Insurance and the law. The two terms are enough to put most people to sleep with boredom. But a festering crisis in Florida’s insurance industry has spawned huge increases in unnecessary lawsuits and translated into rate hikes for millions of homeowners and drivers — and costs will continue to spiral until lawmakers plug a major loophole that allows repair companies and trial attorneys to game Florida’s legal system.
The problem stems from a seemingly innocuous provision of Florida law called “assignment of benefits” (AOB). An AOB allows home and auto owners to transfer their rights under their insurance policy to a third-party, allowing a contractor to deal directly with the insurance company to receive payment for fixing a leaky pipe, replacing a damaged windshield, or doing other repairs.
In theory, AOB is intended to streamline the claims process. In practice, AOB empowers dishonest contractors to exploit the system, perform shoddy repairs (or none at all), and over-charge insurers. And Floridians are seeing their home and auto insurance rates soar as a result.
Here’s how it works. Suppose you discover water damage under your sink and call a plumber. Upon arrival, the plumber has you sign an AOB form, assuring you that it’ll save you a headache by allowing him to bill your insurer directly. Then, without your knowledge or approval, the plumber submits an inflated claim to your insurer, threatening a lawsuit if it disputes the charge.
When the insurer refuses to pay the excessive fees, the plumber teams up with a trial attorney to sue the insurance company for breach of contract, all in the name of the policyholder. If the case goes to trial and the plumber wins even $1 more than what the insurer initially offered to pay, the insurer is forced to pay the contractor’s legal fees.
By incentivizing insurers to pay inflated claims rather than fight in court and risk having to pay the plaintiff’s hefty legal expenses, Florida’s unique one-way attorney’s fee rule encourages sue-and-settle schemes that allow unscrupulous contractors and their lawyers to milk the system. In one AOB case, for example, lawyers billed $40,000 in legal fees over a $790 claim.
In recent years, AOB abuse has ballooned into a full-blown crisis. In 2000, there were roughly 1,300 AOB lawsuits in the entire state of Florida. By 2013 that number had grown to more than 79,000 and the latest figures indicate 153,000 AOB lawsuits in 2018 — a 75-fold increase since 2000. For nearly a decade, the majority of litigation filed against Florida insurers has been related to AOB — and almost all of these lawsuits are being filed by just 18 attorneys.
The surge in AOB-related lawsuits has meant sharply higher costs for consumers. Data from Citizens Property Insurance Corporation, the government-backed insurer of last resort, shows that litigated AOB claims for non-weather water damage, for example, cost six times more than claims without litigation or an AOB. To meet these growing costs, Citizens has had to raise rates for virtually all of its customers — often nearing the maximum increase of 10 percent per year. In the absence of the AOB crisis, many of Citizens’ customers would have enjoyed a rate decrease. Instead, Floridians have had to pay at least $2.5 billion in higher premiums due to AOB abuse.
For the last six years, legislative proposals to end the AOB crisis have been derailed by the trial bar and a few obstructionist lawmakers. This year, Senator Doug Broxson, Chair of the Senate Banking and Insurance Committee, and Representative Bob Rommel, Chair of the House Civil Justice Subcommittee, have both introduced measures to rein in AOB abuse. Along with their leadership, there has been support from Governor DeSantis, Florida Chief Financial Officer Jimmy Patronis, and Insurance Commissioner David Altmaier. Every legislator concerned about the financial burden on their constituents should support these efforts to end this abuse and one-way attorney fees.
It is important that AOB legislation be passed this year, and that it end the abuse associated with windshield claims. It is also important that any legislative solution not tie projected savings to insurance rate changes, since reducing fraud and achieving savings will take time.
Now is time to put an end to the AOB crisis and spare Floridians even more painful rate increases in the years ahead. The bills introduced by Senator Broxson and Representative Rommel were on the mark and pro-consumer. The attempts to water down these bills are not.