Industry Awaits Florida Supreme Court Decision on Post-Loss AOB Policy Language

By Andrew Marcus | March 14, 2019

As Florida lawmakers weigh reform for the state’s assignment of benefits crisis, the insurance industry and regulators are closely monitoring a case addressing post-loss policy language that is currently before the state’s high court.

Initial briefs are being filed in the case of Restoration 1 of Port St. Lucie vs. Ark Royal Insurance Company, (SC18-1624) after the court agreed to hear the case at the end of 2018 in response to the plaintiff’s appeal of the Florida’s Fourth District Court of Appeal decision finding an insurer’s anti-assignment provision was not prohibited.

On Feb. 11, 2019, attorneys for Restoration 1 of Port St. Lucie filed their initial brief in the case, arguing that the Fourth DCA was incorrect in allowing insurers to require the consent of all insureds and mortgagees to assign benefits under a homeowner’s insurance policy post-loss.

The case will have far-reaching implications on how insurers can limit the use of an assignment of benefits, a practice that insurance regulators and the industry contend is being abused by attorneys and contractors.

In this case, the homeowner’s insurance policyholders were husband and wife 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 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.”

In September, the Fourth DCA sided with insurer Ark Royal, finding that a homeowner’s insurance policy may con of other insureds and the mortgagees before a valid assignment of benefits may be made. The Fourth DCA found that the prior case law from the Florida Supreme Court prevented the insurance company from conditioning an AOB upon the insurer’s consent, but not the other insureds’ or mortgagee’s consent. The court 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.

On Dec. 27, 2018, the Florida Supreme Court accepted jurisdiction in the case, certifying conflict between the Fourth District Court of Appeal and the Fifth District Court of Appeal, which ruled in 2017 in the case of Security First Insurance Co. vs. Florida Office of Insurance Regulation (OIR) that similar policy language was prohibited.

The Fifth DCA found that Security First could not require that another homeowner or the mortgagee consent to the assignment of proceeds from the policy to a third party after a loss.

In its brief, Restoration 1 argues that the Florida Supreme Court should adopt the Fifth DCA’s stance and reject the Fourth DCA’s decision.

Restoration 1 relies heavily on OIR’s treatment of other carriers’ attempts to file language similar to Ark Royal’s filing, with OIR denying those attempts.

In the past, OIR has disapproved of insurance policy forms that restrict an insured’s post-loss assignment of benefits. However, in 2012, OIR allowed carriers to submit “informational filings,”— meaning the forms were not subject to review for approval or disapproval — if the insurer certified that the policies conformed with Florida law. Ark Royal filed such an informational filing with the restriction.

Restoration 1 argues in its brief that the court should reject the language because OIR has disapproved of policies with similar language from other carriers. However, in the Fourth DCA’s opinion on the matter it found that OIR has never taken steps to retroactively disapprove Ark Royal’s specific policy, even though it had that ability.

Restoration 1 points to cases cited by OIR and the Fifth DCA when they refused to allow anti-assignment provisions. Primarily, the Fifth DCA relied on a footnote in a 2008 Florida Supreme Court case, Continental Casualty Co. v. Ryan Inc. Eastern. The footnote paraphrases the 1917 Florida Supreme Court decision in West Florida Grocery Co. v. Teutonia Fire Insurance Co., the seminal case on the issue.

The Continental Casualty Co. footnote read, when quoting West Florida Grocery, that “it is a well settled rule that [anti-assignment provisions do] not apply to an assignment after loss.”

The Fourth DCA found that that the language was misquoted and overstated the holding in West Florida Grocery, with the original West Florida Grocery quote stating that it is 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.”

Restoration 1 also argues that only one insured is necessary to assign benefits under an insurance policy and that it is not necessary or practical for any other insureds to consent to the assignment.

Ark Royal must now submit a reply to Restoration 1’s initial brief.

What is decided in the case could have far reaching effects in what many contend has become a fraud scheme over the last decade targeting Florida homeowners who have been the victim of practices by dishonest contractors which result in fake or exaggerated claims.

The contractors have homeowners, often unknowingly, assign their benefits under an insurance contract to the contractor. The contractor may then escalate 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 fees statute.

This practice has led to a dramatic rise in claims and insurance rates. According to Florida OIR, claims associated with an assignment of benefits are 85 percent more expensive than claims without one.

Editor’s Note: Holland & Knight LLP represents the Florida Justice Reform Institute in the preparation of an amicus curia brief in this case. However, Marcus has played no role in that matter.

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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