof that the work was performed and is in accordance with industry standards.
One of the most important components of the new law is that it limits the contractor’s ability to collect attorney fees. Previously, the contractor could recover all its legal fees as long as they made any type of recovery, so if the insurer paid out anything, they were required to also cover all of the contractor’s legal fees. This is no longer the case, now attorney fees are determined based on a comparison between the pre-suit offer from the insurer and the ultimate settlement or judgement in the case.
While the AOB reforms have helped curb AOB it will take a few years to determine the impact on rates in the state.
You can easily compare Florida homeowners insurance rates and quotes online or give us a call now at 888-685-4704.