HIGHLIGHTS:

  • The Florida Senate recently passed assignment of benefits (AOB) legislation that is expected to be signed by Gov. Ron DeSantis. The bill is intended to bring much needed reform to the abused and litigious practice of assignment of benefits in first party property insurance claims.
  • The bill's passing comes in the midst of Restoration 1 of Port St. Lucie v. Ark Royal Insurance Company, a case currently before the Florida Supreme Court. Restoration 1 addresses a conflict between the Fourth and Fifth District Courts of Appeal as to whether an insurance policy may require the written consent of all insureds and mortgagees in order to enforce an AOB.
  • The bill will apply to policies issued after July 1, 2019, and thus will take time before carriers benefit from anti-assignment policies.

A long-awaited assignment of benefits legislation was recently passed by the Florida Senate on April 24, 2019. Gov. Ron DeSantis stated that he intends to sign Florida SB 122/HB 7065, which is intended to bring much needed reform to the abused and litigious practice of assignment of benefits, commonly known as AOB, in first party property insurance claims.

The passing of SB 122/HB 7065 comes in the midst of Restoration 1 of Port St. Lucie v. Ark Royal Insurance Company (SC18-1624), a case currently before the Florida Supreme Court. Restoration 1 addresses a conflict between the Fourth and Fifth District Courts of Appeal (DCA) as to whether an insurance policy may require the written consent of all insureds and mortgagees in order to enforce an AOB. (See Holland & Knight alert, "Florida Appeals Court Allows Assignment of Benefit Restrictions in Homeowner Policies," Sept. 5, 2018.) Florida's longstanding law set forth in West Florida Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209 (Fla. 1917) (holding assignment of post-loss benefits valid despite policy language requiring the insurer's consent to the assignment) has been interpreted more broadly over time in favor of AOBs. Florida's Fifth DCA recently held that insurers cannot restrict AOBs by requiring all insureds' and mortgagees' consent for an AOB to be valid, further broadening Teutonia's original holding. The legislature's passing of SB 122/HB 7065 makes Restoration 1's ultimate impact unclear. Nevertheless, much needed reform to AOB practices, which are often abused by unscrupulous contractors, causing exponentially increased amounts of litigation against insurers and, in turn, raising insurance premiums for all insureds across the state, is long overdue.

Bill's Impact and Requirements

SB 122/HB 7065 will be codified in Sections 627.7152, 627.7153 and 627.422 (amended), Florida Statutes. The most significant impact on AOB litigation include:

  • the bill's various requirements for an assignment contract to be enforceable
  • presuit notice requirements for both the assignee and insurer
  • providing guidelines for when an assignee or insurer is entitled to attorney's fees in subsequent litigation
  • allowing insurers to offer policies that prohibit assignment of benefits under certain circumstances

Furthermore, the bill provides insureds with additional protections under AOBs from abusive contractors that often do not put the insured's interests first.

The bill contains certain requirements for assignment contracts, executed on or after July 1, 2019, to be enforceable. For example, an assignment contract must allow the insured/assignor to rescind the AOB within certain timeframes; the executed assignment contract must be sent to the insurer within three business days after execution or the date work is to commence, whichever is earlier; and the agreement must contain an itemized, per-unit cost estimate of the services to be performed by the assignee. Any assignment contract that does not comply with the bill's requirements is invalid and unenforceable. Further, emergency services performed under an AOB cannot exceed $3,000 or 1 percent of the dwelling coverage under the policy, whichever is greater. An assignee/contractor may not seek any payment from the insured beyond the applicable deductible for the claim, and is required to indemnify the insured in the event the subject policy prohibits assignments. Thus, contractors will run the risk of executing assignments and performing work under policies that validly prohibit assignments, which will naturally curtail current "tornado chaser" tactics.

AOB litigation has increased exponentially over the last 10 years in Florida, in large part because of advantageous contractors that inflate their bills for work performed, creating disputes with insurance companies that lead to needless litigation. Under the new legislation, an assignee/contractor has the burden to show that the insurer was not prejudiced by the assignee's actions, such as its failure to maintain accurate records related to the assignment, cooperating with the insurer and delivering a copy of the assignment to the insurer within three business days. As a condition precedent to filing suit under a policy, an assignee must provide the named insured, insurer and assignor with written notice of intent to initiate suit, to which an insurer is required to respond in writing within 10 days by making a presuit offer or requiring the assignee to participate in appraisal or other alternative dispute resolution. These presuit notice requirements will initiate substantive attempts to resolve claims without litigation and afford insurers the ability to invoke appraisal before a complaint is filed.

Bill's Application

While SB 122/HB 7065 allows insurers to issue policies that prohibit the assignment of post-loss benefits, it will apply to policies issued after July 1, 2019, and thus will take time before carriers benefit from anti-assignment policies. In order for an insurer to offer a policy that prohibits AOBs, it must: 1) offer a policy that does not prohibit AOBs, 2) offer the restricted policy at a lower cost and 3) obtain written rejection from the named insured of a fully assignable policy.

Arguably the most substantial part of SB 122/HB 7065 is its restriction of attorney's fees in AOB litigation to those allowed under Section 57.105, Florida Statutes, and the bill itself. This provision will have the practical effect of precluding attorney's fees awarded under Section 627.428, Florida Statutes, the so-called "one-way fee provision" entitling an insured to its fees and costs in first party insurance litigation when a judgement is obtained against an insurer. Section 627.428 is considered the driving force of AOB litigation, allowing plaintiff's attorneys to collect fees in AOB litigation and resulting in a flurry of AOB suits across the state.

Under the new bill, entitlement to attorney's fees is dependent upon a judgment obtained in comparison to the insurer's presuit offer amount. If the difference between the judgement obtained and the presuit settlement offer is 25 percent or less than the "disputed amount" (the difference between the presuit demand and offer), the insurer is entitled to fees; if the difference is between 25 percent and 50 percent of the disputed amount, neither party is entitled to fees; and if the difference is 50 percent or more of the disputed amount, the assignee is entitled to fees. Presumably, this will incentivize assignees to provide more reasonable demands to carriers presuit, and carefully consider carrier settlement offers. Accordingly, insurers will have a better opportunity to resolve any claims presuit and avoid AOB litigation.

Conclusion 

While AOB litigation is still rampant, SB 122/HB 7065 brings welcomed and much needed reform to the practice. The bill's various presuit requirements and conditions to enforce AOB agreements will provide insurers with additional defenses when faced with AOB suits. Future policies prohibiting assignments should further curtail AOBs and subsequent litigation, and further protect insureds across the state from abusive contractors.

Clients needing further guidance on AOBs and the bill's impact may contact the author.

Please note: Holland & Knight represented the Florida Justice Reform Institute in the preparation of an amicus curia brief in Restoration 1 of Port St. Lucie vs. Ark Royal Insurance Company.