Industry alarms are sounding as more and more contractors and loss remediation entities, emergency water extraction companies and the like, exploit “assignment of benefits” to take control of homeowner’s claims–usurping rights to negotiate and adjust the loss, then threatening to sue the insurer to force payment of inflated bills.
Consistent with Florida’s curse, this scam not only has links to lawyers and public adjusters, it’s a major cost driver and frighteningly fertile ground for even more fraud!
The purpose of this blog is to introduce those who care about lowering insurance costs (lawmakers, lobbyist’s, consumer advocates, the media, etc) to this problem, along with minimum empirical, legal and regulatory background to facilitate the finding of a cure and the passage of needed legislation containing language like that found in HB-909 by Representative Wood. Keep reading!
Assignment of Benefits (AOB) originated in medical billing, migrated to PIP and now is a cottage industry intimidating far too many unwitting homeowner’s into “assigning” away their rights along with the proceeds of their policies. It started as a litigation for profit scheme stemming from “fee shifting” statutes, (those requiring the loser in a lawsuit to pay the winner’s costs) and from court decisions removing the obligation for assignee’s to comply with the policy provisions. (See NOTE#1 below)
EXAMPLE: A cracked water pipe floods a home. A plumber fixes the leak and refers the homeowner to a water extraction company. The extraction company assures the homeowner it’s there to help, but says…
“please sign here for authorization and [by the way] to also give us the proceeds of your insurance policy as payment…otherwise we can’t begin work.”
Similar to sinkhole alley intimidation by “some” public adjusters, the mitigation company promises to take care of everything including billing the insurer directly but, instead of the house being swallowed up, the homeowner is reminded that…
… “every minute you delay dangerous and highly toxic mold is growing!”
With the insured’s signature, the extraction company moves quickly usually destroying any window of opportunity for the insurer to inspect damage or collect evidence. The insurer is billed $20,000 but knows extractions for a comparable 1500 sq. ft. house typically run about $3,500. It attempts to negotiate. The mitigation company gives ten day notice and files suit for breach of contract; usually threatening to put a lien on the insured’s property, maybe even to foreclose.
If the carrier defends it’s subject to extraordinary attorney fees and court costs, and possibly litigation for contributing to a lien or foreclosure. And so…the insurer pays and so does everyone else with higher premiums!
Boy do we pay!
One carrier reports an average of ten AOB notices a month; virtually all for water damage. While water claims subject to AOB average $20,300, similar claims without AOB are only around $6,000.
A 300% difference for the same work!
Assuming just half of the AOB claims are inflated, it’s a monthly cost increase of $71,500 or $858,000 annually. If, as many contend, all AOB claims are inflated, it’s could be an additional annual cost of $1.7 million…for just one insurer!
And, it’s rapidly getting worse!
Another company said, for example, that in 2010 it had less than 30 AOB’s accompanying water claims. In 2011 it had 120 and in 2012, over 400. A 1,300% increase in just two years!
Of course, just like with trial lawyers and public adjusters, there are a “dirty dozen” or so extraction companies more involved than the rest. You can bet insurer claim departments have a list. I’ve seen it. They know the real culprits are folks like “Emergency Services 24” pursued last year by DFS. The investigation resulted in a Consent Decree but, in my opinion, not nearly enough punishment to deter others from similar behavior . (See NOTE #2 below).
After a public records request of Citizens, whose highest frequency of loss is water damage claims, I learned that, like way too many private insurer’s, they don’t keep track of AOB’s or check for links with public adjusters and trial attorneys. Like many insurers they may not even recognize a fraudulent billing or think that an unusually high “up charge” constitutes fraud, thus it doesn’t get reported to authorities further frustrating the search for a cure.
But, make no mistake–this is fraud, insidious and costly. (See NOTE#3 below).
And, uniquely, AOB fraud doesn’t result in more dollars for the claimant. Outside the scammer and those in cahoots, everybody loses.
Solutions? Increased and mandatory criminal penalties could help. Citizens and private insurers can begin keeping tabs on abusers and diligently reporting to the regulator. State fraud investigators can focus on AOB’s. The OIR can expedite approval of new P&C forms allowing insurer’s to exercise statutory rights similar to those provided under Fs-627.422; Assignment of Policies. (See NOTE #4 below).
All well and good but, in the end…
… lawmakers need to recognize the rapidly expanding AOB fraud problem, gather facts, determine culpability, and…put a stop to the shenanigans by implementing the provisions of HB-909. (see NOTES #5 and #6 below)
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NOTE #1: despite contract wording, Florida courts view assigning contractual rights, including the right to payment, as an “important commercial mechanism to facilitate transactions and to secure the payment of obligations….” Shaw v. State Farm Fire and Casualty Company, 37 So. 3d 329 (Fla. 5th DCA 2010).
An ”assignment” is a transfer of all the interests and rights to the thing assigned.” Price v. RLI Ins. Co., 914 So. 2d 1010, 1013 (Fla. 5th DCA 2005).
A creditor on an account may assign the right to receive payment on that account. Boulevard Nat. Bank of Miami v. Air Metal Indus., Inc., 176 So. 2d 94, 97 (Fla. 1965). Such assignment may be accomplished in a variety of ways as long as the method “demonstrate[s] an intent to transfer and an acceptance of it.” Id. at 98.
NOTE #2: September 5, 2012, a consent order was entered for Emergency Services 24, Inc. with a $50,000 penalty if it didn’t cease and desist from the following acts:
- Entering into an agreement, or contract, proposal, or similar document, with clients that grant Emergency Services 24 authority over the client’s insurance claim or insurance related matters.
- Using the following, or similar phrases on websites and advertisements: “We represent you, the consumer, and handle the insurance claims and adjusters on your behalf.”
- Routinely requesting from the insurer a copy of the insured’s policy, declaration page stating policy limits, and a statement of policy or coverage defense available to the insurer.
- Advertising, acting, or holding themselves out as, a public adjuster.
- Preparing, completing, or filing insurance claim forms, initiating settlement negotiations for loss or damage covered by an insurance contract or engaging in claims handling.
NOTE #3: Fla. Stat. 817.234 defines insurance fraud as an intentionally false statement that is presented in support of a claim for payment of insurance proceeds. A false statement under that statute includes contracts and invoices that contain false information. An exaggerated invoice is a false statement. An assignment that violates a statute is illegal and unenforceable; so equivalent of a false statement.
NOTE #4: One recent carrier filing contained the following–“Assignment of Claim Benefits; No assignment of claim benefits, regardless of whether made before loss or after loss, shall be valid without the written consent of all “insureds”, all additional insureds and all mortgagee(s) named in this policy.”
NOTE #5: Not only did she advise on this post but, attorney Kim Salmon is an expert on Assignment of Benefits and willing to assist in fixing the growing problems. Those similarly inclined can contact her at: Groelle & Salmon, Attorneys at Law, Waterford Plaza, 7650 Courtney Campbell Causeway, Tampa, 33607. Telephone; 813-849-7200. Internet: www.gspalaw.com.
NOTE #6: HB-909 amends Fs 627.422 to read: “Any homeowner’s insurance policy may prohibit the assignment of rights or benefits under the policy, and a third- party beneficiary may not accept an assignment or recover against any policy that prohibits assignment. Any assignment of rights or benefits under a homeowner’s insurance policy that prohibits assignment renders the coverage void.”
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One of the positive benefits of an AOB relationship is that the honest contractor does not get defrauded by their client, or unscrupulous insures/adjusters. All too often insurers/adjusters try to avoid paying legitimate business costs after a project is complete, by blatant deceptive business practices.
The AOB leverage somewhat helps to protect a contractor from being taken advantage of financially after a project is complete, and truly justifiable final costs are owed for. Contractors that inflate costs on the fly are just as bad as insurers/adjusters that deny and delay paying actual costs.
It is a nationwide problem that is growing exponentially worse, and creates illegal windfall for carriers, by their adjusters, at the expense of contractors livelihood and consumer confidence..
Thanks for the comments, and…I agree there is enough blame to go around.
But, let’s not deflect from the issue by pointing to the grievances you (and I) may have with the behavior of others; such as insurance company adjusters. Any bad behavior on their part, or on the part of a carrier, however grievous it may be, is not only regulated by the state and subject to tort actions, but is the subject of another blog; such as the one I just posted dealing with UPCIC’s unfortunate behavior.
This blog, on the other hand, is about what some some contractors and loss remediation specialists are doing. The insurance mechanism is not about helping another industry police it’s ranks. It’s about paying for a non-artificially inflated loss in order to put someone in the position they were in prior to the loss. Honest contractors, such as yourself must develop methodologies (which frankly you already have) to insure payment for the work you do.
I dare say, that if insurers were preventing any assignment of benefits you would either have already done so or learned to select your clients more carefully. In the end, eliminating and AOB, at the election of the insurer and it’s policy provisions, would prevent the behavior in question and leave only the honest folks like you able to stay in business…as it should be.
Again, and sincerely, thanks for the observations.
Scott