Hurricane Matthew Reminded Us What Insureds Can Lose When They Give Assignments of Benefits
Hurricane Matthew has brought out repair contractors offering services to property owners who have suffered damages to their homes, businesses and condominiums. Already we’ve seen one form of agreement between a repair contractor and a condominium association with hurricane damage, which contains an “assignment of benefits”. This is language assigning to the contractor, the condominium association or other building owner’s rights to recover compensation from its insurance company for storm damage. Under the assignment, the contractor would take control of the building owner’s right to collect payments for hurricane damage under the under the insurance policy.
Requesting assignments of benefits is a common practice for water damage or storm damage repair which in the judgment of this writer has become pernicious and abusive, and ultimately costly to consumers. Under Florida law, insured homeowners have a right to enforce their insurance policy, and if the insurance company refuses to pay or otherwise perform, the insured may recover attorney’s fees. However, the attorney’s fees are a one way remedy: the insurer can’t recover fees from the insured if the insured’s claim is found to be excessive or wrongful. The legislature believed this was an appropriate counter-balance to the insurance companies’ perceived ability to take an too long to pay a claim, or not pay at all, while the homeowner was in need of the money and lacked the financial ability to enforce the contract.
The unintended consequence of this law has been that some hurricane damage repair providers and their lawyers have figured out how to manipulate the system. The storm damage repair company takes control of the attorney’s fees remedy and use it as leverage to collect questionable fees for other services. Contracts with consumers (for services like windshield repair or repair of storm damage like Hurricane Matthew) will often include an “assignment of benefits”. The repair company then takes control of the homeowner’s rights under the policy arising out of the incident, including the right to recover attorney’s fees in the event of nonpayment. It is easy to see how this could lead to the practice of the repair provider/assignee making excessive or unreasonable claims against the insurer. It knows that if there is a dispute, even a legitimate dispute over excessive prices or unreasonable services, the insurer risks paying attorney’s fees. It’s cheaper for the insurance company to not dispute a claim even if it is excessive, than to pay two sets of lawyer – its own and the repair company’s – to litigate the issue.
As an example, suppose a repair contractor’s bill for fixing Hurricane Matthew damage were to include charges for gasoline to get to the job of $10 a gallon, calling it an “administrative markup.” Most people would call this gouging. The insurer would face the risk of disputing the claim and possibly paying attorneys’ fees many times greater than the disputed amount.
The author has personally seen claims go to litigation where an assignee service provider filed suit over a few hundred dollars a day after a bill was sent to an insurer and not paid. A search of the public records disclosed that that same provider had pending dozens of lawsuits in each of the surrounding counties filed by the same lawyers in the same form against multiple insurance companies, over small amounts in dispute, each of these carrying an attorney’s fee entitlement. In the case the writer is aware of, the service provider presented an attorney’s fees claim of $3,000.00 for filing a small claims court lawsuit over an amount in dispute of about $260.00. Multiple this by dozens of hundreds of times – as this practice is very common in both storm repairs and windshield repair – and it comes to a lot of money. Ultimately, this cost is passed back onto the consumer. Which is why signing an assignment of benefits may appear convenient to the insured, but ultimately may not be a good deal.
First, the insured losses control of the claim for payment. The claim may end up in litigation between the repair provider holding the assignment, and the insurance company, with repercussions on the insured’s claim history in future premiums and renewals. In a tight insurance market in the future, this could create problems.
Second, it’s unclear what happens when there is hidden hurricane damage later discovered which is or should have been a part of the initial claim, which has now been assigned away to the repair provider. Depending on the language of the assignment of benefits – which is drafted by the repair provider and not particularly with the interests of the insured in mind – the insured may have assigned away all of its rights arising out of a particular incident or event, for compensation under the insurance policy. Whether the insured would honor claims for later emerging or under discovered damage arising out of the same event is a gray area.
The insurance market is cyclical. Some years it’s not hard to get insurance; other years it’s next to impossible. Wind storm insurance is almost always hard to get. Assigning a claim to a repair provider who may disrupt the business relationship between the building owner and the insurer by filing a lawsuit over a small amount of money that reasonable people could have settled may create future problems for the building owner getting renewals or negotiating a premium.
Service providers may portray the assignment of benefits clause as simply an administrative convenience to allow the provider to file the paperwork and collect the money and sparing the building owner the administrative hassles. We believe the same result could be accomplished by simply having the repair provider file out the claim form and present it to the building owner for signature, receiving the check, endorsing it over to the provider, and putting it in the mail.