Let’s Put an End to Florida’s Biggest Insurance Scam

For the last six years, efforts to end the biggest scam in Florida’s insurance industry — AOB abuse — have repeatedly been stymied by special interests and a handful of powerful legislators. This year, Senator Doug Broxson, Chair of the Senate Banking and Insurance Committee, and Bob Rommel, Chair of the House Civil Justice Subcommittee, have both introduced measures to rein in AOB abuse — providing a chance to stop the victimization of Florida consumers.

For the past decade, a cabal of dishonest contractors and their trial lawyers have gamed Florida’s legal system at the expense of home and auto insurance consumers. The loophole they’ve exploited is called “assignment of benefits” (AOB), which allows an insured individual to sign over their rights under an insurance policy to a third party.

AOB is intended to streamline the claims process by enabling repair companies and contractors to seek direct payment from the insurance company for services rendered under the policy. In reality, AOB has allowed unscrupulous contractors to take over a client’s insurance policy, perform shoddy repairs (or none at all), and demand excessive reimbursement from the insurer.

Once a homeowner or driver signs an AOB (whether it’s to fix a leaky pipe fixed or replace a broken windshield), the contractor can submit an inflated claim to the insurance company and threaten a lawsuit if it disputes the bill — all without the policyholder’s knowledge or approval.

When the insurance company refuses to pay the excessive charges, the contractor teams up with an attorney and sues the insurer. If a court rules that the contractor is entitled to just $1 more than what the insurer originally offered, the insurer incurs the cost of paying the contractor’s legal fees in addition to the payment related to the claim. But if the insurer prevails in the case, it must still cover its own legal expenses. Since attorney fees can be substantial (in one case lawyers billed $40,000 in legal fees over a $790 claim), insurers often find it preferable to settle inflated claims to avoid further litigation.

As a result, contractors are incentivized to submit as many inflated and outright fraudulent claims as possible — knowing that insurers are at a disadvantage in any legal battle.

The abuse of AOB and Florida’s one-way attorney’s fees has profoundly destabilized the insurance market. In 2018, about 153,000 AOB lawsuits were filed in Florida — an 18 percent increase over 2018 and an astonishing 7,500% jump since 2000. Last year, for the 8th consecutive year, the majority of litigation against Florida insurers was AOB-related — and almost all of these lawsuits were by just a handful of lawyers. As a direct consequence of these escalating levels of AOB litigation, Florida home and auto insurance consumers have seen their premiums surge in recent years as insurers struggle to cover the financial hemorrhage.

For Citizens Property Insurance Corporation, the government-backed insurer of last resort with more than 400,000 policies throughout the state, the cost of a litigated AOB claim for non-weather water damage, for example, is six times greater than for a claim without litigation or an AOB. In the face of these exploding costs, Citizens has had to significantly raise rates for virtually all of its customers, often approaching the maximum hike of 10 percent per year. Recent estimates indicate that Floridians have had to pay at least $2.5 billion in higher premiums due to AOB abuse — and it’ll get a lot worse in the years ahead unless action is taken.

Legislation is needed to get to the root of the problem — restrict one-way attorney’s fees and remove the incentive for contractors and their lawyers to file unnecessary lawsuits against insurers. Protecting policyholders’ rights to bring grievances against insurers is essential, and these reforms would safeguard these rights while cracking down on bad actors.

With each passing year, AOB abuse becomes more widespread, forcing consumers to pay higher and higher insurance premiums. Now is the time to put an end to it once and for all.

Liam Sigaud works on economic policy and research for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.

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