Well many folks in the insurance industry have been waiting some time for this moment… the decision of the validity of post-loss assignments of benefits in Florida. Several opinions were recently issued on the same day (May 20, 2015) by Florida’s Fourth District Court of Appeals related to assignments of benefits in property insurance claims.1 The cases involve the typical scenario where a policyholder hires a water remediation contractor after suffering a loss, and instead of having to pay them out of their pocket for the work, they issue and assignment of part of the claim proceeds to the vendor.
One Call is the case where the Fourth DCA wrote its opinion, and the others reference that opinion for the same line of reasoning. The insurance carriers raised a few arguments to invalidate the assignments of benefits in the cases. Initially, the appellate court rejected the argument that any language of the particular insurance policy prohibited assignment of claim benefits after a loss. This is because the language of the policy stated that prior approval of the insurer is needed for assignment of the “policy”, but states nothing about claim benefits. The court cited a long line of Florida cases recognizing that claim benefits are assignable without the insurer’s consent.
The next issue involves the insurance carriers’ arguments that the post-loss assignments of benefits were invalid because when they were entered into, the policyholders had nothing to assign because they had not yet accrued any right to benefits under their policies. The loss payment provisions of the policies state:
Loss Payment. We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment. Loss will be paid upon the earliest of the following:
a. 20 days after:
(1) We receive your written proof of loss and reach a written, executed agreement or settlement with you according to the terms of the written agreement; or
b. 60 days after we receive your written proof of loss and:
(1) There is an entry of a final judgment or, in the case of an appeal from such judgment, within 60 days from and after the affirmance of the same by the appellate court; or
(2) Written executed mediation settlement with you according to the terms of the written mediation settlement; or
c. Within 90 days after we receive notice of an initial claim “reopened claim” or “supplemental claim” from you, we will pay or deny such claim or a portion of the claim unless the failure to pay such claim or portion of claim is caused by factors beyond our control which reasonably prevent such payment.
For this issue, I have looked at it with the question in mind—are all post-loss assignments created equal? Are there accured or unaccrued rights under the policy that are sought to be assigned? A policyholder cannot assign rights it does not possess in the first place. But what is the determination—a right to coverage and payment being due and owing under the policy--or wouldn’t the fact that damage occurred to the property be sufficient enough to say that a right has accrued that can be assigned?
The Fourth DCA in Florida recently held damage to property is sufficient to accrue a right to be assigned. The court stated that the loss payment provision of the insurance policies in the cases:
[F]alls far short of creating a contractual bar to assignment. . . .
[M]erely addresses the timing of the payment and expressly contemplates that a lawsuit could occur before payment is due. We decline to interpret it as affecting the validity of a post-loss assignment.
An assignable right to benefits under a property insurance policy accrues on the date of loss (once damage occurs) even though payment might not yet be due under the loss payment provision.
The court even went on to state that:
[E]ven assuming an insured’s right to benefits does not accrue until payment is due under the loss payment provision, there is no reason why an insured could not assign an unaccrued right to benefits under the policy, so long as the assignment took place after the loss.
Within the opinion, the court states it succinctly that the case boils down to two competing public policy considerations; one by the insurance industry which argues that assignments of benefits allow some contractors to unilaterally set the value of part of the claim and demand payment for inflated invoices; and two by the contractors that argue that assignments allow homeowners to begin emergency repairs with them immediately after a loss where the owners might not be able to afford to pay up front. Notice that policyholders are not directly involved as one of the two sides supporting those competing public policy considerations. Because a policyholder could get the same work done by those contractors even if assignments of benefits are no longer recognized. This could be done through a direction to pay as has long been done.
The court kicks the public policy issue to the legislature to effect change if it is to come when it states:
There is simply insufficient evidence in the record in this case—or in any of the related cases—to decide whether assignments of benefits are significantly increasing the risk to insurers. If studies show that these assignments are inviting fraud and abuse, then the legislature is in the best position to investigate and undertake comprehensive reform.