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Homeowner’s Insurance

What Are Asssignments Of Benefits And How Do They Affect Homeowners?

How does Assignment of Benefits affect homeowners?  And what are the advantages to using one?

What are Assignment of Benefits

According to the Florida Department of Financial Services,

“an assignment of benefits, often referred to as an “AOB” is a legal tool that allows a third party to be paid for services performed for an insured homeowner who would normally be reimbursed by the insurance company directly after making a claim.”

Here is how AOB works and how they affect the homeowner

Let’s say that you have a pipe leak in your home.  Your homeowner’s insurance policy provides that you have a duty to mitigate the damage to your property.

So you call a plumbing company to fix the pipe leak and a water mitigation company to extract the water and dry out your home.

Instead of requiring you to pay them at the time that the services are performed, they have you sign a document assigning your right to benefits under your homeowner’s insurance policy and allowing them to bill the insurance company and have the insurance company pay them directly.

The law is clear that even when an insurance policy contains a provision barring assignment of the policy, an insured can still assign a post-loss claim.

Most of the assignment of benefits forms in use will allow the contractor to stand in the shoes of the homeowner for insurance collection purposes.

Assignments of benefits have recently become the subject of much debate

The insurance industry argues that assignments of benefits allow contractors to unilaterally set the value of a claim and demand payment for fraudulent or inflated invoices.

On the other hand,

“Contractors argue that assignments of benefits allow homeowners to hire contractors for emergency repairs immediately after a loss, particularly in situations where the homeowners cannot afford to pay the contractors up front.”

In 2015, the Florida Insurance Consumer Advocate’s Office asked the fifteen highest-writing homeowner’s insurance companies in Florida to begin tracking and reporting claims data information in an effort to determine the impact that assignments of benefits are having on Florida consumers.

In 2016, Citizen’s Property Insurance Corporation, the state’s largest property insurer, sought and was granted a 6.4% rate increase.

Citizens claimed the rate increase was made necessary by an increase in water loss claims.

During the 2016 legislative session, two bills were introduced in an effort to regulate this practice.  As Florida’s Chief Financial Officer, Jeff Atwater, recently said in his newsletter, Dollars & Sense,

“If you own a home in our great state, you’ll want to stay tuned to this conversation.”

We will, of course, be sure to keep you updated on changes in this important area of the law.  In the meantime, there are things that you can to help reduce the risk of fraud and keep homeowner’s insurance rates from rising further.

  • First, it pays to be prepared.
    • Ask friends if they can recommend a plumbing company and/or water mitigation company.
    • Check them out ahead of time so that you will know who to call in an emergency.  (See our previous blog post, “Finding a Contractor,” for helpful information on hiring and screening contractors).
  • Second, make sure that you read and understand the documents you sign and that they correctly reflect the work that was done and the equipment that was used.
  • Ask the contractor for a copy of the invoice that is being sent to the insurance company.
  • If the contractor refuses to provide one, call the insurance company and ask for a copy of the invoice they received.

By working together, we can help to make sure that legitimate claims are paid and fraudulent claims are not.

Why Should I buy Homeowner’s Insurance?

You may have read or heard stories about people who pay for insurance policies,

sometimes for years, only to have the insurance company deny their homeowner’s insurance claim and cancel their policy when they have a loss.  So you may be asking yourself why you should buy homeowner’s insurance.

Insurance is a contract in which the insurance company, for a fee referred to as a premium, agrees to pay you for damage to your home or its contents caused by events which are insured against.  The written contract is usually referred to as the “policy” and the events insured against are referred to as “risks” or “perils.”  Insurance policies may be “all risk” and cover any peril not specifically excluded by the policy, or “named peril” and cover only those risks named in the policy.  The purpose of having homeowner’s insurance is to protect you and your family from loss in the event that one of the perils insured against occurs.  The insurance contract shifts the risk of loss from you and your family to the insurance company.  Everyone benefits as long as both parties act in good faith to fulfill their duties under the policy.

For most people, their home represents their single biggest investment.  To have to bear the cost of repairing or replacing their home would be a huge financial burden.  When you factor into the equation the windstorms, hurricanes, sinkholes, water and mold damage that are so common here in Florida, and it is definitely risky to go without coverage.  If you have a mortgage (and let’s face it, very few people are able to purchase a home without taking out a mortgage), the bank or mortgage company will require that you maintain homeowner’s insurance on the property.

If you have a mortgage and fail to purchase homeowner’s insurance, the bank or mortgage company will likely purchase insurance on the property since loan contracts usually require it.  This is sometimes referred to as “force-placed” insurance.  The premiums for force-placed coverage are very expensive and you get less coverage for the money than if you shop for coverage yourself.  The bank or mortgage company will pass these higher premiums on to you in the form of higher monthly mortgage payments.  If you fail to purchase homeowner’s insurance and the bank or mortgage company purchases “force-placed” insurance, you won’t get to choose the insurance company and/or agent that you will be dealing with if you have a loss.  It is far better and more cost effective to shop for coverage yourself.

When purchasing a policy, it is best to select a company with an A+ rating with A.M. Best.  Before binding coverage, make sure you know what is and is not covered.  If you have questions, ask your insurance agent.  And in the unfortunate event that you suffer loss or damage to your property and your insurance company won’t pay your homeowner’s insurance claim, call us at (386) 454-loss for a free no-obligation evaluation of your insurance coverage dispute.