Assignment of Benefits: What’s That?

In the aftermath of a hurricane or other catastrophic event, homeowners are often in a rush to get their homes repaired as quickly as possible. Unfortunately, this rush can lead to mistakes, particularly when it comes to post-loss assignment of benefits agreements.

What is an AOB? 

Post-loss assignment of benefits agreements, or “AOBs”, are agreements between a policyholder and a contractor. In these agreements, the policyholder assigns their right to recover insurance benefits to the contractor. In return, the contractor agrees to complete the repairs necessary to restore the property to its pre-loss condition. If the AOB is valid and enforceable, the AOB holder (generally a contractor) can then pursue the policyholder’s insurer directly (as “assignee” of the policyholder) to receive payment for the covered work that was provided by the contractor on the policyholder’s property. 

While post-loss assignment of benefits agreements can be a helpful tool for homeowners who are dealing with the aftermath of a hurricane, they can also be fraught with potential problems. One of the main problems with these agreements is that they can leave the homeowner vulnerable to unscrupulous contractors who may take advantage of the situation and charge exorbitant fees for shoddy work (or for work that the contractor ultimately fails to complete).

Another potential problem with post-loss assignment of benefits agreements is that they can limit the homeowner’s ability to negotiate with their insurance company. When a homeowner assigns their right to recover insurance benefits to a contractor, the contractor becomes the policyholder with respect to that claim. This means that the contractor has the right to negotiate and/or litigate with the insurance company on the homeowner’s behalf. However, the contractor may not have the same level of expertise or knowledge about the homeowner’s insurance policy as the homeowner (or the homeowner’s attorney) does. As a result, the contractor may not be able to negotiate the best possible settlement with the insurance company.

In addition to these potential problems, there is also the issue of standing. In some cases, the insurance company may refuse to pay a claim that has been assigned to a contractor. This can be particularly problematic if the contractor has taken a full assignment of benefits on the claim (but did not perform the necessary work), as the homeowner may not have standing to sue the insurance company for a denial or underpayment of the claim.

Post-loss assignment of benefits agreements have been a topic of legal debate in recent years. The validity of such agreements, and whether insurance companies can prevent them through specific policy language, will vary by state. 

AOBs in Florida.

In Florida, courts were previously consistent in holding that post-loss assignments of benefits are valid, and that insurance companies cannot use anti-assignment clauses in their policies to prevent such post-loss assignments. However, insurance companies in recent years have pushed back against post-loss assignments, arguing that they allow contractors and their attorneys to inflate repair costs and fees. As a result, the law in Florida has recently changed from a policy general acceptance towards post-loss assignments to a general policy of rebuke towards post-loss assignments. As the new law in Florida has yet to be litigated to the point where there is binding judicial precedent as to the whether the new law is applied retroactively (and thus preventing all post-loss assignment of benefits, even if they occurred before the new law) the safe approach in Florida (for both policyholders and contractors who utilize post-loss assignments for the purpose of being paid for their work) is to simply avoid post-loss assignments to the greatest extent possible. 

Whether the new law is retroactive or not, it appears that (at least for now) post-loss assignments with respect to insurance claims are on their way out in the state of Florida. Thus, again, both the policyholder and the prospective assignee under an AOB should both proceed with extreme caution in Florida with respect to AOBs and be sure to fully understand the law as applied to the particular circumstances of the case. 

AOBs in Louisiana. 

In Louisiana, the law regarding post-loss assignments is relatively clear when compared to new statutory provisions of Florida law (and how they’ll be interpreted and/or enforced by Florida courts). The Louisiana Supreme Court has not issued a definitive ruling invalidating post-loss assignments and the lower courts have, likewise, generally allowed such assignments as long as they are not explicitly prohibited by the insurance policy. Insurance companies in Louisiana have, however, attempted to prevent post-loss assignments through specific policy language prohibiting such assignments (called “anti-assignment clauses”). The Louisiana Supreme Court has, furthermore, held that anti-assignment clauses contained in insurance policies are enforceable (as long as they are drafted with sufficient clarity and are not ambiguous with respect to the scope of application) and that such anti-assignment clauses are not against the public policy of Louisiana. Thus, if there is an anti-assignment clause in a Louisiana insurance policy (and, based upon Parrish Law’s experience handling Louisiana claims, Parrish Law can comfortably state that generally all Louisiana policies contain some variation of an anti-assignment clause) then chances are it will be difficult for the assignee to recover under a post-loss assignment of benefits. 

What makes Louisiana law with respect to post-loss assignments less clear is the fact that the assignee (or person/contractor/entity taking the assignment) must know the anti-assignment clause exists at the time the assignment is effected in order for the insurance company to enforce the anti-assignment clause against the assignee to invalidate the assignment. At least one federal court in Louisiana has held that this “knowledge requirement” is satisfied through the assignee’s “constructive knowledge” (as opposed to “actual knowledge”) of the anti-assignment provision. “Constructive knowledge” is something less than “actual knowledge”, and is more akin to “could have known or should have known had the assignee exercised diligence under the circumstances”. This creates a factual issue (as to whether the assignee could have or should have known about the anti-assignment provision), that can only be determined by courts on a case by case basis (depending on the specific facts/circumstances of the case), which will leave the assignee and the insurance carrier with a significant “unknown” that, in the case of a jury trial, would need to be decided by the jury as finder of fact. I other words, the parties could be left in the posture of fact intensive and time consuming litigation (which could be cost prohibitive) to get to the answer they need on this issue. 

Conclusion. 

Given these potential problems, it is important for homeowners to be cautious when entering into post-loss assignment of benefits agreements (or, better yet, to avoid them altogether). If possible, it is usually better for the homeowner to negotiate with the insurance company directly and hire their own contractor to complete the repairs. This allows the homeowner to maintain control over the claims process (as well as the repair process) and to ensure that they are getting the best possible settlement from their insurance company.

At Parrish Law, we understand that dealing with the aftermath of a hurricane can be a stressful and overwhelming experience. That’s why we are here to help. We can assist you in negotiating with your insurance company to ensure that you receive the maximum possible settlement for your claim. We can also help you navigate the complexities of post-loss assignment of benefits agreements, so that you can make the best possible decisions for your situation. Contact us today to learn more about how we can help you with your hurricane insurance claim.