Clock Runs Out on Florida Legislature to Help Protect Homeowners from Out-of-Control Contractors and Plaintiff Lawyers in Assignment of Benefits (AOB) Claims
Florida Property & Casualty Association sees booming AOB water damage claims placing additional pressure on Florida insurances rates
Apr 17, 2015, 12:14 ET
TALLAHASSEE, Fla., April 17, 2015 /PRNewswire/ -- Earlier this week, the legislature failed to advance legislation that could fix a looming insurance crisis organized and carried out by unscrupulous vendors and lawyers in what has developed into a rapidly growing lawsuit-for-profit scheme.
SB 1064 and HB 669 were filed to protect Florida homeowners and prevent future rate increases that will likely result from the out-of-control spread of these so-called assignment of benefits lawsuits. Here's how it works: Homeowners are being told to sign away their insurance benefits as a pre-condition to any emergency repairs being performed, as in the case with a broken water pipe.
"We're seeing vendors and lawyers working together to extract excessive fees from the homeowners insurer, to their detriment," said William Stander, executive director of the Florida Property & Casualty Association (FPCA), a group made up of 15 Florida-based homeowners insurers. "Some law firms are even holding seminars to teach vendors how to participate in the lucrative scheme."
So why are cleanup, repair and mitigation costs doubling and tripling compared to two years ago? Why are vendors suddenly insisting they cannot perform work without an assignment of benefits? And why are lawsuits tied to these assignments popping up like weeds and multiplying 5-fold? Because vendors and their lawyers have stumbled on a new way to rip off homeowners and their insurers.
Here's a detailed explanation of a typical AOB claim:
1.) Water loss may or may not be legitimate;
2.) Public adjustor or homeowner gets an emergency mitigation service (EMS) company to the house (insurer often last on scene);
3.) They typically remove baseboards, tear out carpet, drill kick plates of cabinets for venting etc.;
4.) Insured signs an AOB and the dry out begins;
5.) Bills and AOB then sent to the carrier;
6.) If reasonable and no red flags it is paid (if a covered loss);
7.) If unreasonable or red flags, a comparative estimate is done and the carrier's amount is paid;
8.) The EMS company calls insurer and requests further payments or asks why their bill was reduced;
9.) Negotiations are attempted, but more often than not the gap is too large to close (but not always);
10.) There are a select group of law firms representing vendors -- they file suit for the difference of billed versus paid;
11.) Insurance company hires defense counsel to defend the matter;
12.) Opposing counsel seeks Discovery (depositions, interrogatories etc.) to drive up the cost of the litigation;
13.) The case settles eventually for a number between our number and their number;
14.) Insurance company shoulders attorney's fees for both plaintiff and defense counsel;
15.) It is not atypical for a $5,000 water bill with a $2,000 comparative to end up costing $10,000-plus when settled inclusive of attorney's fees.
In a public letter to the Florida Senate Judiciary Committee, Demotech, Inc., a financial analysis and actuarial services company, warned how the increasing use and abuse of assignments could reduce market capacity. Said Demotech, "Should this cost differential associated with assignment of benefits be representative and the acceleration of assignments continue, the underlying financial stability of insurance carriers that have focused on rebuilding Florida's property insurance marketplace would be unfavorably impacted."
Based on FPCA member claims experience and the legislature's failure to directly address the assignment of benefits crisis, runaway claims will continue to spiral further out of control. Coupled with the approaching hurricane season, which brings its own uncertainties, the potential for higher rates is palpable.
"The FPCA's member companies are calling on the legislature to not let this problem fester, but meet the challenge head-on and put an end to these abusive practices that are harming consumers and raising insurance rates," said Stander.
About the Florida Property & Casualty Association
The FPCA was established in 1997 to represent Florida-based home insurers to foster and promote a healthy and competitive Florida insurance market. Through its lobbying and communications teams, the FPCA works to educate Florida lawmakers, regulators and homeowners on issues and policies that affect property and casualty insurance. The organization is recognized as a source for timely information on insurance legislation and regulation, as well. www.fpcaonline.org
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SOURCE Florida Property & Casualty Association