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Bruce D. Partington is a Shareholder and a member of the firm’s General Litigation department. His practices focuses on real property and construction litigation.
Owners, Contractors, and Subcontractors – Beware Florida’s new “Assignment of Benefits” Law
The “Assignment of Benefits” law adopted by the Florida Legislature in 2019 (Laws of Florida 2019-57, now § 627.7152, Fla. Stat.) is a bad deal for everyone except property insurers. The best advice now for everyone involved is to “Just Say No” to assignments of insurance proceeds.
An “Assignment of Benefits” (AOB) is simply an agreement between an insured property owner or tenant, and a repair contractor, where the insured assigns some or all of the insurance “benefits” to the repair contractor who can also then negotiate directly with the insurer. This arrangement has existed in Florida for many years, and while there have been abuses, the new statute is ultimately a remedy in search of a problem, and is ultimately harmful to all involved – except for insurance companies. Luckily (for insurers only), the new law takes effect on July 1, 2019 – just as hurricane season is gearing up.
The law was generated by and for the insurance industry in response to an alleged “crisis” caused by AOBs by insureds to contractors but masquerades as a consumer protection law. Restoration contractors counter this by arguing that insurers wouldn’t pay a fair price for repairs leading to suits against the insurers, which then resulted in insurers having to pay attorneys’ fees to the insured and contractor on top of the judicially determined fair value of the repairs. (Which could, of course, have been avoided had the insurer paid a fair value to begin with.) While there are certainly some bad actors in the restoration contracting field who abused the process, many who deal with insurers on property insurance claims come away with an unfavorable impression of insurers’ conduct. In fact, there are already many hundreds of lawsuits pending in the aftermath of Hurricane Michael against insurers for failing to honor claims or pay adequately for claims – and, remember that Michael went through relatively sparsely areas of the Florida Panhandle.
In brief, what the new law primarily does is: (1) prescribe extensive requirements for an AOB to be valid, including a specific warning in 18 point font; (2) shift the traditional burden of showing “prejudice” from the insurer to the assignee; (3) provide that assignee contractors lose rights to recover against the owners, including lien rights for both themselves and their subcontractors; (4) restrict the longstanding rights of an insured to recover attorneys’ fees from their insurers when the insurers don’t pay; and (5) permit policies to prohibit AOBs entirely.
Why it’s bad for owners:
- In a post-disaster environment, it may be more difficult to hire a contractor for repairs without the payment security provided to repair contractors by an AOB.
- Professional restoration contractors often have a much higher level of expertise in the coding and documentation that goes with a restoration or disaster claim than contractors who do not specialize in that field.
- Contractors argue that this is an effort by insurers to pay less than fair market value for repairs which may in turn result in sub-par repairs by unscrupulous contractors who will work for what insurers are (now) willing to pay rather than for what truly needs to be done.
- Insurers have now taken this a step further and are reportedly requiring that their insureds use only contractors selected by the insurer, who will likely then act at the direction of the insurers, rather than the insured, with the insurer deciding the scope and adequacy of repairs.
- Owners’ ability to choose their own repair contractor is effectively reduced or eliminated.
- The amount payable for emergency repairs is limited to the greater of $3,000 or 1% of the property damage limit, which may result in emergency repairs being incomplete.
- It limits owners’ ability to recover attorneys’ fees in disputes with insurers.
Why it’s bad for contractors and subcontractors:
In addition to the things listed above….
- The worst thing is that a contractor who works under an assignment of benefits has absolutely no lien rights under Florida’s construction lien law. So, if an insurer is slow or difficult in paying, the contractor has very limited effective remedies. This likewise limits the contractor’s ability to recover attorneys’ fees in suits to get paid.
- The statute puts very tight times for performance of work in an economic environment when there are likely material and labor shortages because of the disaster.
- Contractors will be pressured by insurers to work for very small overhead and profit margins.
- Local contractors may well be forced out of work in their own communities by “preferred” contractors of insurers, or contractors actually mandated by insurers.
Conclusions
The Florida Legislature has shown once again that it is susceptible to the outsize influence of the insurance industry by passing a law that disadvantages everyone in the process except insurers. While cast as a “consumer protection” bill, the new AOB law benefits only insurers and harms their insureds, contractors, and subcontractors. It is, in essence, solving a problem with a sledgehammer that could have been handled with a finishing nail.
About Clark Partington:
Clark Partington constantly surveys the ever-changing legal landscape to provide up-to-date and responsive counsel to our clients. Clark Partington is the largest business focused firm in the Florida panhandle with offices in Pensacola, Destin, Grayton Beach & Tallahassee. The firm also maintains a presence in South Alabama with an Orange Beach office. Since 1976 Clark Partington has grown to over forty lawyers and has served the people and businesses of Florida through an innovative and collaborative approach to practicing law. Our lawyers are consistently recognized for their service to the profession and excellence in the courtroom. More information about the firm’s practice, its attorneys, and recognitions may be found at www.clarkpartington.com.
This publication should not be construed as legal advice. Its applicability is dependent upon specific facts and circumstances and is provided for informational purposes only. You should not act upon this information without seeking advice from a lawyer licensed in your own state.
