Florida Appeals Court Deals Insurers a Win in AOB Fight with Policy Language Ruling

By Andrew Marcus | September 20, 2018

In a significant turn of events in the insurance industry’s fight against Florida assignment of benefits (AOB) abuse, Florida’s Fourth District Court of Appeal (DCA) has ruled that an insurer’s anti-assignment provision was not prohibited.

But the battle isn’t over yet as it is likely this decision will be brought to the Florida Supreme Court.

The Fourth DCA ruling came on Sept. 5, 2018 in the case of Restoration of Port St. Lucie, a/a/o, John and Liza Squitieri v. Ark Royal Insurance Co., in which the court disagreed with a decision by the Fifth DCA in Dec. 2017 prohibiting any such conditions.

The Fourth DCA found that a homeowner’s insurance policy may contain a restriction requiring the consent of all of the insured and the mortgagees before a valid assignment of benefits. The ruling could allow insurers to seek to use these restrictions to stem the rise of fake or exaggerated claims and allow parties with valid, vested interests in a property to have a say in the assignment. The ruling could be a turning point in stemming abuse of AOBs that is leading to increased homeowner insurance rates statewide.

Case Background

In this case, the policyholders were husband and wife homeowners who contracted with a water restoration company to fix water damage to their insured home. The home also had a mortgage. The wife, without the consent of her husband or the mortgagee, also agreed to “an assignment of benefits agreement assigning ‘any and all insurance rights, benefits, proceeds and any cause of action under any applicable insurance policies’ ” to the water restoration company.

The policy at issue in this case contained a condition that “[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagee(s) named in the policy.”

The water restoration company subsequently made a claim to the insurer under the assignment. The insurer refused to pay the full amount of the claim as a result of the anti-assignment provision in the policy. The water restoration company sued the insurer for breach of contract and declaratory relief.

The trial court granted the insurer’s motion to dismiss as a result of the anti-assignment provision in the contract. The Fourth DCA agreed with the trial court and found that the prior case law from the Florida Supreme Court prevented the insurance company from conditioning an assignment of benefits upon the insurer’s consent, but not the other insureds’ or mortgagee’s consent.

The Fourth DCA noted and disagreed with the Fifth DCA’s recent decision finding that any restriction of an assignment of rights in an insurance contract was prohibited. The Fourth DCA also noted that, unlike in the Fifth DCA’s decision, the anti-assignment provision had been informationally filed with the Florida Office of Insurance Regulation and had never been disapproved by the office.

The Fourth DCA ruled that the prior case law merely prohibited assignment of benefit restrictions based on the insurer’s consent. It found that an assignment restriction was not prohibited if it required the consent of all the insureds and all of the mortgagees named in the policy, stating that the insureds and mortgagees have a vested interest that a reputable, legitimate third-party contractor perform repairs on the home.

The ruling now sets up a conflict between two of the five intermediate-level appellate courts in the state. Restrictions of assignments contingent upon the consent of all insured and all mortgagees are now legal in the jurisdiction of the Fourth DCA, which comprises Palm Beach, Broward, St. Lucie, Martin, Indian River, and Okeechobee counties. The restrictions remain invalid in the Fifth DCA, which is comprised of Brevard, Citrus, Flagler, Hernando, Lake, Marion, Orange, Osceola, Sumter, St. Johns, Putnam, and Seminole counties. The Florida Supreme Court now may agree to take conflict jurisdiction if the case is appealed.

Impact on AOB Abuse

Insurers have been hamstrung by Florida state court case law which has been interpreted to prevent all restrictions by insurers on a policyholder’s ability to assign the benefits of a policy. In 1917, the Florida Supreme Court held that it was a “well-settled rule that the provision in a policy relative to the consent of the insurer to the transfer of an interest therein does not apply to an assignment after loss.”

Over the last decade, Florida consumers and insurers have been beset by the rise of assignment of benefit abuse. Assignment of benefits abuse occurs when a vendor has an insurance policyholder sign over, usually unknowingly, the rights to receive the benefits of their insurance policy to the vendor in exchange for the vendor’s services. The dishonest vendor then escalates the scope and cost of remediation or repairs beyond the actual damage and bills the insurance company for the inflated claim. Should the insurer not pay the inflated claim, vendors then sue the insurer. If the vendor prevails the vendor is awarded their attorney’s fees under Florida’s one-way attorney’s fees statute.

Claims, and correspondingly rates, have increased dramatically as a result of this practice. According to the Florida Office of Insurance Regulation, claims associated with an assignment of benefits are 85 percent more expensive than claims without one.

Assignment of benefit abuse has become a priority for Florida’s Chief Financial Officer Jimmy Patronis and Insurance Commissioner David Altmaier. The two officials have advocated for assignment of benefits reform and for Floridians to be weary of bad actors.

Despite the clear signs of a problem, the state legislature has failed to act on any legislation to remedy the issue. Regulators and insurers have attempted to mitigate the severity of the abuse, but so far to no avail.

About Andrew Marcus

Andrew Marcus is a regulatory lawyer in Holland & Knight's Tallahassee, Fla. office. He focuses on insurance and administrative law. He is the former deputy director, life and health product review - legal affairs, and assistant general counsel at the Florida Office of Insurance Regulation.

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