The current trend in the ever-growing number of first party property insurance cases filed in Florida is the proliferation of lawsuits by water mitigation companies, plumbers, roofing companies and other contractors, including most recently mold testing companies, who claim the right to sue on an insured’s policy based on an assignment of benefits (AOB) by the insured. In such cases, the insured assigns his rights and benefits under the policy in exchange for repairs to his home following an alleged loss. Contractors obtaining AOBs from the homeowner then seek payment directly from the insurer for benefits under the policy. Where the insurer takes the position that the loss is not covered or that the amount at issue is not reasonable contractors have filed suit, claiming the right to maintain the action based on the AOB. In many cases, homeowners also file suit against the insurer for damages for the alleged loss, resulting in multiple filings by multiple parties arising from the same event.
Proponents of the AOB practice argue that it is “consumer-friendly,” in that in many of these cases, the homeowner contacts the contractor before a claim is even reported to the insurer, and the contractor agrees to accept payment from the insurance company rather than an up-front payment by the homeowner. However, unscrupulous contractors have exploited the situation by presenting exaggerated and/or fraudulent invoices to the insurer grossly inflating the value of the claim and protracting the insurer’s claim investigation. Indeed, the Florida Office of Insurance Regulation (OIR) estimates, by some accounts, that this practice is driving up homeowners insurance rates 17 percent annually. Insurers have been attempting to combat such practices on both regulatory and claims litigation fronts as well as continuing to press for legislative relief, where there presently are three AOB bills pending.
On the regulatory front, insurers have made filings with the OIR proposing certain changes to their policy forms in an attempt to stop this practice. The OIR, however, has been less than receptive. In Security First Ins. Co. v. State of Florida Office of Insurance Regulation, No. 1D14-1864 (Fla. 1st Dist. Ct. App., filed Apr. 25, 2014), Florida’s First District Court of Appeal will consider Security First’s challenge to the OIR’s denial of certain amendments to its policy form which sought to strengthen the company’s anti-assignment clause. The OIR disapproved the proposal based on the agency’s interpretation of applicable Florida law. Security First appealed, relying on Florida Statutes §627.422 and §627.414, which provide that the terms of a policy determine its assignability and may contain additional provisions not inconsistent with or prohibited by law. Security First further argues in support of its position that case law upholds an insurer’s right to restrict the assignability of a policy and Florida’s strong public policy favors freedom of contract and the right to protect against unbargained-for risks. The case has been fully briefed and remains pending before the court.
On the claims litigation front, Florida’s Fourth District Court of Appeal is scheduled to hear oral arguments on March 24, 2015, in a consolidated action arising from three appeals of lower courts’ dismissals of three separate AOB actions based on lack of standing: Emergency Services 24, Inc., a/a/o Meiselman v. United Property & Casualty Ins. Co., No. 4D14-576 (Fla. 4th Dist. Ct. App., filed Feb. 14, 2014); ASAP Restoration & Construction, Inc., a/a/o Casey v. Tower Hill Signature Ins. Co., No. 4D13-4174 (Fla. 4th Dist. Ct. App., filed Nov. 8, 2013); and One Call Property Services, Inc., a/a/o William Hughes v. Security First Ins. Co., No. 4D14-424 (Fla. 4th Dist. Ct. App., filed Jan. 31, 2014).
The consolidated action addresses the validity and enforceability of AOBs where water mitigation companies required the insureds to execute an AOB prior to performing work at their properties. The vendors then filed breach of contract actions against the insurers for failing to pay their demands. The insurers successfully challenged the validity of the AOBs as violative of the express terms of their policies, obtaining a dismissal in the Casey and the Hughes actions and summary judgment in the Meiselman action. In rejecting the contractors’ claims, the lower courts held that post-loss property benefits are not as freely assignable as other policy benefits. The courts opined that the anti-assignment clauses which were contained in the policies would not restrain the policyholders’ ability to assign benefits that are due and owing, but that they would prevent the assignment of possible future benefits when the duties and obligations of the insured still were required in order for a determination of benefits to be made. The related issue whether the policies’ “Loss Payment” provisions impose an affirmative duty on the insured to adjust the loss with his insurer, as opposed to assigning the duty to a third party, is also before the court for consideration.
Thus, the issues of when and under what circumstances a policyholder may make an assignment of benefits of his property insurance currently are in the hands of the courts. The decisions will guide the OIR, insurers, policyholders and contractors and the way they do business, unless the legislature finally enters the fray.