A recent Law 360 story by Jeff Sistruck, “4 Things Attys Need to Know About Fla’s ‘AOB’ Reform Bill,” reports that Florida Gov. Ron DeSantis gave the insurance industry cause for celebration when he said he would sign legislation aimed at curbing what carriers call an epidemic of abusive litigation by repair contractors seeking payment under property policies. Here, Law360 breaks down four key provisions of the so-called Assignment of Benefits reform bill.
The bill passed by the Florida Legislature is expected to have a significant impact on long-standing insurance practices in the Sunshine State, where homeowners often assign their insurance benefits to contractors working on hurricane-damaged houses. Once signed by the governor, it will take effect July 1.
In recent years, insurers have complained that some contractors have abused the Assignment of Benefits, or AOB, system by accepting assignments from policyholders and then performing excessive repairs or imposing inflated charges, leading to widespread coverage litigation. Reform advocates have blamed that spike in litigation for increases in insurance premiums. According to attorneys and experts interviewed by Law360, the surge in AOB actions was attributable in large part to Florida’s “one-way” attorney fee rule, which required an insurance company to pay an assignee’s costs to litigate a coverage suit, regardless of which side prevailed in court.
The new bill replaces that rule with a formula that allows for an award for either the assignee or the insurer — or neither — based on a comparison of a court’s judgment and pre-suit settlement offers. That change doesn’t apply to policyholders who sue their insurers directly. The formula for determining attorney fee awards compares the gap between the insurer's pre-suit settlement offer and the assignee's pre-suit demand, dubbed the "disputed amount," and the difference between the judgment obtained and the settlement offer. If the difference is less than 25% of the disputed amount, the insurer is entitled to attorney fees. If the difference is 25% to 49% of the disputed amount, neither party gets fees. And if the difference is 50% or more, the assignee is entitled to a fee award.
Beth A. Vecchioli, senior director for government consulting at Carlton Fields, said the new fee shifting provision is an attempt to “level the playing field so everyone has skin in the game.” “The current one-way attorney fee provision was always originally designed to help consumers who don't have the same financial resources as their insurers to go through litigation,” Vecchioli said. “Once these assignments started popping up, though, the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company. It didn't seem fair or right that the insurance industry still had to deal with this one-way attorney fee provision in those situations."
However, Rob Friedman of Friedman PA, who represents policyholders, said that while the bill’s fee shifting provision applies only to contractors wielding AOBs, he is concerned that insurers may use their legislative success to try to curtail or eliminate the one-way fee rule in disputes with policyholders, too. “[The one-way fee provision] has been one of the most important protections insurance consumers have under the law,” Friedman said. “While this erosion of that protection is limited to assignment of benefits situations, I am concerned the industry is targeting the one-way fee provision more broadly. This may be a slippery slope for the industry to push for doing away with that provision altogether or to erode it in other contexts as well."
The new bill states that assignees must give insurance companies notice of intent to file a suit and cannot serve the insurer before it has a chance to make a coverage determination within the statutory time frame. The insurer must respond within 10 days with a settlement offer or a demand for appraisal or other alternative dispute resolution.
Fred Karlinsky, co-chair of Greenberg Traurig LLP's insurance regulatory and transactions practice, said that in the past, some contractors have quickly filed suit before even giving insurers the chance to perform their own investigations. “Under this legislation, we will hopefully avoid some of these 'gotcha'-type situations,” he said. As Friedman sees it, though, the new raft of pre-suit requirements may discourage contractors, particularly smaller operations, from taking on repair jobs. Companies will have to “lawyer up” at the outset of a job just to understand their rights and obligations under the AOB reform bill, he said.
“A small 'mom and pop' contractor isn't going to want to take on a $1,000 roof repair under an assignment of benefits if they have to hire a lawyer just to tell them what their rights and obligations are,” Friedman said. “There are so many pitfalls in this statute that a contractor could wind up facing a coverage denial for violating any number of requirements."
In another notable change, the bill opens the door for insurers to offer policies that cannot be assigned to a third party as long as they clearly provide notice to prospective policyholders of those restrictions and also offer assignable policies with the same coverage. If an insurer opts to sell both types of policies, the restricted policy must cost less. In addition, an insurer must notify its policyholders “at least annually” of the coverage options it is making available.
According to attorneys and experts, that provision provides clarity for the insurance industry, which had faced confusion about whether insurers can ever place restrictions on AOBs. “This concept was originally developed by the [Florida] House under the theory that it is better for consumers to have more options than less,” said Vecchioli of Carlton Fields. “They recognized that they couldn't completely restrict all assignments. This is a smart, consumer choice-driven option, allowing insurers to offer both options."
Assessing the Impact
The new bill also contains a built-in mechanism for assessing the effectiveness of the AOB reforms. Starting on Jan. 30, 2022, insurers must submit annual reports to Florida’s Office of Insurance Regulation accounting for each “residential and commercial property insurance claim” paid under an AOB agreement in the preceding year.
According to attorneys and experts, those numbers will give the Florida Legislature concrete information to decide whether additional measures are needed to further rein in abuses of the AOB system. The true test of the legislation will come when the next major hurricane or other catastrophe hits the Sunshine State, yielding huge quantities of AOB-related claims data, sources said. "We would welcome the Legislature continuing to monitor AOB fraud and making any changes they feel are appropriate,” Greenberg Traurig's Karlinsky said.