Florida Reforms Assignment of Benefits
After years of failed efforts by Florida lawmakers to curb rampant abuse of assignment of benefits (“AOB”) applied to property insurance policies, Florida Governor Ron DeSantis is expected to soon sign into law sweeping AOB reform approved by the Florida Legislature. The new law becomes effective for AOBs executed on or after July 1, 2019.
Florida law has long permitted a policyholder the right to assign to a third-party the claim benefits of an insurance policy. Combined with Florida’s “one-way” attorney fee statute, which allows a policyholder (or an AOB) to recover its full attorney fees from the insurer for the recovery of any amount of benefits following the filing of a lawsuit, AOB litigation in Florida has become increasingly prevalent. Industry and business leaders have for many years cautioned that the permissive AOB environment in Florida has driven up insurance premiums, and is harming both businesses and consumers. Assignees such as water mitigation and roofing companies have increasingly filed lawsuits against insurers seeking inflated amounts for property damage repair or mitigation. Insurers struggled to resolve AOB disputes given the attorney fee exposure, which often dwarfs the amount in dispute.
Assignment Agreement Requirements
Florida’s new legislation creates Florida Statute § 627.7152, which defines an assignment agreement as:
any instrument by which post-loss benefits under a residential property insurance policy or commercial property insurance policy…are assigned or transferred, or acquired in any manner, in whole or in part, to or from a person providing services to protect, repair, restore, or replace property or to mitigate against further damage to the property.
Under the new law, to be valid, an assignment agreement must:
1. Be in writing and executed by and between the assignor and the assignee.
2. Contain a provision that allows the assignor to rescind the assignment agreement without a penalty or fee by submitting a written notice of rescission signed by the assignor to the assignee within 14 days after the 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.
3. Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within three business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier. Delivery of the copy of the assignment agreement to the insurer may be made:
a. By personal service, overnight delivery, or electronic transmission, with evidence of delivery in the form of a receipt or other paper or electronic acknowledgement by the insurer;
b. To the location designated for receipt of such agreements as specified in the policy.
4. Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee.
5. Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
6. Contain a specified notice in 18-point uppercase and boldfaced type advising insureds of rights they may lose upon executing the AOB.
Florida’s new AOB law further invalidates assignment agreements that contain: (1) a penalty or fee for rescission, (2) a check or mortgage processing fee, (3) a penalty or fee for cancellation of the agreement, or (4) an administrative fee. A non-compliant assignment agreement is invalid and unenforceable.
Florida’s new AOB law places the burden on the assignee to demonstrate that an insurer is not prejudiced by an assignee’s failure to maintain records, cooperate with the insurer, provide requested documents and records, or deliver a copy of the executed assignment agreement. Additionally, an assignee is required to provide the policyholder with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required. The assignee must perform the work in accordance with accepted industry standards. An assignee is also precluded from seeking payment from the assignor in excess of the applicable policy deductible, unless the insured has requested additional work to be completed at the insured’s own expense.
Conditions Precedent to Filing Suit
Under the new law, an assignee must provide the insured, insurer, and the assignor (if not the insured) with a written notice of intent to initiate litigation, at least ten days before filing suit. This notice cannot be served prior to the insurer’s determination of coverage. For its part, the insurer must respond to the AOB’s notice of intent to litigate in writing within ten business days. The insurer must respond with either a settlement offer, a demand for appraisal, or another method of alternative dispute resolution. And, if the policy requires, and the insurer requests, that the insured(s) submit to examinations under oath (“EUO”) or alternative dispute resolution methods, including appraisal, such requirements are also conditions precedent to filing suit pursuant to an AOB.
Attorney Fee Shifting Provisions
The new AOB law revises, as it pertains to AOBs, Florida’s “one-way” attorney fee statute, replacing it with a formula that encourages reasonable resolution prior to litigation:
- For the Insurer (<25%): If the difference between the judgment obtained by the assignee and the insurer’s pre-suit settlement offer is less than 25 percent of the disputed amount, the insurer is entitled to reasonable attorney’s fees.
- For the Assignee (>50%): If the difference between the judgment obtained by the assignee and the insurer’s pre-suit settlement offer is greater than 50 percent of the disputed amount, the assignee is entitled to reasonable attorney’s fees.
- For Neither (25.1% – 49.9%): If the difference between the judgment obtained by the assignee and the pre-suit settlement offer is between 25.1 and 49.9 percent of the disputed amount, then neither the assignee nor the insured is entitled to reasonable attorney’s fees.
Consumer Policy Options
Under Florida’s new AOB law, insurers as of July 1, 2019 may sell insurance policies that preclude AOBs altogether, so long as the insurer also offers an identical policy with the assignment option (which can be offered at higher cost). Insurers selling policies precluding AOB must provide a consumer protection notice attached to the notice of premium, in 18-point, uppercase and bold font that clearly explains that the policy is unassignable. This explanatory notice must also be given to the insured “at least annually.” If an insured elects the non-assignable policy, then such rejection of a fully assignable policy must be in writing or electronically.
Finally, the Florida Legislature has implemented insurer reporting requirements. Beginning on January 30, 2022, admitted Florida insurers will be required to furnish to Florida’s Office of Insurance Regulation certain specified data on each commercial and residential property insurance claim paid pursuant to an AOB. Included in the data to be furnished is specific information related to claims adjustment, settlement timeframes, trends, information about the loss adjustment expenses incurred in the process, and this data must distinguish between litigated and non-litigated claims. While these reporting requirements may place a burden on insurers, it will be a guide post for legislators going forward to evaluate the effectiveness of the AOB reform bill, and whether additional steps should be taken to combat AOB abuse.
Learning Point: Florida’s new AOB law should help curb the rampant abuse of AOB by permitting non-assignable policies, requiring assignees to bear the burden of proof on insurer prejudice and to provide pre-litigation notice to insurers and insureds, affording insurers more resolution options, and implementing a more equitably balanced attorney fee shifting provision. The new law should ultimately reduce costs for insurers and consumers alike.