A key industry reform initiative backed by powerful insurance supporters — and opposed by trial lawyers — flopped in the state Legislature. Consequences loom large.
Another Florida Legislature session has ended, and another attempt to pass assignment of benefits reform failed.
If you've ever gone to the doctor, you're probably familiar with the concept of assignment of benefits. You sign a form that allows your health-care provider to work directly with your insurance company to secure compensation for their work. It's a practice that tends to work pretty smoothly.
But AOB agreements are being used more often in property insurance in Florida, and things aren't working quite as well. In this case, third-party contractors — predominantly working in water remediation and sometimes roofing — get homeowners to sign a document assigning the benefits of their insurance policy over to the vendor. This gives the vendor the right to deal directly with the insurance company on the claim.
It also gives them the benefits of Florida's one-way attorney fee statute, which the insurance industry officials say was intended to protect consumers, not contractors. Under that statute, if a homeowner takes his or her insurance company to court over a claim and the homeowner wins, the insurance company must pay the policyholder's attorney fees, even if the claim amount disputed was just $1 more.
“It helps the little guy stand up to the big guy and levels the playing field,” says Don Matz, president of Tower Hill Insurance, Florida's largest homeowners' insurer. “But when an AOB is signed, the contractor gets to stand in the shoes of the insured, and the one-way statute carries over to them. And that was never designed to be a business-to-business arrangement.”
Because of this, AOB lawsuits are on the rise. Florida Chief Financial Officer Jeff Atwater said there were 405 AOB lawsuits across all 67 counties in 2006. In 2016, there were 28,200.
The frequency of water-damage claims in general has increased by 46% since 2010, according to the Florida Office of Insurance Regulation's 2016 Data Call Study, and the severity of those claims has increased by 28%. It also found that claims with an AOB clause tend to have a much higher severity.
“What's happened with these third-party vendors and the attorneys that represent them is they've taken advantage of this provision,” says William Large, president of the Florida Justice Reform Institute, a nonprofit civil justice reform organization. “So many times the claims are three- or fourfold greater than the market price. The benefit [of the one-way attorney fee statute] is meant for the insured, the Davids of the world. It's not meant for the Goliaths of a third-party corporate vendor working with an attorney.”
While a lot of the controversial use of AOBs happens in South Florida, it's an issue that goes statewide. The rise in AOB lawsuits has led insurers to request rate increases, and some private insurance companies are pulling back on their willingness to write policies. That means homeowners will have less choice when it comes to property insurance and be forced to pay more for it, which could impact people's ability to secure mortgages and buy homes.
“This is only just now starting to come to a head,” says Kelly Overcash, private risk division manager at Lykes Insurance Inc., which has offices in Tampa, Sarasota, Fort Myers and Winter Park. “A lot of companies have said they can't write new policies because of the abuse. It's a house of cards.”
Close the loophole
The insurance industry has lobbied to push bills through the Legislature to curb alleged abusive practices related to AOBs for a few years. Trial attorneys have fought back to prevent limitations.
Insurers got fairly close this year with the House passage of HB 1421. That would have created a graduated scale to determine whether attorney fees would be paid by insurers based on the dollar amount in controversy awarded to the plaintiff, with the goal of making lawsuits less lucrative and therefore less appealing.
But nothing made it through the Senate.
“Florida's hardworking families should remember this - the Florida Senate chose to side with anti-consumer special interests, instead of stepping up and protecting consumers from an AOB loophole that has attracted plaintiffs' attorneys like gold rush miners,” says Edie Ousley, a spokeswoman for the Florida Chamber of Commerce, one of the leading groups that pushed AOB reform.
In the past, the insurance industry fought similar battles centered on practices it considered abusive related to issues like mold and sinkholes. In those cases, either legislation was passed or limitations were placed on insurance claim amounts, and the problems largely went away. AOBs, in the industry's mind, are just the latest moneymaking scheme.
“Attorneys started getting involved in AOBs after the 2004-2005 storm seasons,” says Charles “Dick” Tutwiler, president of Tampa-based Tutwiler & Associates Public Adjusters. “All this big business dried up, and it was a great opportunity for them to continue to sue insurance companies. They file a lawsuit, then it becomes an issue of intimidation.”
Homeowners' insurance policies tend to require that the policyholder show proof of a loss and give their insurance company time to come in and inspect it. Michael Peltier, a spokesman for Citizens Property Insurance Corp., says courts have been ruling that those requirements don't transfer over to AOB assignees.
“They're not required to provide the same amount of information to the insurance company as the homeowners themselves,” he says. “From a strategic standpoint, if I'm going to file a lawsuit, I would rather do it through the contractor than the homeowner, because the burden of proof is less burdensome.”
Settling becomes the lesser of two evils. “The average claim that is litigated runs about three times higher than a nonlitigated claim,” says Peltier. “Oftentimes you will simply settle the case, even if you still have to pay the one-way attorney fees. If you continue on, those fees rack up, so it's less expensive to settle.”
Companies and individuals in the water-remediation industry — and the attorneys who defend them — argue AOBs, and in many cases the lawsuits that tend to result from them, are necessary to ensure they get paid at an amount commensurate with their work.
“If I don't bring suit, [the insurance companies] can push me off for six months,” says Florida Association of Restoration Specialists President Jeff Grant. “They won't move fast enough to send an adjuster out to inspect the property. They don't want us to remove things either, but then when mold is growing they want to deny that portion of the claim.”
New Port Richey attorney Dean Makris, who represents vendors and homeowners in lawsuits against insurers, says he's seen similar delays and underpayments. “That's really the issue why there's litigation,” he says. “It's not so much that AOBs are out there, it's more so that insurance companies are delaying or underpaying those claims.”
When insurers refuse to pay expenses based on industry standards, Grant says he faces the equivalent of career suicide. “The insurers either have to pay what's asked or leave it so that I have to sue the client,” he says. “And if I go around suing my clients because their insurance company didn't pay, I'm not going to be in business long.”
Grant sees the push for legislation as a way for insurance companies to hold on to more money. “It's just about how much greed,” he says.
Makris says if the House bill became law, it would have been “devastating,” because the freedom to use AOBs is vital for third-party vendors. “It would have crippled if not killed the industry,” he says. “These repair companies might not have been in business anymore.”
The insurance industry feels differently. “Contractors don't necessarily only do insurance-related work,” says Logan McFaddin, Southeast regional manager for the Property Casualty Insurers Association of America. “If you're a contractor and someone wants a new roof, you don't make them sign an AOB and you're still able to get paid. I think it doesn't really ring true that they can't get paid [without an AOB]. I've seen testimony from a lot of vendors who say they don't use AOBs and they don't have any problem getting paid.”
Insurers also don't feel AOBs need to totally go away. “We do not oppose the AOB practice,” says Peltier. “It's a homeowner's right to decide they want someone else to take care of the problem for them. What our concern is, is that the law is being twisted by folks for whom it was never intended to benefit.”
Makris agrees — to a point — that some kind of regulation would be OK. “There should be some checks and balances put in place so repair companies can't operate without any discretion,” he says. “It may be a good thing to have some more regulation here. I think it just needs to be fair, and what we had [in HB 1421] was not fair at all.”
Citizens Property Insurance Corp., the state's insurer of last resort, has been especially impacted by Assignment of Benefits claims and litigation. It posted a $27.1 million net loss for 2016 — its first loss since 2005 and a loss that occurred in a year with minimal storm damage. Citizens officials attribute that loss to increases in AOBs and the percentage of non-weather-related water claims that move to litigation.
Also, a total of 8,097 new lawsuits were filed against Citizens between January and November 2016, a 30% increase from the same period in 2015. And while less than 15% of water-related claims resulted in litigation in 2011, nearly 50% did so in 2016. Those increases occurred even though Citizens' policy count dropped 26.3% between January 2015 and November 2016.