Skip to Content

Florida passes property AOB Reform with attorney fee formula.

For the last decade, the Florida property insurance market has been plagued by fraud within non-catastrophic claims enabled by a tool called “Assignment of Benefits (AOB).” This fraud has led to a 900% increase in lawsuits involving an AOB since 2008 and caused dramatic rate increases despite no hurricane making landfall in Florida in the 10 years preceding 2016.

The way the scam works is like this:

An insured calls a water mitigation service provider due to a leak. Before starting work, the service provider demands the insured sign over all their rights to the policy by signing an AOB. After treating the problem, the service provider sends the insurer a bill that grossly inflates the cost and scope of work. When the insurer denies the inflated claim, the service provider teams with a law firm specializing in AOB lawsuits to sue the insurer without any consent from the insured. The insurer is then forced to either pay the inflated claims plus attorney fees or battle it out in court at the high risk of paying out even more in legal fees due to the one-way attorney fee statute.

Since the problem was first identified 7 years ago, the insurance industry has claimed the root of the fraudulent behavior can be found within the “one-way attorney fee statute.” The statute is known by this name because it allows an insured to recover their attorney fees when they prevail against an insurer, but it does not allow an insurer to recover their own fees if they prevail. This is true even if the claim was inflated by thousands of dollars and the insurer’s estimate was under by only a single dollar. The statute was originally created to provide balance between the litigation resources of homeowners and large insurers. It was never intended for business-to-business lawsuits like the AOB scam has led to.

After several years of fighting and public campaigns by the insurance industry, plaintiffs bar, and service provider groups, House Bill 7065 was finally passed in Florida this year to address the one-way AOB crisis. The legislation includes the following:

  1. Allows an insurer to restrict assignment of benefits in their policy as long as they also make an unrestricted policy available to the insured.
  2. Imposes new duties on assignees, such as a duty to cooperate with the insurer and duty to maintain records.
  3. Includes consumer protections such as a 14-day assignment rescission period and protection from liens.

Most importantly, the law requires attorney fees in an AOB lawsuit to be awarded according to a prevailing party formula that is based on the difference between the demand, offer, and judgement. The hope is that this “two-way” fee will help to change litigious behavior by driving the demands and offers much closer.

The legislation that passed was limited to property claims, but for most of the session the bill also reformed AOB abuse in auto-glass claims. The bill was changed late in the session to remove auto-glass due to intense pushback from auto-glass repair shops and the law firms they do business with. Auto-glass AOB reform will be a hot topic leading into Florida’s 2020 session as the industry and government leaders do not want this fraud to drag out as long as it did in the property market.

For more information please contact our partner George Feijoo.

Verified by MonsterInsights