Over the past five years, first-party property insurers in Florida have been experiencing a wave

of claims and lawsuits by contractors who obtain insurance rights from insureds through document called an assignment of benefits ("AOB"). This article is intended to introduce the reader to this topic and explain some of the challenges facing insurers in dealing with AOBs in Florida. The reader is welcome to contact the author to learn more.

  

Here is how most AOB situations arise. The insurer issues an insurance policy that covers residential or commercial property. The property then suffers damage. Part of the damage requires emergency services to protect the property from further damage, often times emergency water extraction caused by a broken pipe or a leaking roof.

  

The insured hires a contractor, who in turn, requires the insured to execute an AOB at the time the insured hires the contractor. The AOB is typically a one-page document that looks like a work order or service agreement. In theory, the AOB is intended to ensure the contractor gets paid for her work by transferring insurance rights from the insured to the contractor to pay for the contractor's work. The AOB often says something to the effect of "for and in consideration of the insured assigning insurance rights to the contractor, the contractor agrees to perform work at the insured property to remediate the damage and protect the property from further damage."

  

The contractor then performs the work and makes a claim directly to the insurer for payment of her work. Typically the insured also makes a claim to the insurer for the damage to her property separate and apart from the contractor's claim.

  

Upon notice of the claim, the insurer inspects the property and makes a coverage determination as to whether the loss is covered. If the loss is not covered the insurer informs the insured and the contractor of that determination and no payment is issued. If the loss is covered, the insurer informs the insured and the contractor of that decision, and the insurer then determines what is the reasonable value of the loss and the contractor's work.

  

If the contractor disagrees with either the insurer's claim determination or the insurer's amount of payment, the law in Florida is reasonably clear (with some exceptions) that the contractor has the right to sue the insurer directly. The contractor's lawsuit is separate and apart from any disagreement or lawsuit by the insured. In fact, it is not uncommon to see two lawsuits - one from the insured and one from the contractor - in claims where the insurer has determined the loss is not covered.

The contractor has standing to sue the insurer directly by way of the AOB. Also, Florida has an attorney fee shifting statute that applies to first-party insurance disputes. In a nutshell, if a claimant prevails in litigation against her insurer, the claimant has the right to collect her reasonable attorney fees from the insurer. Florida courts have held that that statute also applies to assignees. So, if a contractor sues an insurer by way of an AOB and prevails, the contractor has the right to collect her reasonable attorney fees from the insurer.

  

Insurers face many challenges in handling AOB claims and defending against AOB lawsuits. The biggest challenge is often with the AOB itself. Many AOBs are drafted by non-lawyers. As a result, the AOB can be confusing or difficult to interpret. One of the most common issues is whether the AOB transfers all the insured's rights to the contractor or just rights sufficient for the contractor to get paid for her work. The issue is often unclear because many AOBs refer to "any and all insurance rights, benefits, proceeds and causes of action" when identifying what rights have been transferred to the contractor.

  

Another challenge occurs when the insured makes multiple assignments to multiple contractors. This sometimes occurs in water losses where the insured hires a plumber, a water extraction company, a mold assessor, and a mold remediator each with its own AOB. Sometimes, the insurance limits are exhausted but not all assignees have been paid. Also, if multiple assignees file multiple lawsuits, there can be issues pertaining to missing indispensable parties and the permissibility of consolidating the lawsuits.

  

Another challenge occurs when fewer than all the insureds named in an insurance policy sign the AOB. This is often the case when a husband and wife are named insureds, but only one of the two signs the AOB. This raises issues as to whether the AOB is valid, and what an insurer must do to account for the insured(s) who did not sign the AOB.

  

Another challenge occurs when the insurer is investigating a claim made by an assignee and the insurer wants to use the insurance policy's conditions of a proof of loss or an examination under oath to obtain information. In Florida, for the most part, an assignee does not obligate itself to satisfy the conditions of the insurance policy unless the AOB expressly says the assignee agrees to do so. Most AOBs do not say that. However, an AOB does not relieve the insured of her duty to satisfy the conditions of the insurance policy, including the conditions to submit a proof of loss and attend an examination under oath. Also, in Florida, the failure of an insured to satisfy the conditions of the insurance policy can bar her claim. The failure of an insured to satisfy the conditions of the insurance policy can also bar the assignee's claim.

  

Although an insurer typically cannot compel an assignee contractor to satisfy the conditions of the insurance policy, the law in Florida is reasonably clear that an insurer can invoke the insurance policy's appraisal provision to determine the amount of the loss of the assignee contractor's claim. Some insurers have found appraisal particularly effective at resolving assignee contractor claims because the amounts in dispute are often low (typically at or under $15,000). However, unless the insurance policy's appraisal provision states that appraisal is mandatory when requested, many assignee contractors prefer not to go to appraisal. They tend to prefer litigation because, for the assignee contractor, litigation is actually less expensive because there is an attorney fee shifting statute as noted above.

  

Insurers face many other challenges when handling AOB claims and lawsuits. In Florida, AOB claims and lawsuits are on

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