A loophole in Florida’s insurance laws allows shady contractors and trial lawyers to milk the claims process for excessive bills, and consumers are paying at least $2.5 billion in higher premiums as a result — $120 for every Florida resident.

Unless lawmakers intervene, it’ll only get worse.

Here’s how the racket works: A homeowner calls a contractor to fix some non-weather-related water damage. The contractor gets the homeowner to sign an “assignment of benefits” (AOB) form, which gives the contractor the right to recover payments directly from the insurer. The contractor then submits an invoice for far more than the damage is worth and threatens to sue the insurer (usually without the homeowner’s knowledge or consent) when the claim is denied.

Because of a unique provision in Florida law, contractors have the upper hand in disputes with insurers, which encourages inflated claims and outright fraud. Plaintiffs who prevail in an insurance dispute (including third-parties suing under AOB) are entitled to have their attorney’s fees paid for by the insurance company. But it doesn’t work the other way; if the insurer wins the lawsuit, it must still cover its legal costs.

This one-way attorney’s fees rule was originally intended to level the playing field between big insurance companies and the “little guy,” but it’s been hijacked by third-parties, including powerful law firms representing deep-pocketed contractors. Some unscrupulous contractors submit preposterous claims to insurers, knowing that insurers are likely to settle. A small water leak under a kitchen cabinet can turn into a $30,000 remodel, while putting a tarp on a roof can cost $18,000.

For a small group of lawyers, it’s become big business. From 2013 to 2016, a single attorney filed nearly 50,000 AOB lawsuits, an average of about than 33 suits every day. Some law firms even offer classes to teach contractors how to abuse the system.

Once they sign an AOB, homeowners lose control over the repairs to their property. Prosecutors around the state are going after contractors who have used AOBs to collect exorbitant fees from insurers and left repair jobs undone.

The number of AOB-lawsuits has skyrocketed. In 2017, there were 129,781 AOB-related lawsuits in Florida — an 829% increase since 2007.

According to Citizens Property Insurance Corporation, the government-backed insurer of last resort, litigated AOB claims for non-weather water damages cost six times more than claims without litigation or an AOB. Considering that 56,000 more AOB-related lawsuits were filed against Citizens in 2018 than in 2013, the insurer had to charge $1.4 billion more in premiums than if the amount of AOB litigation had remained constant.

Homeowners are footing the bill. Not long ago, Citizens reduced premiums for 72 percent of its residential policies, but by 2017, only 36 percent of policyholders saw their premiums shrink, and fewer than 3 percent of policyholders are expected to see lower rates in 2019. If it weren’t for AOB abuse, Citizens’ policyholders would have enjoyed a rate decrease a few years ago, instead of a sizable premium hike. A few obstructionist lawmakers in the Florida Legislature have repeatedly blocked efforts to fix this problem.

However, the new Senate Chair of the Banking and Insurance Committee, Sen. Doug Broxson, is sponsoring SB-122, which end the assignment of one-way attorney’s fees to third-parties and stem unscrupulous contractors and attorneys from exploiting this loophole.

Legislators must act now to end this legalized fraud. Insurance rates for homeowners will continue to soar, rising statewide by about 10 percent per year, unless reforms are enacted. Floridians deserve better.

Published in the News-Press and available online here.