Assignment of Benefits Blog series – Part 1
By James M. Gonzalez March 13, 2023 Posted in Construction Law Share
What is an Assignment of Benefits?
As a homeowner or contractor in Florida, it is likely that you have heard of someone who has (or you have personally) dealt with repairing a home or business following a natural disaster, weather event, or accident. In doing so, you probably have interacted with an insurance carrier regarding the recovery of insurance funds in furtherance of making repairs to this home or business. This blog series discusses Assignments of Benefits (“AOB”) relating to making these repairs and how Florida’s AOB statute impacts both the property owner’s and contractor’s actions and decision-making processes when entering into these AOB agreements.
In 2019, the Florida Legislature made drastic changes to Florida Statute 627 – the insurance contracts portion of Florida Statutes – to include regulations relating to contractors’ responsibilities when seeking to enter into an AOB with a property owner. We will be navigating these changes throughout this series.
Assignment of Benefits – Generally
First, we will discuss the AOB and potential restrictions within a given property insurance policy. As defined, an AOB is an agreement that transfers a portion or all of a property owner’s insurance claims rights or benefits under an insurance policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments. The idea and benefit of an AOB is that a contractor and property owner can work together so that when entering into this agreement, the property owner does not have to deal with the insurance carrier as a middle person while repairs are being completed on a project. The contractor is typically better suited to speak the language (both on a repair and insurance side) with the carrier, able to work with the carrier more efficiently to get the work approved and paid, and able to continue working on completion of the project more expeditiously when an AOB is in place. This typically leads to a shorter timeframe for completion of the repairs and can benefit both the property owner and the contractor.
However, while many states do not allow for a restriction of post-loss AOB, the 2019 revisions allow for such a restriction in whole or part. Therefore, before continuing down this path, the property owner and contractor must decipher whether the operative property insurance policy restricts post-loss AOB. While the insurance carrier is required to meet a number of steps to provide and bind a post-loss AOB restrictive property insurance policy, the policy must state the following on the face of the policy and in 18-point uppercase and boldface font:
THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7152 OF THE FLORIDA STATUTES.
Next, the property owner must also affirmatively reject a fully assignable policy in writing or electronically for the restrictive policy to be effective. The form with which the property owner signs must be approved and specifically state that the policy they are binding restricts AOB. Lastly, the form must have the following title:
YOU ARE ELECTING TO PURCHASE AN INSURANCE POLICY THAT RESTRICTS THE ASSIGNMENT OF BENEFITS UNDER THE POLICY IN WHOLE OR IN PART. PLEASE READ CAREFULLY.
Whether the property owner decides to obtain a policy that restricts post-loss AOB or not is a personal preference. These AOB restrictive policies are statutorily required to be less expensive than those which allow for post-loss AOB. Regardless of the property owner’s choice in policy, the important part is to analyze the property insurance policy before entering into an agreement for repair of the work. If a contractor and property owner enter into an agreement containing an AOB on a property with a policy that restricts AOBs, then the carrier does not have to work directly with the contractor, does not have to pay the contractor directly for the work performed and may limit its interactions to the property owner, exclusively.
In the next chapter of this blog series, we will discuss the statutory requirements and limitations placed on a contractor that has entered into a contract with a property owner that includes an Assignment of Benefits. Stay tuned!
If you are a contractor or property owner trying to navigate this comprehensive statute and have questions or concerns regarding your rights and obligations, please do not hesitate to contact us to discuss further.