The Current State of Assignment of Benefits Litigation in Florida
Client Alert
By: Senior Counsel Nhan T. Lee with Associate Wayne A. Comstock
On May 25, 2022, Florida lawmakers approved property insurance reforms that remove attorney’s fees, with respect to assignment of benefits (“AOB”) property insurance litigation.[1] One-way attorney’s fees are a longstanding problem in Florida,[2] and the reforms come at a time when AOB litigation increasingly affects homeowners in a negative way.[3]
Homeowners typically experience property damage and use contractors to repair the damage as quickly as possible.[4] An assignment of benefits, or AOB, is an agreement “in which a contractor begins the work [on the property owner’s home] without charging the property owner and agrees to seek compensation from the insurer.”[5] An AOB can be beneficial to a homeowner because an AOB eliminates the processing of a claim through the insurance company.[6] Without contacting the insurance company, “the insured can hire a contractor, wait for the contractor to finish the work, then pay the deductible.”[7] Despite the time saving benefit to a homeowner, AOBs can lead to costly litigation and higher premiums.[8]
In Florida, AOB abuse first started with Personal Injury Protection (“PIP”) claims.[9] A PIP claim works similar to an AOB property damage claim.[10] In a PIP claim, “[t]he assignment lets a medical provider seek reimbursement for their services directly from an insurer. The injured person receives medical care and does not have to deal directly with their insurance company.”[11] PIP claims led to abuse because plaintiff’s attorneys filed many lawsuits on behalf of the assignee “for inflated claims or potentially unnecessary medical treatment.”[12]
Prior to 2019, AOBs frequently resulted in costly litigation primarily because Florida law provided for one-way attorney’s fee provisions.[13] In a first-party lawsuit, Florida law required insurers to pay plaintiff’s attorneys a court determined “reasonable sum.”[14] However, Florida law did not require plaintiffs to compensate the insurer’s attorneys.[15] This imbalance pressured insurers to settle claims “rather than face expensive litigation, which, if they lose, means they must pay the other side’s lawyers.”[16]
The public policy rationale supporting one-way attorney’s fee provisions in Florida stems from Feller v. Equitable Life Assurance Soc.[17] In Feller, the Supreme Court of Florida described the purpose of one-way attorney’s fee provisions as “to discourage the contesting of policies in Florida courts, and to reimburse plaintiffs reasonably their outlay for attorney’s fees when suing in Florida courts.”[18] In Ivey v. Allstate Ins. Co., the Supreme Court of Florida further described the rationale behind one-way attorney’s fee provisions as “to level the playing field so that the economic power of insurance companies is not so overwhelming that injustice may be encouraged because people will not have the necessary means to seek redress in the courts.”[19] AOBs defeat the purpose of one-way attorney’s fee provisions because AOBs do not serve those individuals one-way attorney’s fee provisions are meant to protect: the policyholder and any beneficiaries the policyholder designates.[20]
The Florida legislature enacted PIP reforms in 2012 that curbed “AOB abuse in auto insurance.”[21] However, around the same time, AOB abuse began spreading to property damage claims.[22] Vendors targeted homeowners insurers because Florida is home to a large number of insured homes, “which ensures large claimant and plaintiff pools.”[23] In addition, hurricanes and tropical storms in Florida carry the risk of water damage.[24] In Florida, “[w]ater damage repairs often need to be undertaken immediately to prevent further damage.”[25] To complicate matters further, “the standard homeowners policy requires that policyholders protect their property from further damage by making reasonable and necessary repairs.”[26] A homeowners policy is more attractive than an auto insurance policy because the average loss is higher: $11,000 compared with $1,300.[27] The higher threshold means that a homeowner assignee in a property claim can potentially “inflate repair bills to a greater degree.”[28] As a result of increasing AOB litigation, insurers raised premiums.[29] For example, “the average premium [in Florida] rose 30 percent between 2007 and 2015.”[30] AOB abuse is most pronounced in Florida because “insurers’ legal costs are rising much faster than losses from homeowners claims” compared with other states.[31]
In an effort to curtail AOB abuse, the Florida legislature enacted significant reforms to AOBs and the one-way attorney’s fee provision.[32] The legislation, enacted on July 1, 2019, “require[d] assignment agreements to be in writing and signed by both the assignee and assignor.”[33] Other changes to AOB agreements included allowing “assignors to rescind without penalty within seven days of the execution of the agreement” and obligating “[a]ssignees . . . [to] provide a copy of an assignment agreement to an insurer within three business days of the execution of the agreement.”[34] The most notable difference, however, involved the one-way attorney’s fee provision where the provision “no longer applies to an assignee.”[35] Instead, the 2019 reforms encouraged insurers to avoid litigation through negotiation or appraisal.[36] In a lawsuit involving an AOB agreement, attorney’s fees may only be recovered as follows:
- Less than 25 percent of the disputed amount, the insurer is entitled to an award of reasonable attorney fees.
- At least 25 percent but less than 50 percent of the disputed amount, no party is entitled to an award of attorney fees.
- At least 50 percent of the disputed amount, the assignee is entitled to an award of reasonable attorney fees.[37]
As companion legislation, the Florida legislature also passed Fla. Stat. 627.7153.[38] Under Fla. Stat. 627.1753, an insurer may restrict an insured’s “right to execute an assignment agreement” if the insurer provides (1) an insurance policy that does not restrict the insured’s “right to an execute an assignment agreement[,]” (2) the restricted policy at a lower cost compared with the unrestricted policy, (3) the policy restricting or prohibiting assignment in whole at a “lower cost than any policy [restricting or] prohibiting assignment in part[,]” and (4) specific language in any restricted policy as described in the statute.[39]
The Florida legislature enacted the 2019 reforms, in part, to reduce insurance premiums for Florida homeowners.[40] In the year following the reform, Citizens Property Insurance Corporation (“CPIC”), reported that insurance premiums dropped for almost 44,000 policyholders.[41] In addition, the reform helped reduce AOB litigation.[42] In 2020, “Florida [saw] less first party cases being filed . . . . CPIC alone [saw] their caseload drop from 2,000 to 1,750 suit per month.”[43] Despite the reduction, Florida lawmakers remained concerned about AOB abuse.[44]
In May 2022, the Florida Legislature approved additional property insurance reforms.[45] The reforms further limit the awarding of attorney’s fees in AOB cases.[46] The reform, titled SB 2D, prohibits a court from awarding attorney’s fees to an assignee in AOB litigation.[47] The reforms also severely “restrict the awarding of fee multipliers in property insurance disputes to ‘rare and exceptional circumstances.’”[48] Florida lawmakers believed such reforms necessary given Florida’s excessive contribution to homeowner insurance lawsuits across the United States.[49] Florida, responsible for “just 9% of property insurance claims, generates 79% of the nation’s homeowner insurance lawsuits.”[50] Florida lawmakers approved the reforms under the belief that “lawsuits . . . exploded in the past several years” despite the 2019 reforms.[51]
While Florida lawmakers acted to protect homeowners,[52] contractors rallied against the reform.[53] In June 2022, the Restoration Association of Florida and Air Quality Assessors, LLC, “filed [a] lawsuit in Leon County circuit court” testing the constitutional validity of the legislation.[54] In filing the lawsuit, “contractors contend that assignment of benefits helps homeowners who are unfamiliar with making sure insurance claims are handled properly.”[55] Contractors believe that AOBs help homeowners quickly address home damage due to inclement weather and other unforeseen circumstances.[56]
In Florida, contractors and Florida lawmakers are seemingly at odds with respect to AOBs.[57] The 2022 reforms remove the awarding of attorney’s fees altogether from AOB litigation,[58] which may both help and hurt homeowners in Florida by lowering property insurance premiums but making immediate home repair less accessible. AOBs will remain a contentious issue moving forward, and the reforms may lead to additional challenges.
[1] Jim Ash, Governor Signs Property Insurance Reforms and Condo Safety Measures, Florida Bar (May 27, 2022), https://www.floridabar.org/the-florida-bar-news/governor-signs-property-insurance-reforms-and-condo-safety-measures/.
[2] Mark Delegal & Ashley Kalifeh, Restoring Balance in Insurance Litigation: Curbing Abuses of Assignments of Benefits and Reaffirming Insureds’ Unique Right to Unilateral Attorney’s Fees 9 (2015), https://www.fljustice.org/files/123004680.pdf.
[3] Douglas Scott MacGregor, Florida Takes Aim at Assignment of Benefits Abuse: A Home Run or a Swing and a Miss?, in New Appleman on Insurance: Current Critical Issues in Insurance Law (2021).
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Ins. Info. Inst., Florida’s Assignment of Benefits Crisis: Runaway Litigation Is Spreading, and Consumers Are Paying the Price 7 (2018).
[10] Id.
[11] Id.
[12] Id. at 8.
[13] Id. at 4.
[14] Id.
[15] Id.
[16] Id.
[17] Feller v. Equitable Life Assurance Soc., 57 So. 2d 581, 583 (Fla. 1952).
[18] Id.
[19] Ivey v. Allstate Ins. Co., 774 So. 2d 679, 684 (Fla. 2000).
[20] Delegal & Kalifeh, supra note 2, at 3.
[21] Ins. Info. Inst., supra note 9, at 12.
[22] Id.
[23] Id. at 13.
[24] What You Should Know About Water Damage in Your Home or Business, Kanner & Pintaluga, https://hurricanedamage.com/blog/what-to-know-about-water-damage/.
[25] Ins. Info. Inst., supra note 9, at 13.
[26] Id.
[27] Id.
[28] Id.
[29] Id. at 14.
[30] Id.
[31] Id.
[32] Fred E. Karlinsky, Esq., Florida Assignment of Benefit Abuse: Recent Developments, Fed’n of Regul. Couns., https://www.forc.org/Public/Journals/2019/Articles/Summer/Vol30Ed2Article1.aspx.
[33] Id.
[34] Id.
[35] Id.
[36] Cozen O’Connor, Florida’s “Assignment of Benefits” Bill: A Guide Through the New Statutory Framework, JDSupra (Apr. 26, 2019), https://www.jdsupra.com/legalnews/florida-s-assignment-of-benefits-bill-a-29861/.
[37] Fla. Stat. § 627.7152(10)(a) (2019).
[38] Fla. Stat. § 627.7153 (2019).
[39] Id. § 627.7153(2)(a)-(d).
[40] O’Connor, supra note 36.
[41] Rumberger Kirk, Impact of Florida’s New Assignment of Benefits Law: HB 7065, JDSupra (May 26, 2020), https://www.jdsupra.com/legalnews/impact-of-florida-s-new-assignment-of-80753/.
[42] Id.
[43] Id.
[44] Ash, supra note 1.
[45] Id.
[46] Id.
[47] Id.
[48] Id.
[49] Id.
[50] Id.
[51] Id.
[52] Id.
[53] Jim Saunders, Contractors Challenge New Florida Insurance Law, Law (June 1, 2022), https://www.law.com/dailybusinessreview/2022/06/01/contractors-challenge-new-florida-insurance-law/.
[54] Id.
[55] Id.
[56] Id.
[57] Ash, supra note 1; Saunders, supra note 53.
[58] Ash, supra note 1.