Each year some Florida homeowners deal with wind damage or flooding from faulty plumbing or similar unforeseen mishaps that are covered under an insurance policy. Naturally, water removal and roof repairs often need immediate attention to lessen the spread of the damage. Homeowners are usually stressed when they call for urgent help from a tradesman or contractor. This stress and urgency can make consumers more vulnerable to fraud by unscrupulous contractors, who look for ways to run up repair costs for you and your insurer.
In the event of home damage, consumers will contact contractors, who can quickly confirm the urgency, possibly sharing preliminary photos, and a rough estimate of repair costs. If the homeowner seems able to pay for repairs, the contractor can work with a signed contract. Alternatively, the contractor will review coverages in the homeowner’s insurance policy and may ask for an assignment of benefits (AOB) from the homeowner’s policy, which essentially gives the contractor control over the claim and allows the contractor to deal directly with the insurer. With an AOB in hand, the contractors should coordinate with the insurance company’s adjuster, make the repairs, file the claim and receive payment. Ideally, with an AOB, an honest contractor will make the proper repairs, and be paid fairly and quickly for the service. That is how it is supposed to work, but it often does not happen that way.
Unfortunately, AOBs may open the door to fraudulent actions by a contractor. Normally, when the contractor holding an AOB files a repair invoice (claim) with an insurance company, the insurance company will assign the claim to one of its adjusters or to an independent adjuster acting on the insurance company’s behalf. The adjuster’s job is to review the claim and approve a reasonable and proper payout consistent with the contractor’s work, the damage, and the homeowner’s coverage.
However, a number of problems are arising – inadequate documentation of the damage or repair work, removal and repairs before inspections, unnecessary repairs and services, charges for services that were never performed, embellishment of service provided, and excessive repair costs – all without the prior knowledge of the homeowners or the insurer. If insurers become reluctant to pay what appears to be excessive costs, contractors may sue them or homeowner. These lawsuits are not isolated incidences, but part of a coordinate process of legal extortion – pay or pay legal fees. Like wrestling tag teams, many contractors have partnered hip-to-hip with trial attorneys who get their cut. AOBs were supposed to help consumers, but the process have become perverted into a litigious one.
In fact, some attorneys coach their contractor clients on ways to extract the maximum payments from the homeowner’s insurance policy. In some cases, attorneys intimidate the homeowner and behave in ways that only an insurance adjuster is permitted to do. An AOB could even authorize the contractor’s attorney to demand that adjustment and payment be made through the attorney’s office only and that all communication take place only through the attorney’s office. This makes the claim settlement details opaque and can hide oversized legal fees and contractor charges. These excessive claims are estimated to increase insurance rates by 17% for all Florida consumers.
Florida’s HB 669 would take on misbehaviors of home repair contractors and their attorneys in so-called “assignment of post-loss benefits.” HB 669, and the Senate’s companion reform bill SB 1064,) would prevent inclusion of a contractor’s attorney’s fees in payment under an AOB agreement, which breaks the corrupt tie between contractors and lawyers. These fixes would drain the financial incentive behind the aggressive attorney tactics that increase the costs of damage repairs. This elegant solution would benefit all consumers who buy insurance covering home damage.
These legislative proposals were the good news. The bad news, however, is that the bills appeared to have run out of time and are unlikely to move forward. We are very disappointed by the legislature’s inaction on this issue. Hopefully, one day soon, we can end this corruption and pass a bill that will protect consumers against this fraud.
Alan Daley, who lives in Florida, and Steve Pociask write for The American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information about the Institute, visit www.theamericanconsumer.org.