As a homeowner, you likely have a homeowners’ insurance policy. This policy typically covers damages to your house from weather, water damage, smoke, fire, theft, vandalism, and other unexpected events.
When the unexpected happens and you have to make a claim on your policy, you may find the claim process complicated to navigate. This is especially true in emergency situations when you need to act quickly to protect your home or business property and belongings.
You may encounter the term “assignment of benefits” as you contact vendors and sort through payment options.
What does “assignment of benefits” mean for you, the vendors employed, and your coverage?
Assignment of Benefits – A Shortcut of Sorts
“Assignment of benefits” (AOB) is a legal document with which you can assign some or all of the benefits under your policy to another party. An AOB gives the other party the right to deal directly with the insurance company and the right to enforce its right to payment – even by filing a lawsuit against the insurer.
When unexpected damage and a claim occurs, some contractors – such as restoration companies, mold testers and remediators, plumbers, movers, and roofers – will accept an assignment of benefits instead of insisting upon cash payment up front. After receiving an AOB, the contractor will bill the insurer directly for the work being done.
What is the advantage of this? Why not do it yourself? Let’s go back to the emergency damage situation.
AOB for Emergency Repairs
When damage occurs and a claim is made, property owners have an obligation under the insurance policy to comply with “post-loss obligations.” Not complying with these obligations could give the insurer a reason to deny the claim and not pay. One of the post-loss obligations is to mitigate damages. This means that the insured has an obligation to conduct basic clean up and prevent the damage from getting worse.
We hope this doesn’t happen, but let’s say a small house fire took down one wall of your master bedroom. Now your master bedroom is exposed to the elements. And the water that was used to put out the fire could cause mold and other damage.
After the property damage occurs, property owners usually need a restoration company to clean up the damage and stabilize and protect the property.
If this happened to you, you could pay the restoration company out of pocket for the company’s work. Then you would take a few weeks to collect paperwork, file a claim, then wait and hope for your insurance company’s approval and reimbursement.
Unfortunately, most people don’t have quick access to the thousands of dollars necessary to pay these bills. And if they do, they don’t want to pay without knowing that they will be reimbursed by the insurer.
In the meantime, wind, water, and sun will very likely cause more damage to your house and possessions if you wait. Also, if you wait, you could violate the post-loss obligations under your policy and risk not receiving coverage at all.
This is where AOB comes in handy. You can find a contractor who will accept an assignment of benefits from you. That means they will do the cleanup and repair your wall right away with the understanding that they will deal with your insurance company directly at invoice time. If the insurance company doesn’t want to reimburse for the cost, the contractor will deal with the insurer, not you.
It sounds convenient… but is there a downside?
Sometimes an AOB does carry certain restrictions.
For instance, a 2019 Florida law placed a cap on how much insurance companies can pay contractors for emergency services paid through an AOB. That can make dealing with certain emergency situations tricky. Non-emergency services are not capped, but the contractor must know how to properly document its work and how and when to submit the proper documentation.
You may also need to check that an assignment of benefits is an option in your policy at all. Sometimes, insurance policies don’t permit the AOB route. Instead, they might require you to pay for services out-of-pocket and be repaid after the fact.
For some homeowners, this can create real financial hardship, especially for sudden and exorbitant house repairs. If a policy prohibits assignments of benefits, the policy must say so in clear, large print. Though these policies may sell for a discount of a few dollars, we would argue that this small savings is not worth the risk of losing the options the AOB can give you.
You’ll need to read your policy carefully to determine if this is the case for you. Though it may feel like a headache, it’s better to know than to find yourself stuck with a surprise expense. You may need to save more than expected for potential house damages. Or you may want to work on changing your policy – or a combination of both strategies.
Insurance companies have engaged in campaigns claiming that some contractors are using AOBs to do unnecessary work or over-charge insurers for the work they do. Insurers say these people are costing the insurance companies too much money.
While it is never appropriate to engage in unscrupulous activity, blaming AOBs for the behavior of a few bad actors is not fair. Moreover, it deprives property owners of a valuable option when dealing with a property insurance claim, which can be difficult and stressful.
Like a computer or a hammer, an assignment of benefits is a tool. In most people’s hands, they are used for good, while in a few they are used to commit bad deeds. The person might be bad, but the computer or the hammer is neutral. The same is true of assignments of benefits.
Have a claim and need to hire a contractor who will work in exchange for an assignment of benefits? We recommend understanding the work that the contractor will do, how much it will cost, how much of your claim is being assigned to the contractor, and if the contractor is familiar with Florida Statute 627.7152, Florida’s assignment of benefits law.
If you need assistance understanding your coverage, AOBs, or assistance dealing with a new, delayed, under-paid, or denied insurance claim, we’re here to help.