Down…But, Not Out!

Anaysa Gallardo Stutzman | Zelle LLP | July 7, 2017

Assignment of benefits (“AOB”) have become a double-edge sword for the consuming public.  While the public policy reasoning for their creation, to allow the insured to obtain immediate, necessary assistance in meeting their mitigation obligation and getting back to pre-loss condition, remains sound, the increased level of abuse has proven to be public enemy number one.  The Florida Office of the Insurance Consumer Advocate (“ICA”) reports that the abuse of AOBs “allows unscrupulous contractors to overinflate or submit improper claims, causing legal battles between the contractor and the insurance company, with the consumer left out of the picture.”  As a result, the ICA continues to monitor the effects of AOB abuse and report on the collected data to assist in proactive resolution of practices that may adversely affect consumers. The collected data bolsters the need for proposed solutions, such as the legislative attempts to invoke reforms.

The Florida Legislature (urged by Florida court decisions) has worked on legislation designed to combat systemic AOB abuse.  Unfortunately, for the second year in a row, these legislative efforts have failed. While the immediate battle has been lost, that momentum to win the war has grown stronger.
In 2016, several pieces of legislation were proposed to address relevant AOB issues.
Similar legislative efforts were launched in 2017 to combat AOB abuse.
Senate Bill 1038, filed February 17, 2017, addressed assignment of property insurance benefits by prohibiting certain awards of attorney fees to certain persons or entities in suits based on claims arising under property insurance policies and requiring specific conditions before finding that an assignment agreement is valid. Senate Bill 1038 died in the Committee on Banking and Insurance on May 5, 2017.
Senate Bill 1150, filed February 22, 2017, related to regulation of water damage restoration.  It defined the terms “professional water damage restorer” and “water damage restoration” such that the Department of Business and Professional Regulation would be required to license applicants who are qualified to practice water damage restoration and specify the qualifications for licensure.  Senate Bill 1150 was withdrawn from further consideration on May 1, 2017.
Senate Bill 1218, filed February 24, 2017, addressed property repair, creating within the Department of Business and Professional Regulation the water damage restoration services licensing program that would provide examination requirements for applicants for professional water damage restorer licensure. It would also require the department to license qualified applicants who meet and maintain specified requirements, including requiring professional water damage restorers to maintain specified insurance coverage. Senate Bill 1218 died on May 5, 2017 in the Committee on Regulated Industries.
House Bill 1421, filed March 7, 2017, addressed property insurance assignment agreements by providing requirements and limitations of assignments, establishing a burden of proof, providing for an award of reasonable attorney fees for certain claims arising under assignment agreements, setting forth specific notice and reporting requirements, and confirming that certain residential property insurance policies may not prohibit assignment of post-loss benefits. House Bill 1421 died in Committee on Banking and Insurance on May 5, 2017.
While the outcome of the May 5, 2017, massacre of AOB regulatory bills may be disheartening as it marks the second consecutive legislative year that AOB reform measures failed, there is a glimmer of hope.  When the Florida House of Representatives passed HB 1421 (by a vote of 91 to 26), Commissioner David Altmaier issued the following statement:
I applaud the Florida House of Representatives for their favorable vote on HB 1421 today, and I am especially grateful to Representative James Grant, the bill sponsor, and Representative Rene Plasencia, the prime co-sponsor. This legislation makes significant progress in protecting Florida consumers from homeowners insurance rate increases fueled by rising litigation costs associated with an Assignment of Benefits (AOB). We appreciate the support and efforts of the entire Florida Legislature as they considered this legislative priority of the Office of Insurance Regulation during the 2017 Session.
The takeaway from the past two legislative sessions ought to be that while the battle has been lost, there has been forward progress.  Several years ago, the AOB war was waged in courthouses.  Judges recognized the long-standing tradition and public-policy basis for allowing insureds to assign their indemnity benefits to expedite remediation, so they called upon lawmakers to take action.  While the recent two years of effort have not been successful, those efforts reveal the existence of an advancing campaign against AOB abuse.

Two Different Approaches to the Assignment of Benefits Issue

Sean Shaw | Property Insurance Coverage Law Blog | July 18, 2017

Assignment of Benefits (“AOBs”) has been an issue in the property insurance realm for several years. In fact, the Florida Legislature made a hard push to address the issue during the 2017 Session but was unable to do so. The two main AOB bills that gained traction last Session dealt with the issue in slightly different ways. SB 1218 was sponsored by Senator Gary Farmer. I have set forth the summary staff analysis below:

CS/SB 1218 creates new requirements for assignment of post-loss benefits from personal residential, commercial residential, and commercial property insurance policies. The bill places various requirements and restrictions on assignments of post-loss benefits in personal residential, commercial residential, and commercial property insurance policies. The bill does not allow such policies to prohibit the post-loss assignment of benefits. It provides, however, that an agreement to assign post-loss benefits is not valid unless the agreement:

-Is in writing between the policyholder and assignee and is delivered to the insurer under specified time requirements;

-Is limited to claims for work performed by the assignee for damages claimed to be covered;

-Allows the policyholder to unilaterally rescind the assignment of post-loss benefits to a vendor within 5 days of execution of the agreement; and

-Contains an accurate and up-to-date statement of the scope of work to be performed.

The bill provides that an assignee:

-Must provide the policyholder with accurate and up-to date revised statements of the scope of work to be performed as supplemental or additional repairs are required;

-Must guarantee to the policyholder that the work performed conforms to current and accepted industry standards;

-May not charge the policyholder more than the applicable deductible contained in the policy unless the policyholder opts for additional work at the policyholder’s own expense;

-May not charge the policyholder directly, except for additional work not covered under the policy; and

-May not pay referral fees totaling more than $750 in connection with the assignment.

The bill creates a regulatory system for professional water damage restorers similar to the regulatory system for mold assessors. It prohibits unlicensed persons from practicing water damage restoration and requires assignees of water damage claims to be licensed. It requires the Department of Business and Professional Regulation (DBPR) to license professional water damage restorers if they are of good moral character, have passed an appropriate examination, and meet certain education requirements. The bill provides for fees, disciplinary rules, continuing education requirements, and insurance requirements for professional water damage restorers.

The bill provides that attorney fees and costs paid by a property insurer pursuant to s. 627.428, F.S., may not be included in a property insurer’s rate base and may not be used to justify a rate or rate change.

The bill creates new reporting requirements for insurers and claimant attorneys relating to claims in which an assignment of benefits is obtained.

The entire bill language, full staff analyses and bill history can be found here.

HB 1421 was sponsored by Representatives Jamie Grant and Rene Plasencia. The summary staff analysis is as follows:

Current statute provides that an insurance policy may be assignable, or not assignable, as provided by its terms. Florida courts have held that an insurance policy may prohibit a pre-loss assignment of benefits; however, the courts have also held that an insurance policy may not prohibit a post-loss assignment. The bill codifies the case law that bars a residential property insurance policy from restricting the assignment of post-loss benefits.

In addition, the bill defines “assignment agreement” and establishes requirements related to the execution, validity, effect, and enforcement of an assignment agreement. Specifically, the bill requires a written agreement, a 7-day period within which the policyholder may rescind the agreement, an estimate of services, notice to the insurer when an assignment agreement has been executed, and notice to the policyholder regarding the legal implications of an assignment agreement. The bill prohibits specified fees in connection with an assignment agreement and prohibits an assignment agreement from altering a policy provision related to managed repair. The bill transfers certain duties of the insurance contract to the assignee which must be carried out before a lawsuit may be filed and duties that shift the burden to the assignee to prove why failure to carry out the duties has not limited the insurer’s ability to perform under the contract. The bill also limits an assignee’s ability to recover certain costs directly from the policyholder. The new requirements apply to assignment agreements executed after July 1, 2017.

If an assignee intends to file suit against an insurer to enforce an assignment agreement, the bill requires that the assignee give the insurer prior notice. Notice must be served at least 10 business days before filing suit, but may not be filed before the insurer has made a determination of coverage according to the timeframes and requirements of current law. Both parties must exchange specific information related to the claim, including the assignee’s presuit settlement demand and the insurer’s presuit settlement offer. If the parties fail to settle and litigation results in a judgment, the bill provides the exclusive means for either party to recover attorney fees, other than fees awarded as a sanction. The bill allows an award of attorney fees based on how much the litigation improved the amount that otherwise could have been obtained during settlement negotiations. The bill defines the difference between the insurer’s offer and the assignor’s demand as “the disputed amount.” Fees are then awarded as follows:

-If the difference between the judgment and the settlement offer is less than 25 percent of the disputed amount, then the insurer is entitled to attorney fees.

-If the difference between the judgment and the settlement offer is at least 25 percent but less than 50 percent of the disputed amount, neither party is entitled to fees.

-If the difference between the judgment and the settlement offer is at least 50 percent of the disputed amount, the vendor receives attorney fees.

The Office of Insurance Regulation is directed to require each insurer to report by January 30, 2020, and each year thereafter, specified data on claims paid in the prior year pursuant to an assignment agreement.

The bill does not have a fiscal impact on the state or on local governments. It will have an indeterminate fiscal impact on the private sector.

The bill provides an effective date of July 1, 2017.

The entire bill language, full staff analyses and bill history can be found here.

At the risk of oversimplifying, HB 1421 addressed the AOB issue from the lawsuit perspective whereas SB 1218 addressed it from a regulatory standpoint. I have maintained that there needs to be some sort of AOB reform and that this issue will be addressed during the 2018 Session. In my opinion, SB 1218 is closer to the mark than HB 1421, but both have their good parts. Hopefully, the Legislature will come up with a fair and balanced solution that attacks the bad actors, protects consumers, and preserves the ability of a policyholder to execute an AOB under the right conditions.

Assignment of Benefits, Part 10: California

Charles Mathis | Property Insurance Coverage Law Blog | July 17, 2017

The requests from our readers keep coming and in this week’s installment of my blog series on Assignment of Benefits (“AOB”) we are taking a look at California and how AOBs are handled there.

California Insurance Code § 520, states as follows, “[a]n agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.”

The Supreme Court of California confirmed the enforceability of this statute in the case of Fluor Corp. v. Superior Court of Orange County. There, the court provided an extensive history of case law and statutes in California regarding first and third-party liability insurance policies, and ultimately held:

[A]fter [] property damage [] resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss. This result obtains even without consent by the insurer—and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement.1

As you can see, this decision follows with the majority of states we have reviewed prior to this, and as long as your assignment takes place after a loss, California permits assignment of benefits without the consent of the insurance carrier and despite any anti-assignment language include in the policy.

If you have specific questions on AOBs or would like to see your state come up sooner, please comment below, or send me an email at


1 Fluor Corp. v. Superior Court of Orange County, et al,, 61 Cal.4th 1175, 1224, 354 P.3d 302, 334 (2015).

Alternative Fee Arrangements When the Insurer Is Footing the Bill

Amanda Hairston | Farella Braun & Martel LLP | July 21, 2017

Clients regularly ask their counsel to propose alternative fee arrangements and they are growing in popularity. While these arrangements can be beneficial for clients, they should be carefully considered when an insurance company will be paying all or part of the defense fees. Insurers are typically averse to alternative fee arrangements; they are more comfortable with a straight hourly arrangement – after trying to impose rate caps and litigation guidelines of course. Carriers have ingrained methods of managing defense costs and negotiating bespoke alternative arrangements with individual insureds is not cost-effective or efficient for a claims adjuster dealing with dozens or even hundreds of cases. Accordingly, insureds may need to accept more traditional fee deals when retaining counsel that will ultimately be paid by the insurer.

This does not mean that there is no room for creativity. As our readers know, there is typically a gap between the hourly rates that an insurer will pay and the rates charged by an insured’s chosen counsel. Often, insureds are forced to choose between the insurer’s panel counsel — who will accept the insurer’s proposed hourly rates — and independent counsel – who will charge more. One solution is to ask independent counsel to agree to bill at the insurer’s proposed rates, but add an incentive structure. This would allow independent counsel to recover from the client the difference between the insurer’s proposed rates and counsel’s hourly rates if the case has a “successful outcome” – as that term is defined by the insured and its counsel. Insurer consent to the alternative fee arrangement should be unnecessary because any incentive payment would be solely borne by the client. This type of arrangement can be a win-win-win, where the insurer pays only its proposed rates, the insured enjoys independent counsel paid for by insurance during the pendency of the action, and defense counsel can earn additional compensation by bringing home a win for the client. While options may be more limited when a carrier is footing the bill, it does not mean that clients should give up on alternative fee arrangements entirely.

Crossing the line? Obtaining Building Permits for Decks in CIC’s

Michael D. Klemm | Hellmuth & Johnson PLLC | June 21, 2017

As summer gets into full swing, Minnesotans spend more time outdoors, and some community association members make plans to build or replace decks attached to their homes.  In many cases, such decks extend beyond the unit boundaries and encroach upon the common elements that are owned by the association or by all association members jointly.

Sometimes, in the excitement of getting a fresh new deck, owners overlook the more mundane aspects of the project – getting the proper permits from the city and architectural approvals from the association (if required under the association’s governing documents).  Getting architectural approval can be relatively straightforward.  Getting a building permit can prove to be a more daunting task.

Cities generally require building permits for construction of decks, and city building officials may raise concerns regarding a unit owner’s application to construct a deck on property owned by someone else.  The unit owner is then likely to contact the association manager or board of directors for assistance in showing the city that the unit owner has an easement for construction of the deck.

Many declarations automatically create an easement for encroachments by the initial improvements constructed by the declarant and replacements thereof.  In that case, if a unit owner desires to simply replace an existing deck without expanding the encroachment onto the common elements, then the encroachment of the replacement may be covered by an existing easement.  If the declaration does not include such language, however, and there is no separate easement in place, the owner is likely to seek the association’s assistance getting such an easement.

The framework regarding easements for encroachments onto the common elements varies from association to association, depending on the governing documents and applicable law.  If the common interest community is subject to Minnesota Statutes Chapter 515B, the Minnesota Common Interest Ownership Act (“MCIOA”), then the board of directors has authority under Minn. Stat. §515B.3-102(a)(9) to grant an easement for a deck to be constructed and maintained over a portion of the common elements, provided the construction and maintenance of a deck is a purpose allowed under the declaration.  No approval of the association membership is required – unless the declaration or bylaws impose such a requirement.  Unless membership approval is required, the board of directors likely has authority to unilaterally grant (or deny) an easement for a deck to encroach upon the common elements.

As noted above, it is important to remember that construction or alteration of decks is typically subject to architectural approval requirements.  In some common interest communities, the governing documents may include a provision under which approval of proposed plans for a deck that will encroach onto the common elements would automatically create an easement for the deck, regardless of whether such an easement existed before.

Unit owners, association managers and boards of directors can expedite the process for obtaining municipal building permits for deck construction or replacement projects by reviewing the association’s governing documents before the owner submits the application for the building permit and by complying with any applicable procedural requirements.  Associations are advised to consult with their attorneys regarding the governing documents and laws that apply to easements in their common interest community to ensure appropriate easements are granted where appropriate – and granted in compliance with the requirements of the association’s governing documents and any city rule or ordinance.