You come home from work one day to find that a leak under your sink has sprayed water all over the floor. Panicking, you shut off the water main and call the first plumber that pops up on Angie’s List. He fixes the leak and recommends a company to take care of all the water damage.
You’re satisfied with their work, so you take the referral and call the remediation company. But when they show up, that’s when the problem starts.
They present you with an Assignment of Benefits form and say that they won’t start work until you sign it.
What Is An Assignment of Benefits Agreement?
An Assignment of Benefits (AOB) is an agreement that effectively allows a third party to deal directly with your insurance carrier on your behalf.
This means they can file insurance claims, make repair decisions, and even collect money without you having to lift a finger. On the surface, this just sounds like great customer service. You get to hand over the hassle of dealing with your insurance company and still get your house fixed.
What could possibly go wrong?
Here’s How It All Goes Wrong…
If all contractors were honest, there might not be anything wrong with signing an AOB form and letting the pros do all the heavy lifting, so to speak.
But—and this might surprise you—not all people are honest.
Shocking, I know.
Contractors don’t use Assignment of Benefits agreements to make your life easier, but to make their lives easier (and get more money). When you sign an AOB form, you are handing your contractor the keys to your insurance policy (without any backup copies for yourself).
What does this mean? It means you can’t collect any payments from the insurance company. You can’t even talk to them about the claim. You have signed your rights as the insured entirely over to the contractor.
Why Should You Care?
Their usual tactic is to submit an invoice to your insurance company with a grossly inflated price, well above the adjuster’s estimate and/or the price their competitors are charging.
So the contractor is getting a few extra dollars for a hard day’s work. You don’t have to pay them…why should you care?
But Assignment of Benefit agreements do affect you individually, as well as the insurance industry as a whole.
For starters, your insurance company doesn’t usually reimburse that inflated price without a fight. In most cases, they’ll challenge the amount and the two of them will go back and forth until they reach an agreement. (Remember, since you signed away your rights, you won’t have a say at all.)
If the contractor hasn’t completed the work yet, your home might sit in disrepair until they settle. If the work has been done, the contractor can file a lien on your home until you pay.
Unfortunately, it’s even worse—for everyone—when the insurance company agrees to pay that ridiculous price. We’ve talked about the dangers of insurance fraud before. Well, this is just another example of that.
When the insurance companies are forced to pay out more than they expected (and more than they should), they need to take in more money to continue paying claims and stay in business. So how do they make up for these losses?
By raising premiums.
AOBs are not a victimless crime. When the insurance industry is put through the ringer, Florida consumers pay the price.
How Is This Legal?
AOB forms are legally binding contracts, but that doesn’t mean there aren’t any laws regulating them.
Under Florida law, AOB forms must include:
- an itemized, per-unit cost estimate of the work to be performed (i.e. no lump sum estimates of the entire project);
- a notice in 18-point, upper case, bold font stating that you are giving up your rights under the policy;
- the terms for revoking the contract.
Further, all work to be completed under the Assignment of Benefits agreement is limited to “services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.” In other words, AOBs are for large-scale jobs, not your average weekend project.
If an Assignment of Benefits form does not comply with Florida law, contact the Chief Financial Officer.
What Should You Do?
As a savvy homeowner, what can you do?
First, when you have a claim, call your insurance company or independent agent FIRST. They can help you find a reputable, high-quality contractor that hasn’t cost them an arm and a leg.
Second, beware of referrals to water damage or other remediation companies. The contractor referring you may only be recommending them because they get compensation for doing so. You want your home repair professionals to be recommended based on how good they are, nothing else.
Last, but certainly not least, DO NOT SIGN AN ASSIGNMENT OF BENEFITS AGREEMENT. There is no legitimate reason why a contractor would need you to give up your rights under your insurance policy to get your home back in livable condition.
However, some of you reading this might already have signed an AOB form. What do you do now?
Luckily, you are permitted under Florida law to revoke the contract
- within 14 days of signing it;
- within 30 days if the AOB doesn’t include a commencement date and “substantial work” hasn’t yet been done;
- if the contractor has not “substantially performed” the work within 30 days of the commencement date.
If you can rescind the Assignment of Benefits agreement, do so as soon as possible.
Stay In Control
You are the homeowner and the policy holder; DON’T let a contractor take your rights away from you!
When you report a claim, ask your insurance company or agent for the name of a reputable contractor and NEVER sign an Assignment of Benefits form. The hassle you will deal with later is not worth the minor convenience of not dealing with the insurance company yourself.
If you have already signed an AOB form, review the terms for rescission and follow them, if possible. Under Florida law, it is illegal for a contractor to charge you a penalty or fee for cancelling your AOB.
As always, if you have additional questions about Assignment of Benefits forms, contact Florida’s Chief Financial Officer or call one of the friendly agents at Harry Levine Insurance.
With two convenient offices to serve all of Central Florida, our main focus is on building a network of coverage that fits your needs and your budget. Get a free quote today to protect your home, auto, or business!