In July of 2019, Florida’s new assignment of benefits law went into effect and is applicable to residential and commercial property insurance policies. [Fla.Stat. 627.7152(1)(b)] The new law has something for everyone: insurer, insured persons or entities (typically home and property owners) and benefits assignees (typically contractors or others providing services to protect, repair, restore, or replace property or to mitigate against further damage).
Before discussing the new law, it is important to understand what an assignment of benefits is and how it works. An assignment of benefits (“AOB”) is a contractual agreement between a property owner and a contractor after the property has suffered an insured loss whereby the contractor agrees to perform necessary repair work and seek payment directly from the insurer. The principal benefits of the AOB are the reduction or elimination of the requirement for the property owner to make up front payment for the work (other than the deductible) and then seek reimbursement from the insurer. Also, the AOB protocol usually reduces, if not eliminates, the property owner’s need to interact with the insurance company, as the construction company takes over the role and works to come to an agreement with the insurance company (ostensibly on the property owners behalf) on the proper scope of work and the appropriate payment therefore.
So what could possibly go wrong? Often times nothing. The work is done, the property is repaired, the contractor is paid, and everyone is happy. Many contractors believe the AOB mechanism is an important option for property owners to get critical repairs done while waiting for the insurer to settle their claim without having to make payments up front.
However, things can and do go wrong. Problems arise when homeowners sign assignment of benefit agreements and work is not completed in a timely manner. Homeowners can face difficulties getting contractors to address issues of incomplete or improper work, especially if the contractor has already submitted the claim to the insurer and received payment under the assignment of benefits agreement.
Contractors can also face challenges if the insurer does not want to honor the AOB. Insurers are sometimes reluctant to communicate with a contractor directly, insisting that everything go through the owner. Contractors may also face difficulties if the needed work turns out to be more involved and/or more expensive than first estimated.
Florida’s new AOB law attempts to address these issues and more. Insurers can now issue policies prohibiting the use of AOBs altogether. [Fla. Stat. 627.7153(2)] However, insurers are required to also offer policies providing the same coverage without the AOB prohibition. Policies prohibiting AOBs must be offered a lower price than those which do not.
Under the new law, property owners have the right to rescind an AOB without penalty within 14 days after execution of the agreement, at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property. [Fla.Stat. 627.7152(2)(a)2] Property owners are protected against claims for payment by the contractor except for any deductible due under the policy, any betterment to the property that is approved by the owner, and any contracted work performed before the AOB is rescinded. Property owners also get the protection of a warning which must be in every assignment of benefits agreement in 18 point, uppercase, boldface type, warning the owner “YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS … .” [Fla.Stat. 627.7152(2)(a)6]
What do the assignees of this new law get? They get a long list of requirements which, if not met, make the AOB unenforceable. The written agreement must contain certain provisions including: i) the right to rescind; ii) a requirement for the assignee to provide a copy of the agreement to the insured within 3 business days of execution; iii) an itemized cost estimate of the services to be performed; iv) the AOB must only relate to work that protects, repairs, restores, or replaces a dwelling or structure or that mitigates against further damage to the property; and v) contain the warning cited above. (CITE TO THE SPECIFIC SECTION WITH HYPERLINK) Additionally, a contractor or other assignee must indemnify the assignor (property owner) from all liabilities should the policy subject to the AOB prohibit the assignment of benefits. [Fla.Stat. 627.7152(2)(a)1-6]
Whether you are a contractor concerned about your AOB being enforceable in a dispute with an insurer or insured or if you are a property owner having difficulty getting satisfactory performance from a contractor to whom you have assigned your benefits, Boatman Ricci is here to help. Contact us today to schedule an initial consultation at (239) 330-1494.
Part two of this blog will address the requirements and procedures under the new AOB law for when disputes arise.
By: Joseph A. Bare Esq
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