By Joseph A. Mann Jr., FloridaBulldog.org 
Immediately after Hurricane Michael devastated parts of the Florida Panhandle, the Consumer Protection Coalition, a business-backed group, warned insured home and auto owners about the dangers associated with signing an assignment of benefits (AOB) document, which transfers the rights and benefits of claimants to a third party, such as a roofer, plumber or water removal and restoration company.
When homeowners receive their new policies from Citizens Property Insurance Corp., the state-owned insurance company, as well as from private carriers, they receive warnings to contact the company first when they have a claim, and to be careful about signing AOBs.
Florida Office of Insurance Regulation devotes several pages on its website to the fraudulent use of AOBs and how they can lead to higher insurance rates. The insurance commissioner, David Altmaier, has been actively pushing the Legislature for reforms.
What’s this all about?
The AOB, an option that has been legal in Florida’s insurance market for more than 100 years, can be a convenience for people who don’t want to deal with their insurance company or find it difficult to do so due to age or handicaps.
But over the last several years, AOBs have become a major source of fraud, abuse and overpricing. Insurance companies estimate that AOB abuse costs Florida property owners and the insurance companies tens of millions of dollars a year. Consumers are impacted by substandard, overpriced repairs, fees paid to lawyers without their knowledge and, subsequently, higher insurance premiums. Insurance companies are forced to pay inflated repair bills and legal costs fighting against contractors in court, and have either petitioned for higher homeowner and auto rates, or have stopped issuing policies altogether, especially in South Florida.
Insurance carriers are not usually on consumers’ list of favorite companies, since claimants object to increasing premiums and sometimes feel they have not been paid enough for their losses. But in this case, the insurance companies are not the bad guys. In fact, both consumers and carriers are victims of AOB abuse.
An essential issue underlying and promoting AOB abuse is a Florida law (FS 627.428) dating from the 1950s that incentivizes unscrupulous contractors and attorneys who sue insurance companies when they refuse to pay inflated service charges. If an insurance company loses the case, it must pay its own legal costs and those of the plaintiff. However, if it wins, it also must pay its own legal fees and is not reimbursed. This one-way attorney fee provision establishes an unfair advantage in favor of the plaintiffs’ attorneys. Businesses, insurance companies and consumer groups have sought legislative reform on this point, but have been unsuccessful so far.
Here’s an example of one type of AOB fraud: A condo owner in Broward suffered water damage during Hurricane Irma. Water had been driven under the front door, damaging the tile and baseboards in the hallway and kitchen.
Acting in good faith, the owner called an independent insurance adjuster who had been recommended by a family member. (An independent adjuster does not work for the owner’s insurance company, and can file claims with any carrier. Insurance companies prefer to use their own adjusters.)
The independent adjuster made an estimate and convinced the owner that repairs would be done faster if she signed an AOB with a restoration contractor.
At the same time, the adjuster deceived the owner, saying she would have a better chance of collecting if the claim was reported as water damage not hurricane-related loss. Non-hurricane water damage may be caused by a broken pipe, leaky toilet or other issue.
Bad repairs
The condo was repaired badly, and the restoration company, which promised to return to finish the job, never did.
However, the vendor charged several thousand dollars for the incomplete work, asking more than the insurance company covered for this type of job. The vendor, apparently working with the adjuster, hired a lawyer to file a claim against the insurance company. To avoid court costs, the insurance company paid the vendor the complete amount, plus $3,000 to an attorney who filed the suit. The condo owner never received a cent, had to find another contractor to complete the work, and paid out of her own pocket.
The condo owner discovered details of what had happened only when she tried to sign up for a policy renewal and was rejected by her former insurance company. A new insurance agent discovered that thousands of dollars had been paid to other parties because of the AOB. In addition, because the adjuster filed a water-damage claim unrelated to the hurricane, the condo owner had to search for a new carrier at a much higher rate.
Water-damage claims unrelated to hurricanes have spiked in recent years. The state, insurance companies and insurance agents have traced this increase to a host of often fraudulent water-damage claims involving lawsuits against insurance companies.
When insured owners of homes and autos suffer damages, they typically call their insurance company, an independent insurance adjuster or a vendor to get an estimate. Often claimants don’t know specifically what their policies will cover and how much a carrier will pay for specific damages.
Many people seeking property or auto insurance work with insurance agents to secure their policies, and South Florida agents report an alarming increase in AOB cases.
“AOB abuse started to appear about five to seven years ago in South Florida’s property and casualty market, and has increased significantly over the last two to three years,” said Nicole Marcus-Douma, manager and sales director of the family-owned Marcus Group in Tamarac.
“AOB kills our market. Due to public adjuster abuse, assignment of benefits abuse and excessive litigation, several underwriters are not offering new quotes for businesses (including wind coverage) in the tri-county area. Rates for homeowners are going up as well and will double down here in the next few years if nothing is done,” she said. “We need legislative change and better education for consumers.”
Marcus-Douma described a typical case where a client in Coral Springs was scammed because of an AOB. The elderly lady, who suffered from several medical problems, had water damage in her home. A public insurance adjuster promised he would handle everything and that she would “not have to blink an eye.” The adjuster hired a water restoration firm, and the client signed an AOB with the company without reading it.
The restoration firm did the work properly, but charged the client’s insurance company a fee that was more than 50 percent higher than standard rate estimates for the same job at the same property. The insurer refused to pay, so the restoration company sued the insurer — and lost. Even though the insurer eventually paid a large share of the claim, the water restoration company placed a lien on the client’s home for the amount not covered because of provisions of the AOB. The homeowner was forced to pay the difference herself, or face losing her home.
In other cases the Marcus Group has seen, a public adjuster or water restoration company convinces a homeowner to sign an AOB and make multiple, exaggerated claims due water damage.
After a legal battle, the insurer agrees to pay for what it considered exaggerated claims. “The client is happy,” Marcus-Douma said, “because they got a new kitchen and bathrooms.” But they are then forced to buy a new policy with no water coverage and/or pay double the premiums for a policy with limited coverage.
Brian Samberg, president of Boca Raton-based Southeast Insurance, said that his independent insurance agency also has seen an increase in AOB abuses.
One client homeowner suffered significant water damage and contacted his insurance company and a restoration company. The adjuster and restoration company arrived at the same time and estimated the cost of repairs. The insurance adjuster said the damage would be covered, and work would be completed in about two to three weeks. But the restoration company offered to do the job in a week. So the homeowner signed an AOB with the restoration company – which did the work properly – and paid the company half the total cost. The insurance company then paid the restoration firm the entire amount, but the client never received a refund, and lost more than $10,000 in the deal.
Both Samberg and Marcus-Douma pointed out that most restoration companies are honest and don’t need AOBs to conduct their business. And many public adjusters are reputable.
“But there are always a few bad apples,” Samberg said. Southeast works with nearly 50 insurance carriers and offers a full range of coverage to businesses and individuals.
While the AOB was originally meant to assist consumers, Marcus-Douma added, “it was not intended to allow vendors to charge two to three times the average rate for services and commit fraud. There are plenty of reputable restoration companies making tons of money without using AOBs.”
AOBs make insurance more expensive
The Florida Office of Insurance Regulation (FOIR) says that AOBs have been a part of Florida’s marketplace for decades, but loopholes “are driving up costs for homeowners across the state due to unnecessary litigation associated with certain AOB claims.”
The office noted that the state’s Department of Financial Services reported 405 AOB lawsuits statewide in 2006, with the number rising to 28,200 in 2016. The biggest share of this increase in AOB claims was related to non-hurricane water damage. In addition, the increase in water claims have led to higher premiums.
Commissioner Altmaier has told Florida legislators and the Cabinet that unless AOB abuse is controlled, consumers will continue to pay higher premiums, private insurance companies will continue to limit coverage and the insurance burden will be shifted to the state-owned insurer, Citizens Property Insurance Corp. This will not only mean higher premiums, but also a greater burden for Florida taxpayers, who cover any losses incurred by Citizens.
Altmaier pointed out that the one-way attorney fee statute “provides an extraordinary incentive for people to get into a dispute with the insurance company and inflate the claim so the company has to pay attorney fees.”
Consumer groups have also come out against AOB scams.
“Florida is the only state with this level of abuse,” Steve Pociask, president of the American Consumer Institute Center for Citizen Research in Washington, D.C., told Florida Bulldog in an email. “But give it time. Some Florida trial attorneys will figure out ways to make the ‘sue and settle’ scam work in neighboring states. It’s inconceivable that this problem has not been fixed. I think it would have, except for [Florida’s] Senate leadership, that managed to stall the bill for several years. Also, many state senators are practicing attorneys and some actually work for law firms that profit from suing insurance companies on AOB cases.”
Legislation to reform AOB abuse and eliminate “one-way” attorney fees – a key element in the mushrooming growth of AOB lawsuits – was twice approved by the Florida House of Representatives but died in the Senate.
Some attorneys believe that the statute supporting one-way legal fees may face a problem under the equal protection clause of the U.S. Constitution.
“Trial lawyers supporting lawmakers blocked reform legislation from receiving a hearing because the bills included changes to the state’s one-way attorney provision, which fuel AOB lawsuits against insurers,” said Edie Ousley, vice president of public affairs for the Florida Chamber of Commerce. The business group is actively lobbying for AOB reform.
The chamber also spearheads the Consumer Protection Coalition, which advocates reforms to end AOB abuse in Florida. The coalition’s members include insurance companies like Citizens Property Insurance Corp., contractors and others.
Opposing the proposed reforms to AOBs and one-way attorney fees are the Florida Justice Association (FJA), a group representing trial lawyers, and the Florida Association of Restoration Specialists (FLARS).
FLARS says on its website that when consumers sign an AOB, “a dispute or disagreement over payment for your claim … becomes your contractor/vendor’s problem – not yours.”
FJA representatives have asserted that the reform legislation proposed up to now and pushed by the insurance industry would damage the rights of property owners and contractors. FJA representatives said that the proposed reforms would prohibit consumers from using the AOB option, and stop small businesses from recovering attorneys’ fees when trying to obtain payments they are owed for restoration work.
Critics of the AOBs and one-way fees contend that while a minority of restoration firms and attorneys have engaged in AOB improprieties, these practices are becoming more widespread and changing the insurance sector in Florida.
“AOB abuse has become a cottage industry for some trial attorney firms and remediation contractors,” Ousely said. They often work together to get people to sign AOBs so they can inflate the scope and cost of work, then sue insurers that refuse to pay, she added. “These scammers are profiting from consumers who are paying the price in the form of higher home and auto insurance bills.”
Proponents of AOB reform will likely take up the issue again when the Florida Legislature reconvenes in 2019. But at this point, it’s not clear if any progress will be made.
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