An Assignment of Benefits (or AOB) transfers the rights or benefits under an insurance claim from the property owner to a third party, often a contractor. Health and life insurance policies have used AOBs for years, and these agreements are becoming more common in homeowner’s insurance claims.
An AOB can help you, the homeowner or commercial property owner, get work done quickly and efficiently by allowing a third party to file a claim, make repair decisions, and get paid directly from the insurer without involving you, the policyholder.
Signing an AOB can be helpful, but if a contractor misuses it, it can cause significant headaches for the homeowner. That’s why it is crucial to understand what an Assignment of Benefits is, how you can use it, and how to protect yourself from fraud or misuse.
What Is an Assignment of Benefits?
An Assignment of Benefits in a Florida property damage claim is a legally binding agreement transferring specific rights or benefits from your insurance policy to a third party. This third party is typically a contractor or restoration company handling a home’s repairs. The Assignment of Benefits (or AOB) gives the third-party contractor the authority to make repair decisions, file property damage claims, and receive insurance payments without the homeowner’s involvement or approval for each task.
To be valid and enforceable, the Assignment of Benefits must include an itemized cost estimate of services the contractor will perform in exchange for the benefit received. The contractor’s services must be directly related to repairs, restoration, replacement, and protection of the property or portions of the structure.
An Assignment of Benefits should also protect the homeowner from any liability or losses involved with the repairs and prohibit the contractor from requesting additional costs from the homeowner beyond what their deductible would be under the policy. Florida also prohibits contractors or other assignees from charging administrative fees, processing fees, cancellation fees, or mortgage processing fees.
Florida’s Assignment of Benefits law requires that a valid Assignment of Benefits include specific language including:
- The insured agrees that they are giving up certain rights under a policy to a third party;
- The insured can cancel the agreement within 14 days after they sign it;
- The insured can cancel the agreement at least 30 days after the work start date if work has not been substantially performed (although they are responsible for costs incurred within those 30 days);
- The agreement does not relieve the insured of their obligation to perform post-loss duties under their insurance policy.
An Assignment of Benefits that does not include the provisions required under Florida Statutes Sec. 627.7152 is invalid and unenforceable. Thus, any party entering into an Assignment of Benefits agreement should carefully review the agreement, preferably with the assistance of a Florida property damage attorney knowledgeable in this area.
Why Assign Benefits to a Third-Party Contractor?
Signing away specific rights will be legally binding, so it’s crucial to understand what you’ve agreed to. In an Assignment of Benefits for property damage claims, the insured gives up their entitlement to some or all of an insurance payout. So what are the benefits of signing an Assignment of Benefits?
An Assignment of Benefits is practical for both the insured and the contractor. Say a severe storm or another unexpected disaster damaged your property. In many instances, you must make repairs quickly to make the home liveable again and satisfy your insurance policy’s requirements.
Once the claims process begins, you must follow strict post-loss obligations under your insurance policy. These include duties to mitigate and repair damage to prevent conditions from worsening.
Examples of insurance required mitigation include:
- Stopping water leaks and fixing burst pipes
- Drying wet areas to prevent mold contamination
- Fixing or replacing broken windows to protect a home’s interior from weather elements and other risks
- Repairing damaged electrical wiring
- Removing debris from the home and walkways
- Repairing holes in roofs to protect the home from weather elements
Failure to take measures to prevent additional damage can give your insurer grounds to reduce or deny your claim entirely. It makes sense, of course, and any homeowner would want to take these steps to protect their home and ensure it is liveable.
Immediate repairs are crucial, but these issues could put you in a tough spot financially. How can you pay a contractor to make repairs immediately when an insurance settlement could be weeks or months away?
That’s where the Assignment of Benefits comes in. Through this agreement, contractors can get to work knowing payment is coming, and you won’t have to pay out of your own pocket upfront. Not every homeowner can afford to shell out hundreds or thousands of dollars immediately after an incident to cover urgent repair work. In principle, this is a “win-win” for both sides. This generally works from the insurer’s perspective as well, since repairs made sooner will likely minimize the overall cost of the claim.
In the early stages of a claim, the homeowner must not allow a third party, such as a roofing service, water remediation firm, or another contractor, to contact the insurance company directly. The insured should always be first to contact the insurance company when something happens, or they are considering immediate repairs. Additionally, a homeowner is not required to sign an AOB agreement to get their claim processed or have repairs undertaken.
What Is an Anti-Assignment Clause in an Insurance Policy?
Some insurers might seek to prevent assignments of benefits at either the pre-loss or post-loss stage. Anti-assignment clauses are provisions within a policy requiring the insurer’s consent to an assignment or transfer of rights under the policy.
Under freedom-to-contract principles, parties to a contract have a legal right to know who they are contracting with and who they must pay. When one party trades off or assigns their rights and responsibilities to another entity, the opposite party (in these cases, the insurance company) has lost control over who they’ve contracted with. This type of occurrence is typically discouraged by courts.
However, when an assignment occurs after the property loss, the insurer’s obligations are already triggered by a covered loss under the policy. At that point, an insurer must honor an Assignment of Benefits, and courts will tend to side with the insureds and the third-party contractors involved.
Tips for Homeowners to Remember When Reporting a Claim and Considering an Assignment of Benefits
When filing a claim and considering signing an AOB agreement, keep the following tips in mind:
- A homeowner should review their insurance policy before and after any loss occurs. It is crucial to understand your coverage terms—including what their policy does and doesn’t cover—and any deductibles involved. The policy will also specify the insured’s post-loss responsibilities and duties to mitigate damages. Property owners should also review whether the policy forbids or restricts an Assignment of Benefits—particularly a post-loss AOB.
- Be sure to document and photograph all damage before any repair work has begun. This gives the insurer a clearer understanding of the damage and repair costs. It can also help contractors generate urgent repair estimates.
- Verify the license status and reviews for any contractors you are considering hiring for a repair job. Before assigning any of your contractual rights to a third party, you want to ensure they are trustworthy and capable of performing the work. An experienced contractor will also carry their own insurance in the event of any accidents or additional damage while performing the work.
- Carefully review all Assignment of Benefits contract terms before signing on the dotted line. If there are sections or terms you are uncomfortable with or unsure about, you have the right to negotiate those terms. Again, this is where a property insurance lawyer could provide valuable guidance that could save you time, money, and hassle in the long run.
- Be wary of high-pressure tactics from contractors. Ideally, the agreement to an Assignment of Benefits will give both sides time to review the terms and sign the contract. In reality, contractors might pressure a vulnerable homeowner into signing something on the spot that they don’t fully understand. When pipes are leaking, or rain is dripping through a faulty roof, it is easy for a property owner to sign a contract under duress just to fix the problem at hand. However, an agreement under pressure can become a costly mistake for a homeowner.
Pros and Cons of an Assignment of Benefits in a Property Damage Claim
Overall, it is crucial to consider the pros and cons when an Assignment of Benefits is an option.
The pros include:
- Faster repairs with less out-of-pocket cost. An AOB arrangement allows contractors to get started on the job sooner, knowing the insurance company will pay them directly. Meanwhile, the homeowner is not left scrambling to cover the costs needed to fix critical plumbing, electrical, or other home issues.
- A streamlined process. The AOB hands off certain rights and responsibilities that a homeowner typically has to deal with. The assignee under an AOB contract handles a larger share of the dirty work involved with insurance billing and claims.
- Less negotiation with insurers. The third-party contractor becomes responsible for more of the negotiation and logistics involved with the claim when they agree to an Assignment of Benefits.
The cons include:
- Potential for fraud and scams. Unfortunately, not every contractor plays fair, and some can be downright fraudulent. Some will exploit homeowners desperate to fix a problem and coerce them into signing an Assignment of Benefits that helps the contractor but not the property owner. Contractors might also inflate their claims to the insurance company and cause other problems that lead to denied claims or increased insurance premiums.
- Potential for litigation. Assigning rights through an AOB also means signing away rights to sue an insurer. Some contractors will take this step when disputes arise and can do so without consulting you since you signed away the legal right to sue. Litigation between a contractor and your insurer can create potential issues with your policy, including raised insurance premiums down the line.
Why You Should Hire a Property Damage Attorney in Your Area
When dealing with damaged property, you might face numerous roadblocks when trying to recover what your insurance policy owes you. The odds might seem stacked against you if contractors and insurers continually insist that you pay for repairs they should cover.
At every stage of this process, it helps to have an experienced property damage attorney at your side to review the issues and any contractual terms involved. Legal assistance could save you money in the long run by avoiding costly mistakes. Contact Dolman Law Group for a free consultation today.