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assignment of benefits | David Graham Law

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.

Should I Repair or Replace My Roof?

The short answer is you should replace your roof. Yes, it can be argued whether to repair or replace a roof depends on the extent of the damage. Some insurance companies even say that if most of your roof is still in good shape, you may be able to repair the damaged spot.

The reality is that if your roof has been compromised as a result of windstorm or hail event then you’re only placing a Band-Aid on the problem and will likely have additional roof issues in the near future. Additionally, when there are signs the roof is wearing out, or if it is close to the end of its expected lifespan, you are always better off replacing it.

The expected lifespan of a roof can vary greatly depending upon the type of roofing material used.  If you are not sure what type of roof you have, an experienced roofer can tell you.

If your home has an older roof, you should also keep in mind that there is a trend toward insurance companies tightening their underwriting requirements in areas like Florida where they have greater than average exposure.

Some insurers are refusing to renew existing homeowner’s insurance policies on houses with roofs older than 20 years unless they pass an inspection and some insurance companies are requiring the homeowners to cover the cost of these inspections.

Policies on homes that fail inspection are not renewed without a roof replacement.  Other insurers are refusing to write new policies for homes with roofs over 20 years old and are limiting liability under the policy to actual cash value to replace older roofs when they’re damaged.

This means they don’t pay to fully replace the roof, but only reimburse for what an old roof is worth after 20-plus years.  Although replacing a roof can be expensive, you may have no choice if failing to replace the roof means that you can’t get homeowner’s insurance.  (See “Why Should I Buy Homeowner’s Insurance.”)

If you check the condition of your roof at least once a year, you should be able to plan in advance for necessary repairs.  Moisture marks or brown stains on ceilings or walls, peeling paint on the underside of roof overhangs, damp spots alongside fireplaces, or water stains on pipes venting the water heater or furnace are all signs of a leaky roof.

When you inspect your roof; signs of trouble include cracked caulk or rust spots on flashing; missing shingles or shingles that are buckling, curling, or blistering; and worn areas around chimneys, pipes, and skylights. If you find piles of grit from asphalt roof tiles in the gutters, it means that the granules on your shingles are wearing down.

Black algae stains are not just cosmetic issues, masses of moss and lichen could signal roofing that’s decayed underneath.

If you’re inspecting your roof and find signs of a problem, especially if the roof is old or you suspect the damage occurred as a result of a storm with heavy wind or hail, or a recent tornado or hurricane, it is best to get a professional assessment.

Often, there’s a level of damage beyond what you are easily able to see.  Some roofing companies do this free; specialized roof inspectors, like those who work through the National Roof Certification and Inspection Association, charge about $175.

If something sudden and unforeseen, such as a wind storm, causes a leak to appear, your homeowner’s insurance will likely cover the repairs. But you’re still responsible for limiting the damage, so try to get a local roofer to spread a tarp while you arrange for repairs. Insurance may not cover your loss if you fail to mitigate the damages so be proactive a call a roofing professional to tarp your damaged roof.