texas assignment of benefits

Insurance Benefit Assignment to Contractors: Not in Texas

Texas Law360 November 16, 2015 In Florida and other states, a post-loss assignment of insurance benefits (or AOB) has become commonplace and a hot-topic issue. The typical scenario is that after suffering a loss, the insured assigns the right to policy benefits to the contractor making the repairs. As noted in a recent opinion from a Florida appellate court, there are competing public policy reasons on each side of the AOB debate:

[W]e note that this issue boils down to two competing public policy considerations. On the one side, the insurance industry argues that assignments of benefits allow contractors to unilaterally set the value of a claim and demand payment for fraudulent or inflated invoices. On the other side, contractors argue that assignments of benefits allow homeowners to hire contractors for emergency repairs immediately after a loss, particularly in situations where the homeowners cannot afford to pay the contractors up front.[1]

Most insurance policies contain a provision that prohibits the transfer of an insured’s rights or duties under an insurance policy without the prior written consent of the insurance carrier. However, most states limit the application of such anti-assignment provision to preloss assignments.[2]

Insurers in Texas are seeing a dramatic increase in the number of hail, wind and other weather related claims.[3] Many of these claims originate with a contractor knocking on a building owner’s door with promises of a “free roof”. The homeowner then signs a “roofing contractor contingency agreement” giving the contractor the right to negotiate the claim and complete the roof replacement work with insurance proceeds. Despite being illegal under current Texas law, this model is very common.[4]

Obviously, Texas contractors, like their Florida counterparts, would also like to have an AOB. As a general matter, however, Texas courts enforce anti-assignment provisions regardless of when the assignment occurs. For example, in Dr. Michael Hoffman & Associates v. St. Paul Guardian Insurance Co ., an insured sold its building after making an insurance claim for an alleged plumbing leak.[5] As part of the sale, the insured purported to assign its rights under the insurance policy to the purchaser. When the purchaser brought suit against the insurer for denying coverage for the claim, the Dallas Court of Appeals enforced the anti-assignment provision and found that the purchaser had no right to pursue a claim under the insurance policy.[6]

In Texas Farmers Insurance Co. v. Gerdes , Gerdes was a passenger injured in a car accident and sought treatment from a chiropractic clinic.[7] Gerdes assigned her rights to benefits under the driver’s automobile policy to the clinic. However, the insurance company paid the benefits to Gerdes who never paid the clinic. When the clinic brought suit against the carrier, the court specifically recognized that “[n]onassignment clauses have been consistently enforced by Texas courts” and concluded that the nonassignment clause even prevented a third-party beneficiary (such as Gerdes) from assigning any right under the policy.[8]

Purported assignees have attempted to circumvent anti-assignment language in a policy by way of Section 12.014(a) of the Texas Property Code which specifically allows for the assignment of an interest in a cause of action. That section reads as follows:

A judgment or part of a judgment of a court of record or an interest in a cause of action on which suit has been filed may be sold, regardless of whether the judgment or cause of action is assignable in law or equity, if the transfer is in writing.[9]

On its face, Section 12.014 would appear to allow an insured to assign an interest in its claim against an insurer regardless of any language in the policy. However, the Texas Supreme Court has found, on public policy grounds, that certain assignments were invalid despite the existence of Section 12.014. For example, in State Farm Fire & Casualty Co. v. Gandy , the Texas Supreme Court found that public policy prevented a tortfeasor’s assignment of a claim against his liability insurance to the plaintiff.[10] Similarly, in Vinson & Elkins v. Moran , a Houston Court of Appeals found that despite the existence of Section 12.014, the assignment of a legal malpractice claim was against public policy and void.[11] Assignees have also sought to avoid anti-assignment language by characterizing the assignment as something other than an assignment of rights under an insurance policy. This argument was specifically addressed by the Fifth Circuit in Conoco Inc. v. Republic Insurance Co .[12] In that case, Conoco obtained an assignment of any insurance proceeds that Bonanza Corp. might collect from its liability carrier, Republic. Republic argued that the assignment was invalid based on the following policy language, “[n]o claim or demand against this company under this policy shall be assigned or transferred ...” Conoco attempted to distinguish its assignment from the anti-assignment language by arguing that the assignment was for “proceeds”, not a “claim or demand.” The Fifth Circuit rejected that argument as follows:

Appellee argues in response that its rights as an assignee arise not because Bonanza assigned a “claim or demand,” in contravention of the no-assignment clause, but here Bonanza assigned “proceeds” — a horse of a different color. The distinction is specious. An assignee stands in the boots of his assignor and we have already held that Bonanza's boots do not entitle it to recover from appellant. Appellee cannot enlarge Bonanza's boots by putting the label “proceeds” on its claim. Words cannot change a plugged nickel into a silver dollar.[13]

Ultimately, in light of the fact that Texas courts consistently enforce anti-assignment provisions even in post-loss scenarios, it is doubtful that Texas will see the same contingency agreements taking assignments of rights that are being used by contractors in other states.

[1] One Call Property Services Inc. v. Security First Insurance Co ., 165 So.3d 749, 755 (Fla. Dist. Ct. App. [4th Dist.] 2015).

[2] 3 Couch on Insurance § 35:8 (3d ed. 2015) (“the great majority of courts adhere to the rule that general stipulations in policies prohibiting assignments of the policy, except with the consent of the insurer, apply only to assignments before loss, and do not prevent an assignment after loss”) (collecting cases).

[3] See G. Brian Odom and Tyler McGuire, Keeping Pace with Texas Hail Claim ‘Case Runners’ , Texas Law360, Nov. 21, 2014.

[4] See Todd Tippett, Roofing Contractors, Don’t Mess With Texas Insureds , Texas Law360, Nov. 15, 2013.

[5] No. 05-04-00902-CV, (Tex. App. – Dallas Aug. 16, 2005, no pet.).

[6] Id . at *2.

[7] 880 S.W.2d 215 (Tex.App.-Fort Worth 1994, writ denied).

[8] Id . at 219.

[9] TEX. PROP. CODE ANN. § 12.014(a) (Vernon 2007).

[10] 925 S.W.2d 696 (Tex. 1996).

[11] 946 S.W.2d 381, 396 (Tex.App.-Houston [14th Dist.] 1997, pet. dism’d by agr.).

[12] 819 F.2d 120, 124 (5th Cir. 1987).

[13] Id. See also Keller Foundations Inc. v. Wausau Underwriters Insurance Co ., 626 F.3d 871 (5th Cir. 2010) (rejecting the characterization of a transfer of insurance coverage as a “chose in action”); Texas Pacific Indemnity Co. v. Atlantic Richfield Co. , 846 S.W.2d 580, 583 (Tex.App.—Houston [14th Dist.] 1993, writ denied) (rejecting argument that “the policy limits only assignments of ‘interests’ in the policy and not fully matured claims based on the policy.”)

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Handling Assignment of Benefit (“AOB”) Claims in the Wake of Hurricanes Irma and Harvey

Overview | Blog Posts | First-Party Coverage | Timothy Engelbrecht , T. Nicholas Goanos , L. Andrew Watson | Related | Print | Share

Timothy Engelbrecht

Partner | First-Party Coverage , Extra-Contractual 813-281-1900 [email protected]

T. Nicholas Goanos

Partner | Extra-Contractual , Arson & Fraud , Casualty Defense Litigation , Third-Party Coverage , First-Party Coverage 704-940-9811  [email protected]

L. Andrew Watson

Partner | First-Party Coverage , Extra-Contractual , Casualty Defense Litigation , Arson & Fraud , Third-Party Coverage 704-543-2321 [email protected]

September 12, 2017

Hurricanes Irma and Harvey have damaged large areas of Florida, Texas, and Louisiana, as well as brought heavy rain and wind to Georgia, North Carolina, and South Carolina. As insurers handle thousands of property damage claims in these areas, they will undoubtedly be presented with claims that have been assigned from insureds to damage-repair contractors. These are often referred to as assignments of benefits or “AOB” claims. This article explains briefly what an AOB claim is, how Florida, Texas, Louisiana, Georgia, North Carolina, and South Carolina address AOB claims, and the best practices for handling AOB claims.

WHAT IS AN AOB CLAIM?

The classic example of an AOB claim is the following: an insured suffers property damage and hires a repair contractor to repair that damage. The repair contractor requires the insured to execute a written document, usually entitled “Assignment of Insurance Benefits”, which says something to the effect of “for and in consideration of the contractor’s agreement to protect the property from further damage and/or make repairs, the insured assigns his/her/its insurance benefits to the contractor.” The contractor thereafter makes a claim directly to the insurer using the AOB.

HOW DOES FLORIDA, TEXAS, LOUISIANA, GEORGIA, NORTH CAROLINA, AND SOUTH CAROLINA ADDRESS AOB CLAIMS?

Florida  has allowed AOB claims for over 100 years. Sec. First Ins. Co. v. State, Office of Ins. Regulation , 177 So. 3d 627, 628 (Fla. 1st DCA 2015). Post-loss property damage claims are freely assignable in Florida regardless of whether the insurer consents or not.   Start to Finish Restoration, LLC v. Homeowners Choice Prop. & Cas. Ins. Co. , 192 So. 3d 1275, 1276 (Fla. 2d DCA 2016). An insurance policy that has a “non-assignment” clause only bars the assignment of the entire insurance policy, not an assignment of a post-loss insurance claim. Bioscience West, Inc. v. Gulfstream Prop. & Cas. Ins. Co. , 185 So. 3d 638, 640-41 (Fla. 2d DCA 2016). 

Texas  has adopted the opposite approach to AOBs. The general rule in Texas is that an insured cannot assign an insurance claim if the insurance policy has a non-assignment clause. ARM Props. Mgmt. Group v. RSUI Indem . Co., 642 F.Supp.2d 592, 609-10 (W.D. Tex. 2009) relying on  Tex. Farmers Ins. Co. v. Gerdes , 880 S.W. 2d 215, 218 (Tex. App. 1994). This is true even if the non-assignment clause is general and broadly worded.

Louisiana  takes a hybrid approach to AOBs. Louisiana allows an insurer to place a clause in an insurance policy that prohibits post-loss assignments.   In re Katrina Canal Breaches Litig ., 63 So. 3d 955, 962-63 (La. 2011). However, in order for such a clause to be enforceable, the clause must clearly and unambiguously express that it applies to post-loss assignments.   Id . The general and a broadly worded non-assignment clause that has traditionally appeared in most insurance policies is not sufficient. Id. 

Georgia , much like many of the States above and across the Country, permits AOBs.  See Santiago v. Safeway Ins. Co. , 196 Ga. App. 480, 481, 396 S.E.2d 506, 608 (App. Ct. 1990). Unlike North Carolina and South Carolina, which are discussed below, an assignee in Georgia may pursue his own extra-contractual claim only after first establishing a breach of the insurance policy.  Southern Gen. Ins. Co. v. Holt , 262 Ga. 267, 416 S.E.2d 274, 276-77 (1992). Further, before pursuing an extra-contractual claim, an assignee (or insured) in Georgia must provide the insurer an opportunity to “cure” the alleged “bad faith”. See  Ga. Code Ann. § 33-4-6.

Lastly,  North Carolina  and  South Carolina  also allow AOBs. In upholding the validity of an assignment, courts in these States have ruled not only that assignments of benefits are indeed valid, but also, that they are governed by each State’s general contract law. See e.g., Alaimo Family Chiropractic v. Allstate Ins. Co. , 155 N.C. App. 194, 197, 574 S.E.2d 496, 498 (App. Ct. 2002);  Gray v. State Farm Auto. Ins. Co. , 327 S.C. 646, 491 S.E.2d 272 (App. Ct. 1997). The “rubber” meets the proverbial “road”, though, when an extra-contractual claim is alleged. In North Carolina and South Carolina, a plaintiff may assert an extra-contractual claim, even if the insurer has not breached the insurance policy. See  Tadlock Painting Co. v. Maryland Cas. Co. , 322 S.C. 498, 473 S.E.2d 52 (1996);  Kielbania v. Indian Harbor Ins. Co., 2012 WL 3957926 (M.D.N.C. 2012). However, an assignee is limited in the sense that it may pursue only his own extra-contractual claim, and not the assignors.  Horton v. New S. Ins. Co. , 122 N.C. App. 265, 268, 468 S.E.2d 856, 858 (1996);  Davis v. Liberty Mut. Ins. Co. , 2015 WL 6163243, at *4 (D.S.C. 2015).

WHAT ARE THE BEST PRACTICES FOR HANDLING AN AOB CLAIM?

First, as noted above, an adjuster needs to know if the state law where the AOB claim is being made allows for AOB claims. 

Second, assuming the state allows for AOB claims, the adjuster needs to carefully read what the actual AOB document says. They are not all the same. Some AOBs assign the entire claim. Other AOBs only assign part of the claim. For example, imagine an insured’s property is damaged by water. The insured needs the water extracted and the structure rebuilt. An AOB might assign both the water extraction and the rebuild claim to a single contractor. Or, the insured might execute one AOB to a water extraction contractor and a separate AOB to a different rebuild contractor. Or, an insured might execute an AOB to a water extraction contractor and the insured will retain the remaining rights to make the rebuild claim. If the AOB is unclear what – exactly – is being assigned, it is important for the adjuster to speak with the insured and the contractor to ensure everyone is on the same page.

Third, the adjuster should speak to the insured to gather information necessary to understand and adjust the assigned claim. In Florida, an adjuster likely cannot require a contractor to perform the insurance policy’s post-loss conditions of giving documents, executing a sworn statement in proof of loss, or appearing for an examination under oath. Shaw v. State Farm Fire & Cas. Co.,  37 So. 3d 329, 332-33 (Fla. 5th DCA 2010) disapproved on other grounds in  Nunez v. Geico Gen. Ins. Co. , 117 So. 3d 388 (Fla. 2013). However, the insured is still responsible for fulfilling those conditions even with regard to the assigned claim. Id. The insured’s failure to do so may bar the assigned claim. Id. 

Fourth, assuming payment will be made on the assigned claim, the adjuster should determine who will be listed on the settlement check. If there is a valid AOB, it may be improper to list the insured on the settlement check since the insured’s rights have been assigned to the contractor. Many AOBs will state that only the contractor be listed on the settlement check. However, it is good for an adjuster to confirm with the insured that the insured understands that he/she/it will not be listed on the settlement check. It is also important for the adjuster to correctly determine if a mortgagee needs to be listed on the settlement check. Situations vary depending on the nature of the work that the contractor is doing (damage prevention versus repair) and whether the work has been completed or is still to be done. The adjuster should discuss the situation with the insured, the contractor, and the mortgagee if the adjuster is at all unsure if the mortgagee needs to be on the settlement check.

Fifth, an adjuster should know whether an assigned claim can be resolved using the insurance policy’s appraisal provision. Appraisal can be an inexpensive and expedient way to resolve a claim. In Florida, an insurer usually can require a contractor with an assigned claim to go to appraisal if the insurance policy provides for the mandatory appraisal upon request.  Certified Priority Restoration v. State Farm Florida Ins. Co ., 191 So. 3d 961, 962 (Fla. 4th DCA 2016).

Insurers will continue to be presented with AOB claims in the wake of Hurricanes Irma and Harvey. We have been helping insurers and adjusters navigate the unique issues associated with AOB claims for many years. Please contact us if you have any questions or need assistance.

For any further questions, please contact Timothy Engelbrecht, T. Nicholas Goanos, or L. Andrew Watson.

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Cross-Examination: Don’t Mess with Texas Contract Law

How to prosper with proper documentation for cat losses.

Photos credit: BrAt_PiKaChU/Stock / Getty Images Plus via Getty Images and Ed Crosss

“Don’t mess with Texas” has been the unofficial slogan of the Lone Star State since 1985. While the rest of the country thinks it’s just a catchphrase, true Texans know it actually began as an anti-littering campaign. The saying is especially fitting now because the State of Texas does not want remediation contractors littering the state with contracts that do not comply with its unique laws. These laws are traps for the unwary. 

Follow the Special Rules for Disaster Remediation Contracts

Texas is the only state I know of that has a separate body of statutes specifically targeting “disaster remediation contracts.” The rules are very specific and have more twists than a pretzel factory, particularly when it comes to lien rights. The state is on the lookout for crooked contractors, and violators can land in the hoosegow. 

In the aftermath of Hurricane Harvey, some contractors pressured Texans to provide upfront payments for work that was never performed. The state took a rather dim view of that, and made it a crime for a contractor to require full or partial payment before work is performed. Texas Disaster Remediation Contracts must state that the contract is subject to Chapter 58 of the Texas Business & Commerce Code, that the contractor may not require advance payments, and that progress payments must be in reasonable proportion to the amount of work actually performed, including materials delivered.¹ A violation of any of these requirements is deemed a “deceptive act” that may have serious legal consequences. 

Contractors will march into Texas with good intentions and traditional work authorizations that fail to specify material terms, making them difficult or impossible to enforce. Think of a contract as a list of everything you would want a court to give you in the event the customer does not pay. If it’s not in a writing signed by the customer, the court probably won’t give it you. When a Texas judge sees an old fashioned work authorization, they’ll might think the contractor just fell off the turnip truck. 

Contractors must provide their residential customers with a list of subcontractors, or get a waiver of the right to the list. However, most or all of the other requirements cannot be waived. Before a residential contract is executed by the owner, Texas requires the contractor to provide a written statement substantially similar to the text of Texas Property Code Section 53.255, indicating that: 

• Texas law requires contractors to provide owners with an overview of their rights, responsibilities, and risks in the transaction.
• The contractor may not require the owner to convey the property to the contractor as a condition to the agreement to perform work.
• The owner should investigate the contractor and obtain references before signing the contract.
• The owner should insist on a written contract that explains what the contractor will do, when it will be done, and the cost of work or an explanation of how the cost will be determined. 

Give Notice of the Right to Cancel

Consumers in Texas may cancel a consumer transaction up to three business days after signing the agreement. Contractors have to provide a notice of the right to cancel, and it must be in same language used in the principal sales presentation, e.g., Spanish. The form of the notice is dictated by the Texas Business and Professions Code and must be in boldface type in a minimum size of 10 points. The contractor must also provide a Notice of Cancellation form for customers to sign in the event they elect to cancel.

Hold Harmless Provisions and Releases of Liability

Texas courts generally don’t want you to hang your wash on someone else’s line. The EPA and OSHA, in addition to local and state authorities, have specific and stringent requirements for the removal of materials that contain lead and asbestos. Contractors should also follow the applicable federal and local regulations for preventing silica dust exposure to workers and occupants. In light of recent weather activity, when the restoration industry is overtaxed, there is a temptation to rush in without following proper procedures. Some jurisdictions require asbestos surveys and a notification process many days before work begins. Some good-intentioned contractors may try to expedite demolition projects by seeking waivers or releases of liability to skirt the rules. Not so fast! Some releases are enforceable in Texas, but many are not! 

It is not unusual for businesses to seek releases of liability for negligence or even gross negligence. The more serious the wrong, the more difficult it is to be released from liability for it. Some courts in Texas believe that releases for gross negligence violate public policy and should not be enforced. Definitely ask for a release if the customer refuses your recommendations on an issue that could lead to secondary damage or bodily injury. 

Releases are subject to the Texas Fair Notice Requirements, which essentially stands for the proposition that a business must have very good evidence that a customer was aware of a release and had a good understanding of what rights were being released. Written releases must be specific and conspicuous. This means that they must not be buried in fine print. A good practice is to put them in bold, capital letters. They must be presented in a way that would capture the attention of a reasonable person. 

Add Some Teeth to Improve Collection Chances 

Contractors have much better leverage in collections when their contracts contain provisions for attorneys’ fees, collection costs, late fees, service charges, and interest. Unlike many states, Texas has some serious teeth to its lien statute, which states that the court “shall” award costs and attorney’s fees in a lien foreclosure action.² 

Customers Must Pay Deductibles

It’s a crime in Texas to pay or offer to pay policyholder’s deductible or to rebate all or part of a deductible. It’s also a crime for a policyholder to submit a claim for charges that have been padded to offset the deductible. Texas allows insurers to deny claims when the deductible is not paid. The deductible protects the carrier by ensuring the policyholder has some skin in the game. Contractors are coming to Texas in droves from all of the country, in response to the catastrophe resulting from the severe winter weather of 2021. Unfortunately, some of these contractors are “all hat and no cattle.”

The Texas Hold’em: Mechanic’s Liens

Of course, the most powerful collection tool is the mechanic’s lien. A lien is a legal hold on property to secure a debt. To fix a lien on Texas residential property, a written contract must usually be executed before the work is performed. Unlike any other state law I have seen, to protect the right to lien the home of a married person, the remediation contract must be signed by both spouses, even if the other spouse’s name is not on the property! Further, the contract must be filed with the county clerk where the homestead is located.³ 

Use Lump Sum Prices Whenever Possible

Everyone hates sticker shock. After decades of collecting money for remediation contractors, I cannot overstate the point that fixed price contracts are much easier to enforce than “time and materials contracts.” I

 know what you’re thinking: “Ed, it’s impossible to state a price for emergency service before work begins!” I respectfully disagree. The problem is that emergency service work authorizations often obligate the contractor to return the property to its pre-loss condition. The price for that is usually impossible to accurately determine at the outset, but it’s not necessary to commit to that result the moment you walk on the job. 

It’s totally unnecessary to scope an entire project just to start the stabilization process! The better approach is to go in stages, pricing each one as you go. Write a scope for an initial set of services that will definitely be necessary, and agree on a lump sum price for that. Explain that water damage is progressive, and establish an understanding that drying times are difficult to predict. Return on day two or day three, taking moisture meter readings, revisiting the scope and executing change orders as necessary to bring the project to conclusion. For example, an initial scope could be six air movers and a dehumidifier for three days, and ten labor hours for the lump sum price of x dollars, to be followed by a change order for additional services, if needed. If you have the customer’s agreement to the price for each stage of work, they have no argument that they “would not have hired you if they knew it was going to cost so much.”

Assignment of Benefits

A great way restoration contractors keep insurance companies honest is to obtain an assignment of rights under a claim. A properly drafted assignment allows the contractor to make a claim directly against an insurance company that would otherwise be impossible. 

Most insurance policies contain provisions stating that the policies cannot be assigned. Most states do not apply these “anti-assignment” provisions to the assignment of rights under an individual claim. These are called “post-loss assignments of benefits.” Texas is in the minority of jurisdictions that apply the anti-assignment provisions to post-loss assignments, so the typical assignment of benefits probably will not work in Texas. However, Texas law allows the written assignment of an interest in a cause of action, which means that a contractor can receive the right to pursue a claim against an insurance company for breach of the policy.

Encourage customers to read the contract! Do not rush a customer into signing a contract. Texas is wary of contractors who get signatures on contracts with blanks in them, especially when the blanks are later filled in with terms that are not favorable to the customer. This can lead to severe legal consequences for the contractor, so simply don’t ask a customer to sign a contract with blanks in it. If space is inadvertently left blank, immediately bring this to the attention of the customer, explain how you believe the blank should be filled in, and try to reach an agreement, memorialized in a signed change order. In an impasse on a fundamental term of the contract, contact a Texas lawyer and discuss whether it is best for all concerned to cancel the contract. 

Whether required by law or not, all restoration contracts should be in writing.⁴ Thorough communications and good contracts mirroring those communications greatly reduce the chance of conflict and collection problems. 

This article is for general information and is not intended to be legal advice. Rather than relying on hearsay or entertaining magazine articles, to start getting the slack out of your rope, read the actual law. If you’d like a free copy of some of the important Texas rules for disaster remediation contracts, just send an email to [email protected] with “Texas Rules” in the subject line. 

If you’re working on the 2021 Texas freeze, just remember: this ain’t their first rodeo. Git-R-Done! 

¹ Texas Business & Commerce Code Section 58.003

² Texas Property Code Section 53.156

³ Texas Property Code Section 53.254

⁴ This is not to say that the failure to execute a written contract will always deprive contractors of the right to payment in all jurisdictions. 

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Ed Cross, “The Restoration Lawyer,” represents restorers nationwide from offices in Palm Desert, California and Honolulu, Hawaii. His firm drafts restoration contracts, collects money for restorers and represents them in litigation. He is the Restoration Contractor Advocate for the Restoration Industry Association. He can be reached at (760) 773-4002 or by email at [email protected]. For information about how to document a file to accelerate collections, visit EdCross.com/collections. 

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Assignment of Benefits: What It Is, and How It Can Affect your Property Insurance Claim

Table of Contents

What is an Assignment of Benefits?

In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work .  In exchange, the contractor agrees that it will not seek payment from you for that scope of work, except for the amount of any applicable deductible.  In other words, you give part of your insurance claim to your contractor, and your contractor agrees not to collect from you for part of its work.

The most important thing to know about an assignment of benefits is that it puts your contractor in control your claim , at least for their scope of work.  Losing that control can significantly affect the direction and outcome of your claim, so you should fully understand the implications of an AOB (sometimes called an assignment of claims or AOC) before signing one.

How Does an Assignment of Benefits Work in Practice? 

Let’s say you’re an insured homeowner, and Hurricane Ian significantly damaged your roof.  Let’s also assume your homeowner’s policy covers that damage.  A roofer, after inspecting your roof and reviewing your insurance policy, might conclude that your insurer is probably going to pay for a roof replacement under your insurance policy.  The only problem is that it’s early in the recovery process, and your insurer hasn’t yet stated whether it will pay for the roof replacement proposed by your contractor. So if you want your roof replaced now, you would ordinarily agree to pay your roofer for the replacement, and wait in hopes that your insurer reimburses you for the work.  This means that if your insurance company refuses to pay or drags out payment, you’re on the hook to your roofer for the cost of the replacement.

As an alternative to agreeing to pay your roofer for the full cost of the work, you could sign an assignment of benefits for the roof replacement.  In this scenario, your roofer owns the part of your insurance claim that pertains to the roof replacement.  You might have to pay your roofer for the amount of your deductible, but you probably don’t have to pay them for the rest of the cost of the work.  And if your insurance company refuses to pay or drags out payment for the roof replacement, it’s your roofer, and not you, who would be on the hook for that shortfall.

So should you sign an AOB?  Not necessarily.  Read below to understand the pros and cons of an assignment of benefits.

Are There any Downsides to Signing an Assignment of Benefits?

Yes.  

You lose control of your claim . This is the most important factor to understand when considering whether to sign an AOB.  An AOB is a formal assignment of your legal rights to payment under your insurance contract.  Unless you’re able to cancel the AOB, your contractor will have full control over your claim as it relates to their work. 

To explain why that control could matter, let’s go back to the roof replacement example.  When you signed the AOB, the scope of work you agreed on was to replace the roof.  But you’re not a roofing expert, so you don’t know whether the costs charged or the materials used by the roofer in its statement of work are industry appropriate or not.  In most cases, they probably are appropriate, and there’s no problem.  But if they’re not – if, for instance, the roofer’s prices are unreasonably high – then the insurer may not approve coverage for the replacement.  At that point, the roofer could lower its prices so the insurer approves the work, but it doesn’t have to, because it controls the claim .  Instead it could hold up work and threaten to sue your insurer unless it approves the work at the originally proposed price.  Now the entire project is insnared in litigation, leaving you in a tough spot with your insurer for your other claims and, most importantly, with an old leaky roof.

Misunderstanding the Scope of Work.   Another issue that can arise is that you don’t understand the scope of the assignment of benefits.  Contractor estimates and scopes of work are often highly technical documents that can be long on detail but short on clarity.  Contractors are experts at reading and writing them.  You are not.  That difference matters because the extent of your assignment of benefits is based on that technical, difficult-to-understand scope of work.  This can lead to situations where your understanding of what you’re authorizing the contractor to do is very different from what you’ve actually authorized in the AOB agreement.

In many cases, it’s not necessary .   Many contractors will work with you and your insurer to provide a detailed estimate of their work, and will not begin that work until your insurer has approved coverage for it.  This arrangement significantly reduces the risk of you being on the hook for uninsured repairs, without creating any of the potential problems that can occur when you give away your rights to your claim.

Do I have to sign an Assignment of Benefits?

No.  You are absolutely not required to sign an AOB if you do not want to. 

Are There any Benefits to Signing an Assignment of Benefits?

Potentially, but only if you’ve fully vetted your contractor and your claim involves complicated and technical construction issues that you don’t want to deal with. 

First, you must do your homework to fully vet your contractor!  Do not just take their word for it or be duped by slick ads.  Read reviews, understand their certificate of insurance, know where they’re located, and, if possible, ask for and talk to references.  If you’ve determined that the contractor is highly competent at the work they do, is fully insured, and has a good reputation with customers, then that reduces the risk that they’ll abuse their rights to your claim.

Second, if your claim involves complicated reconstruction issues, a reputable contractor may be well equipped to handle the claim and move it forward.  If you don’t want to deal with the hassle of handling a complicated claim like this, and you know you have a good contractor, one way to get rid of that hassle is an AOB.

Another way to get rid of the hassle is to try Claimly, the all-in-one claims handling tool that get you results but keeps you in control of your claim.  

Can my insurance policy restrict the use of AOBs?

Yes, it’s possible that your Florida insurance policy restricts the use of AOBs, but only if all of the following criteria are met:

• When you selected your coverage, your insurer offered you a different policy with the same coverage, only it did not restrict the right to sign an AOB.
• Your insurer made the restricted policy available at a lower cost than the unrestricted policy.
• If the policy completely prohibits AOBs, then it was made available at a lower cost than any policy partially prohibiting AOBs.
• The policy includes on its face the following notice in 18-point uppercase and boldfaced type:

THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7153 OF THE FLORIDA STATUTES.

627.7153. 

Pro Tip : If you have an electronic copy of your complete insurance policy (not just the declaration page), then search for “policy does not allow the unrestricted assignment” or another phrase from the required language above to see if your policy restricts an AOB.  If your policy doesn’t contain this required language, it probably doesn’t restrict AOBs.

Do I have any rights or protections concerning Assignments of Benefits?

Yes, you do.  Florida recently enacted laws that protect consumers when dealing with an AOB.

Protections in the AOB Contract

To be enforceable, a Assignments of Benefits must meet all of the following requirements:

• Be in writing and executed by and between you and the contractor.
• Contain a provision that allows you to cancel the assignment agreement without a penalty or fee by submitting a written notice of cancellation signed by the you to the assignee:
• at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or
• at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.
• Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier.
• Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee .
• Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
• Contain the following notice in 18-point uppercase and boldfaced type:

YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.

• Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees.

Contractor Duties

Under Florida law, a contractor (or anyone else) receiving rights to a claim under an AOB:

• Must provide you with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required.
• Must perform the work in accordance with accepted industry standards.
• May not seek payment from you exceeding the applicable deductible under the policy unless asked the contractor to perform additional work at the your own expense.
• Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, submit to examinations under oath and recorded statements conducted by the insurer or the insurer’s representative that are reasonably necessary, based on the scope of the work and the complexity of the claim, which examinations and recorded statements must be limited to matters related to the services provided, the cost of the services, and the assignment agreement.
• Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, participate in appraisal or other alternative dispute resolution methods in accordance with the terms of the policy.
• If the contractor is making emergency repairs, the assignment of benefits cannot exceed the greater of $3,000 or 1% of your Coverage A limit.

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The aob guide for florida property owners: rights, requirements, and faqs, new legislation alert: 2022 changes to florida property insurance laws and how they affect you, understanding the new proof-of-loss form requirements in florida..

Brelly’s tools and resources are your secret weapon to getting your insurance claim filed right, moving fast, and paid fully .

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2023 Texas Statutes Insurance Code Title 8 - Health Insurance and Other Health Coverages Subtitle A - Health Coverage in General Chapter 1204 - Procedures for Payment of Certain Health and Accident Insurance Policy or Plan Benefits Subchapter B. Assignment of Benefit Payments

• Section 1204.051. Definitions
• Section 1204.052. Applicability to Certain Plans or Programs
• Section 1204.053. Assignment of Benefits
• Section 1204.054. Payment of Benefits According to Assignment
• Section 1204.055. Contractual Responsibility for Deductibles and Copayments

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Texas Insurance Code 1204.053 – Assignment of Benefits

(a) An insurer may not deliver, renew, or issue for delivery in this state a health insurance policy that prohibits or restricts a covered person from making a written assignment of benefits to a physician or other health care provider who provides health care services to the person. (b) This section does not: (1) provide a coverage or benefit that is not otherwise available under the health insurance policy; (2) allow assignment of a benefit to: (A) a person who is not legally entitled to receive such a direct payment; or (B) another person if, under the health insurance policy or plan, the benefit must be provided to the covered person by a physician or other health care provider who is a contractor or preferred provider under the policy; or (3) prohibit an insurer from verifying, through the insurer’s normal process, the health care services the physician or other health care provider provides to the covered person.

Terms Used In Texas Insurance Code 1204.053

• Person : includes corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity. See Texas Government Code 311.005
• Written : includes any representation of words, letters, symbols, or figures. See Texas Government Code 311.005

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Assignment of Insurance Claims in Texas

A colleague of mine recently dealt with an interesting issue regarding the assignment of an insurance claim. Specifically, she looked into how Texas law applies to the assignment of an insurance claim when the insurance policy contains a non-assignment clause. Most states follow the rule that if the policy prohibits assignment, the insured cannot assign the policy but can assign the right to the claim after it occurs. Unsurprisingly, Texas does not follow the majority rule.

The general rule in Texas is that an insured cannot assign an insurance claim if the policy contains a non-assignment clause. See Hoffman v. St. Paul Guardian and Texas Farmers Ins. Co. v. Gerdes . However, Texas law does allow an insured to sell the right to a cause of action if a suit has been filed, even if the underlying contract cannot be assigned. See Pagosa Oil v. Marrs and Smith Partnership .

Texas Property Code Section 12.014(a) states:

A judgment or part of judgment of a court of record or an interest in a cause of action on which suit has been filed may be sold, regardless of whether the judgment or cause of action is assignable in law or equity, if the transfer is in writing.

Therefore, although insurance law does not allow you to assign your claim if your policy contains a non-assignment clause, Texas property law allows you to reach the same result by selling the cause of action in writing. Although I don’t know the attorney who discovered this workaround, if s/he’s reading this, we all thank you.

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Assignment of Benefits for Contractors: Pros & Cons of Accepting an AOB

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Insurance , Restoration , Slow Payment

When a property owner files an insurance claim to cover a restoration or roofing project, the owner typically deals directly with the insurance company. They may not have the funds available to pay the contractor out of pocket, so they’re counting on that insurance check to cover the construction costs.

But insurance companies often drag their feet, and payments can take even longer than normal. Contractors often wish they could simply deal with the insurance company directly through an assignment of benefits. In some circumstances, an AOB can be an effective tool that helps contractors collect payment faster — but is it worth it?

In this article, we’ll explain what an assignment of benefits is, and how the process works. More importantly, we’ll look at the pros and cons for restoration and roofing contractors to help you decide if an AOB is worth it . 

What is an assignment of benefits? 

An assignment of benefits , or AOB, is an agreement to transfer insurance claim rights to a third party. It gives the assignee authority to file and negotiate a claim directly with the insurance company, without involvement from the property owner. 

An AOB also allows the insurer to pay the contractor directly instead of funneling funds through the customer. AOBs take the homeowner out of the claims equation.

Here’s an example: A property owner’s roof is damaged in a hurricane. The owner contacts a restoration company to repair the damage, and signs an AOB to transfer their insurance rights to the contractor. The contractor, now the assignee, negotiates the claim directly with the insurance company. The insurer will pay the claim by issuing a check for the repairs directly to the restoration contractor. 

Setting up an AOB

A property owner and contractor can set up an assignment of benefits in two steps: 

• The owner and the contractor sign an AOB agreement
• The contractor sends the AOB to the insurance company

Keep in mind that many states have their own laws about what the agreement can or should include .

For example, Florida’s assignment of benefits law contains relatively strict requirements when it comes to an assignment of benefits: 

• The AOB agreements need to be in writing. The agreement must contain a bolded disclosure notifying the customer that they are relinquishing certain rights under the homeowners policy. You can’t charge administrative fees or penalties if a homeowner decides to cancel the AOB. 
• The AOB must include an itemized, per-unit breakdown of the work you plan to do. The services can only involve how you plan to make repairs or restore the home’s damage or protect the property from any further harm. A copy must be provided to the insurance company. 
• A homeowner can rescind an AOB agreement within 14 days of signing, or within 30 days if no work has begun and no start date was listed for the work. If a start date is listed, the 30-day rule still applies if substantial progress has not been made on the job. 

Before signing an AOB agreement, make sure you understand the property owner’s insurance policy, and whether the project is likely to be covered.

Learn more: Navigating an insurance claim on a restoration project

Pros & cons for contractors

It’s smart to do a cost-benefit analysis on the practice of accepting AOBs. Listing pros and cons can help you make a logical assessment before deciding either way. 

Pro: Hiring a public adjuster

An insurance carrier’s claims adjuster will inspect property damage and arrive at a dollar figure calculated to cover the cost of repairs. Often, you might feel this adjuster may have overlooked some details that should factor into the estimate. 

If you encounter pushback from the insurer under these circumstances, a licensed, public adjuster may be warranted. These appraisers work for the homeowner, whose best interests you now represent as a result of the AOB. A public adjuster could help win the battle to complete the repairs properly. 

Pro: More control over payment

You may sink a considerable amount of time into preparing an estimate for a customer. You may even get green-lighted to order materials and get started. Once the ball starts rolling, you wouldn’t want a customer to back out on the deal. 

Klark Brown , Co-founder of The Alliance of Independent Restorers, concedes this might be one of the very situations in which an AOB construction agreement might help a contractor. “An AOB helps make sure the homeowner doesn’t take the insurance money and run,” says Brown.  

Pro: Build a better relationship with the homeowner

A homeowner suffers a substantial loss and it’s easy to understand why push and pull with an insurance company might be the last thing they want to undertake. They may desire to have another party act on their behalf. 

As an AOB recipient, the claims ball is now in your court. By taking some of the weight off a customer’s shoulders during a difficult period, it could help build good faith and further the relationship you strive to build with that client. 

Learn more : 8 Ways for Contractors to Build Trust With a Homeowner

Con: It confuses payment responsibilities

Even if you accept an AOB, the property owner still generally bears responsibility for making payment. If the insurance company is dragging their feet, a restoration contractor can still likely file a mechanics lien on the property .

A homeowner may think that by signing away their right to an insurance claim, they are also signing away their responsibility to pay for the restoration work. This typically isn’t true, and this expectation could set you up for a more contentious dispute down the line if there is a problem with the insurance claim. 

Con: Tighter margins

Insurance companies will want repairs made at the lowest cost possible. Just like you, carriers run a business and need to cut costs while boosting revenue. 

While some restoration contractors work directly with insurers and could get a steady stream of work from them, Brown emphasizes that you may be sacrificing your own margins. “Expect to accept work for less money than you’d charge independently,” he adds. 

The takeaway here suggests that any contractor accepting an AOB could subject themselves to the same bare-boned profit margins. 

Con: More administrative work

Among others, creating additional administrative busywork is another reason Brown recommends that you steer clear of accepting AOBs. You’re committing additional resources while agreeing to work for less money. 

“Administrative costs are a burden,” Brown states. Insurers may reduce and/or delay payments to help their own bottom lines. “Insurers will play the float with reserves and claims funds,” he added. So, AOBs can be detrimental to your business if you’re spending more while chasing payments. 

Con: Increase in average collection period

Every contractor should use some financial metrics to help gauge the health of the business . The average collection period for receivables measures the average time it takes you to get paid on your open accounts. 

Insurance companies aren’t known for paying claims quickly. If you do restoration work without accepting an AOB, you can often take action with the homeowner to get paid faster. When you’re depending on an insurance company to make your payment, rather than the owner, collection times will likely increase.

The literal and figurative bottom line is: If accepting assignment of benefits agreements increases the time it takes to get paid and costs you more in operational expense, these are both situations you want to avoid. 

Learn more: How to calculate your collection effectiveness 

AOBs and mechanics liens

A mechanics lien is hands down a contractor’s most effective tool to ensure they get paid for their work. Many types of restoration services are protected under lien laws in most states. But what happens to lien rights when a contractor accepts an assignment of benefits? 

An AOB generally won’t affect a contractor’s ability to file a mechanics lien on the property if they don’t receive payment. The homeowner is typically still responsible to pay for the improvements. This is especially true if the contract involves work that wasn’t covered by the insurance policy. 

However, make sure you know the laws in the state where your project is located. For example, Florida’s assignment of benefits law, perhaps the most restrictive in the country, appears to prohibit an AOB assignee from filing a lien. 

Florida AOB agreements are required to include language that waives the contractor’s rights to collect payment from the owner. The required statement takes it even further, stating that neither the contractor or any of their subs can file a mechanics lien on the owner’s property. 

On his website , Florida’s CFO says: “The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.”

That sounds like a contractor assignee can’t file a lien if they aren’t paid . But, according to construction lawyer Alex Benarroche , it’s not so cut-and-dry.

“Florida’s AOB law has yet to be tested in court, and it’s possible that the no-lien provision would be invalid,” says Benarroche. “This is because Florida also prohibits no-lien clauses in a contract. It is not legal for a contractor to waive their right to file a lien via an agreement prior to performance.” 

Learn more about no-lien clauses and their enforceability state-by-state

Remember that every state treats AOBs differently, and conflicting laws can create additional risk. It’s important to consult with a construction lawyer in the project’s state before accepting an assignment of benefits. 

Best practices for contractors 

At the end of the day, there are advantages and disadvantages to accepting an assignment of benefits. While it’s possible in some circumstances that an AOB could help a contractor get paid faster, there are lots of other payment tools that are more effective and require less administrative costs. An AOB should never be the first option on the table . 

If you do decide to become an assignee to the property owner’s claim benefits, make sure you do your homework beforehand and adopt some best practices to effectively manage the assignment of benefits process. You’ll need to keep on top of the administrative details involved in drafting AOBs and schedule work in a timely manner to stay in compliance with the conditions of the agreement. 

Make sure you understand all the nuances of how insurance works when there’s a claim . You need to understand the owner’s policy and what it covers. Home insurance policy forms are basically standardized for easy comparisons in each state, so what you see with one company is what you get with all carriers. 

Since you’re now the point of contact for the insurance company, expect more phone calls and emails from both clients and the insurer . You’ll need to have a strategy to efficiently handle ramped-up communications since the frequency will increase. Keep homeowners and claims reps in the loop so you can build customer relationships and hopefully get paid faster by the insurer for your work.

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Assignment Of Benefits

Insurance lawyers get calls from companies that have an assignment of benefits (AOB). This AOB is discussed in an article published by Claims Journal . It does a good job of discussing it and even though it talks about events in Florida, Texas has essentially the same laws and these AOB’s are being seen in Texas. The problem for property insurers? No one is willing to take a firm position against the surge of AOB lawsuits, which are proliferating to the point where they are in danger of strangling insurers. The Courts are deferring to the Legislature but the Legislature is seemingly uninterested in making change. The problems are endemic to Florida’s private market. The “carrier of last resort,” Citizens Property Insurance Corporation , is in the midst of a legislatively mandated, large-scale depopulation program, in which it has slashed its number of policies by about a third in the last several years. Citizens’ loss is a gain for several upstart carriers, but the AOB crisis is showing no signs of abetting and costs to defend these frivolous claims are becoming exorbitant. AOB lawsuits are easy to understand, both from the carrier’s perspective and the insured’s point of view. The typical scenario progresses as follows: -A homeowner has a water loss – such as a leaky pipe, an overflow from a sink or toilet that causes water to seep into the baseboards, flooring and furniture – and calls a water mitigation company for emergency dry out services; -The water mitigation company sends a technician with a truck full of air blowers, dehumidifiers and other equipment, removes the baseboards and dries the inside of the house; -Either before, during or after the multiple day dryout process, the water mitigation company presents the homeowner with documents including an AOB, in which the insured assigns all of his or her rights under the policy to recover insurance proceeds to the contractor; -Days or weeks later, the insured files a claim with the insurance company. Take a step back and consider what just happened. A company performed services for a consumer and then billed an unrelated, uninvolved third party for the services performed. The customer said it was OK to bill the third party, but the third party is now obligated to pay for services which it didn’t want and which it may or may not have agreed to pay for in the first place. The lawsuits arise when the claim is denied because the losses are frequently not covered by the policy. This results in the water mitigation company left with an unpaid bill so — this is the key to the entire AOB lawsuit scheme – the company chooses to collect from the deep pocketed insurance company instead of the individual policyholder. The business practice has proliferated for insurance companies and those of us who represent property insurers in litigation. For instance, one water mitigation company has brought 79 total lawsuits since the beginning of 2014. Another filed 257 total AOB lawsuits statewide in 2013 and 2014. Insurance companies have no reliable means to prevent these lawsuits because the Courts have refused to address the underlying public policy behind companies doing work for a property owner and expecting to be compensated by the insurer, despite the absence of any relationship between the insurance company and water mitigation company and the lack of coverage. At first, insurers tried to defend the lawsuits by arguing that they had no obligation to pay if a claim was later found to not be covered. That argument was unsuccessful. Carriers then tried to attack the language of the AOB documents and assert that the AOB company usually lacked standing to sue, because the AOB was often too broad and exceeded the scope of the water extraction services. This argument was also unsuccessful. The next argument had initial success at the Circuit Court level, when insurers argued that consumers could not assign rights which did not yet exist. In other words, carriers argued that policyholders couldn’t assign post-loss benefits to the water mitigation company until the policyholder and carrier knew that there were tangible benefits to be assigned. After all, assigning a nullity did not seem to make rational sense. More recently, however, the argument was destroyed by the Courts. May 20, 2015 was referred to as Black Tuesday throughout the property insurance community in Florida, when the Fourth District Court of Appeals released three major decisions on the issue. In One Call Property Services, Inc., a/a/o William Hughes v. Security First Insurance Company, No. 4D14-424, the Court rejected all of the insurer’s defenses, namely that a right which had not yet accrued cannot be assigned. Insurers had high hopes for this defense because it essentially argued that an insured who had not yet contacted their carrier and who had no decision on coverage, could not assign any non-existing rights. The Court outlined the competing policy arguments: Turning to the practical implications of this case, we note that this issue boils down to two competing public policy considerations. On the one side, the insurance industry argues that assignments of benefits allow contractors to unilaterally set the value of a claim and demand payment for fraudulent or inflated invoices. On the other side, contractors argue that assignments of benefits allow homeowners to hire contractors for emergency repairs immediately after a loss, particularly in situations where the homeowners cannot afford to pay the contractors up front. Unfortunately, the Court also decided that it is not in position to evaluate these practical arguments and that the Legislature would need to address these concerns. But the Legislature failed to act in the most recently completed session.

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Assignment of benefits: what you need to know.

• August 17, 2022
• Steven Schwartzapfel

Insurance can be useful, but dealing with the back-and-forth between insurance companies and contractors, medical specialists, and others can be a time-consuming and ultimately unpleasant experience. You want your medical bills to be paid without having to act as a middleman between your healthcare provider and your insurer.

However, there’s a way you can streamline this process. With an assignment of benefits, you can designate your healthcare provider or any other insurance payout recipient as the go-to party for insurance claims. While this can be convenient, there are certain risks to keep in mind as well.

Below, we’ll explore what an assignment of insurance benefits is (as well as other forms of remediation), how it works, and when you should employ it. For more information, or to learn whether you may have a claim against an insurer, contact Schwartzapfel Lawyers now at 1-516-342-2200 .

What Is an Assignment of Benefits?

An assignment of benefits (AOB) is a legal process through which an insured individual or party signs paperwork that designates another party like a contractor, company, or healthcare provider as their insurance claimant .

Suppose you’re injured in a car accident and need to file a claim with your health insurance company for medical bills and related costs. However, you also need plenty of time to recover. The thought of constantly negotiating between your insurance company, your healthcare provider, and anyone else seems draining and unwelcome.

With an assignment of benefits, you can designate your healthcare provider as your insurance claimant. Then, your healthcare provider can request insurance payouts from your healthcare insurance provider directly.

Through this system, the health insurance provider directly pays your physician or hospital rather than paying you. This means you don’t have to pay your healthcare provider. It’s a streamlined, straightforward way to make sure insurance money gets where it needs to go. It also saves you time and prevents you from having to think about insurance payments unless absolutely necessary.

What Does an Assignment of Benefits Mean?

An AOB means that you designate another party as your insurance claimant. In the above example, that’s your healthcare provider, which could be a physician, hospital, or other organization.

With the assignment of insurance coverage, that healthcare provider can then make a claim for insurance payments directly to your insurance company. The insurance company then pays your healthcare provider directly, and you’re removed as the middleman.

As a bonus, this system sometimes cuts down on your overall costs by eliminating certain service fees. Since there’s only one transaction — the transaction between your healthcare provider and your health insurer — there’s only one set of service fees to contend with. You don’t have to deal with two sets of service fees from first receiving money from your insurance provider, then sending that money to your healthcare provider.

Ultimately, the point of an assignment of benefits is to make things easier for you, your insurer, and anyone else involved in the process.

What Types of Insurance Qualify for an Assignment of Benefits?

Most types of commonly held insurance can work with an assignment of benefits. These insurance types include car insurance, healthcare insurance, homeowners insurance, property insurance, and more.

Note that not all insurance companies allow you to use an assignment of benefits. For an assignment of benefits to work, the potential insurance claimant and the insurance company in question must each sign the paperwork and agree to the arrangement. This prevents fraud (to some extent) and ensures that every party goes into the arrangement with clear expectations.

If your insurance company does not accept assignments of benefits, you’ll have to take care of insurance payments the traditional way. There are many reasons why an insurance company may not accept an assignment of benefits.

To speak with a Schwartzapfel Lawyers expert about this directly, call 1-516-342-2200 for a free consultation today. It will be our privilege to assist you with all your legal questions, needs, and recovery efforts.

Who Uses Assignments of Benefits?

Many providers, services, and contractors use assignments of benefits. It’s often in their interests to accept an assignment of benefits since they can get paid for their work more quickly and make critical decisions without having to consult the insurance policyholder first.

Imagine a circumstance in which a homeowner wants a contractor to add a new room to their property. The contractor knows that the scale of the project could increase or shrink depending on the specifics of the job, the weather, and other factors.

If the homeowner uses an assignment of benefits to give the contractor rights to make insurance claims for the project, that contractor can then:

• Bill the insurer directly for their work. This is beneficial since it ensures that the contractor’s employees get paid promptly and they can purchase the supplies they need.
• Make important decisions to ensure that the project completes on time. For example, a contract can authorize another insurance claim for extra supplies without consulting with the homeowner beforehand, saving time and potentially money in the process.

Practically any company or organization that receives payments from insurance companies may choose to take advantage of an assignment of benefits with you. Example companies and providers include:

• Ambulance services
• Drug and biological companies
• Lab diagnostic services
• Hospitals and medical centers like clinics
• Certified medical professionals such as nurse anesthetists, nurse midwives, clinical psychologists, and others
• Ambulatory surgical center services
• Permanent repair and improvement contractors like carpenters, plumbers, roofers, restoration companies, and others
• Auto repair shops and mechanic organizations

Advantages of Using an Assignment of Benefits

An assignment of benefits can be an advantageous contract to employ, especially if you believe that you’ll need to pay a contractor, healthcare provider, and/or other organization via insurance payouts regularly for the near future.

These benefits include but are not limited to:

• Save time for yourself. Again, imagine a circumstance in which you are hospitalized and have to pay your healthcare provider through your health insurance payouts. If you use an assignment of benefits, you don’t have to make the payments personally or oversee the insurance payouts. Instead, you can focus on resting and recovering.
• Possibly save yourself money in the long run. As noted above, an assignment of benefits can help you circumvent some service fees by limiting the number of transactions or money transfers required to ensure everyone is paid on time.
• Increased peace of mind. Many people don’t like having to constantly think about insurance payouts, contacting their insurance company, or negotiating between insurers and contractors/providers. With an assignment of benefits, you can let your insurance company and a contractor or provider work things out between them, though this can lead to applications later down the road.

Because of these benefits, many recovering individuals, car accident victims, homeowners, and others utilize AOB agreements from time to time.

Risks of Using an Assignment of Benefits

Worth mentioning, too, is that an assignment of benefits does carry certain risks you should be aware of before presenting this contract to your insurance company or a contractor or provider. Remember, an assignment of benefits is a legally binding contract unless it is otherwise dissolved (which is technically possible).

The risks of using an assignment of benefits include:

• You give billing control to your healthcare provider, contractor, or another party. This allows them to bill your insurance company for charges that you might not find necessary. For example, a home improvement contractor might bill a homeowner’s insurance company for an unnecessary material or improvement. The homeowner only finds out after the fact and after all the money has been paid, resulting in a higher premium for their insurance policy or more fees than they expected.
• You allow a contractor or service provider to sue your insurance company if the insurer does not want to pay for a certain service or bill. This can happen if the insurance company and contractor or service provider disagree on one or another billable item. Then, you may be dragged into litigation or arbitration you did not agree to in the first place.
• You may lose track of what your insurance company pays for various services . As such, you could be surprised if your health insurance or other insurance premiums and deductibles increase suddenly.

Given these disadvantages, it’s still wise to keep track of insurance payments even if you choose to use an assignment of benefits. For example, you might request that your insurance company keep you up to date on all billable items a contractor or service provider charges for the duration of your treatment or project.

For more on this and related topic, call Schwartzapfel Lawyers now at 1-516-342-2200 .

How To Make Sure an Assignment of Benefits Is Safe

Even though AOBs do carry potential disadvantages, there are ways to make sure that your chosen contract is safe and legally airtight. First, it’s generally a wise idea to contact knowledgeable legal representatives so they can look over your paperwork and ensure that any given assignment of benefits doesn’t contain any loopholes that could be exploited by a service provider or contractor.

The right lawyer can also make sure that an assignment of benefits is legally binding for your insurance provider. To make sure an assignment of benefits is safe, you should perform the following steps:

• Always check for reviews and references before hiring a contractor or service provider, especially if you plan to use an AOB ahead of time. For example, you should stay away if a contractor has a reputation for abusing insurance claims.
• Always get several estimates for work, repairs, or bills. Then, you can compare the estimated bills and see whether one contractor or service provider is likely to be honest about their charges.
• Get all estimates, payment schedules, and project schedules in writing so you can refer back to them later on.
• Don’t let a service provider or contractor pressure you into hiring them for any reason . If they seem overly excited about getting started, they could be trying to rush things along or get you to sign an AOB so that they can start issuing charges to your insurance company.
• Read your assignment of benefits contract fully. Make sure that there aren’t any legal loopholes that a contractor or service provider can take advantage of. An experienced lawyer can help you draft and sign a beneficial AOB contract.

Can You Sue a Party for Abusing an Assignment of Benefits?

Sometimes. If you believe your assignment of benefits is being abused by a contractor or service provider, you may be able to sue them for breaching your contract or even AOB fraud. However, successfully suing for insurance fraud of any kind is often difficult.

Also, you should remember that a contractor or service provider can sue your insurance company if the insurance carrier decides not to pay them. For example, if your insurer decides that a service provider is engaging in billing scams and no longer wishes to make payouts, this could put you in legal hot water.

If you’re not sure whether you have grounds for a lawsuit, contact Schwartzapfel Lawyers today at 1-516-342-2200 . At no charge, we’ll examine the details of your case and provide you with a consultation. Don’t wait. Call now!

Assignment of Benefits FAQs

Which states allow assignments of benefits.

Every state allows you to offer an assignment of benefits to a contractor and/or insurance company. That means, whether you live in New York, Florida, Arizona, California, or some other state, you can rest assured that AOBs are viable tools to streamline the insurance payout process.

Can You Revoke an Assignment of Benefits?

Yes. There may come a time when you need to revoke an assignment of benefits. This may be because you no longer want the provider or contractor to have control over your insurance claims, or because you want to switch providers/contractors.

To revoke an assignment of benefits agreement, you must notify the assignee (i.e., the new insurance claimant). A legally solid assignment of benefits contract should also include terms and rules for this decision. Once more, it’s usually a wise idea to have an experienced lawyer look over an assignment of benefits contract to make sure you don’t miss these by accident.

Contact Schwartzapfel Lawyers Today

An assignment of benefits is an invaluable tool when you need to streamline the insurance claims process. For example, you can designate your healthcare provider as your primary claimant with an assignment of benefits, allowing them to charge your insurance company directly for healthcare costs.

However, there are also risks associated with an assignment of benefits. If you believe a contractor or healthcare provider is charging your insurance company unfairly, you may need legal representatives. Schwartzapfel Lawyers can help.

As knowledgeable New York attorneys who are well-versed in New York insurance law, we’re ready to assist with any and all litigation needs. For a free case evaluation and consultation, contact Schwartzapfel Lawyers today at 1-516-342-2200 !

Schwartzapfel Lawyers, P.C. | Fighting For You™™

What Is an Insurance Claim? | Experian

What is assignment of benefits, and how does it impact insurers? | Insurance Business Mag

Florida Insurance Ruling Sets Precedent for Assignment of Benefits | Law.com

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