AOB Law Brings Balance To Property Insurance Market
Gov. Ron DeSantis in May signed Florida House Bill 7065 to address assignment of benefits (AOB) abuse. The intent of the new law, eff ective July 1, was to stem the proliferation of insurance claims and frivolous lawsuits related to inflated or unnecessary damage claims.
While the 10 years following the active 2005 and 2006 Atlantic hurricane seasons saw minimal hurricane activity in Florida, the average insurance premiums rose more than 30% statewide.
The rise was attributed in part to AOB-related lawsuits, which spiked from 1,300 to more than 153,000 between 2000-2018.
Here’s how AOB abuse works. A policy holder suffers a legitimate event, like a water or plumbing leak. The insured calls a contractor, whose agreement would include an AOB clause allowing them to submit directly to the insurance provider claims that often were inflated or included unnecessary work.
The insurance provider denies the claim, as expected by the contractor. Then an attorney, often working with the contractor, files a lawsuit seeking payment. In a quirk of existing Florida law, a “one-way street” allowed the claimant attorney to collect fees, despite recovering much less than the claimed amount. Yet, if the insurance provider prevailed, they could not seek attorney’s fees.
The new law does not eliminate AOB. Instead, it seeks to stem AOB abuse by bringing significant disincentives to filing frivolous litigation, including:
- Eliminating that “one-way street” for attorney’s fees for AOB claims.
- Providing a cooling-off period for policy holders who assign benefits, often under the duress of an emergency situation, to reconsider their options.
- Allowing for the insurance provider to request an examination regarding the repairs or costs being sought and requiring the contractor to participate in appraisal or other alternative dispute resolution methods.
- Prohibiting contractors and subcontractors in an AOB arrangement from seeking remedy from the policy holder beyond the value of the deductible. Contractors cannot sue the property owner or lien the property itself.
The law also allows insurance companies to restrict AOBs, but only if the companies also offer unrestricted policy options. The restricted polices must be lower-priced policies.
AOB still has its place with trusted, reliable contractors for certain damage claims. However, new consumer protections may now curtail unscrupulous contractors and attorneys whose abuse of AOB raised costs for all.
John M. Mullin and Jerry D. Tamayo are directors with Tripp Scott in Fort Lauderdale. Mullin is a litigator with 31 years’ experience representing business owners in commercial disputes, including insurance coverage litigation. Tamayo specializes in construction and commercial litigation, representing owners and contractors in insurance matters and AOB claims.