Citizens Property Insurance eyes ‘assignment of benefits’

Florida’s Citizens Property Insurance, which has delayed a decision on rate hikes for 2019, intends to hold meetings to seek public input about what some insurers claim is a root cause of growing costs of policies.

Citizens President and CEO Barry Gilway announced Tuesday the state-backed insurer is working on the “logistics” for public roundtable discussions as a way to find solutions to the practice of “assignment of benefits.” The announcement came after a request by state Chief Financial Officer Jimmy Patronis.

“The bottom line is AOB abuse and runaway litigation threaten to raise premiums for many Citizens policyholders who otherwise would see their rates remain steady or go down,” Gilway said in a statement.

Policyholders signing over insurance claims to contractors

Assignment of benefits (AOB), which involves policyholders signing over insurance claims to contractors, has been highly controversial in recent years, particularly involving water-damage claims.

Citizens and other insurers have contended that fraud and abuse in assignment of benefits has led to costly lawsuits and driven up rates. But contractors and plaintiffs attorneys argue the process helps ensure that damage claims are paid properly.

Related: State Farm Florida asks judge to shield assignment of benefits info

On Monday, Patronis urged Citizens, which as of Friday had 442,051 policies, to take public input regarding “skyrocketing non-weather water losses and increased litigation.”

“When used correctly with reputable contractors, assigning your benefits over isn’t a bad practice,” Patronis said in a statement. “However, in the hands of bad actors who want to make a quick buck that could mean skyrocketing insurance rates for everyone.”

28,000 lawsuits in 2016

Patronis said the number of assignment-of-benefits lawsuits has grown from about 400 in 2006 to more than 28,000 in 2016.

“Shifting the burden to the policyholder is not the solution,” Patronis said. “This deters people from purchasing adequate coverage, and sometimes opting to go without. Insurance should protect Florida families and not be a cost burden. We have to stop the fraud and those who game the system.”

Florida Insurance Commissioner David Altmaier, who has backed making assignment-of-benefits changes, said AOB-associated claims are 85% more expensive than claims without assignment of benefits.

Insurers score a court victory

Amid heavy lobbying from both sides, the Legislature has not passed changes to assignment of benefits. Meanwhile, court battles continue with insurers scoring a victory last week in an appeals court.

In that case, a panel of the Fourth District Court of Appeal rejected a breach-of-contract lawsuit filed by a contractor against an insurance company in a dispute involving a water-damage claim.

The St. Lucie County case stemmed from policyholders John and Liza Squitieri sustaining water damage to their home.

Liza Squitieri contracted with Restoration 1 of Port St. Lucie to do cleanup work and assigned the benefits to the firm. Restoration 1 submitted a claim for $20,305 to the couple’s insurer, Ark Royal Insurance Co., according to the ruling.

But the insurer refused to pay the full amount, pointing to part of the contract that required approval from the couple’s mortgage company, PNC Bank, for benefits to be assigned to the contractor.

Restoration 1 sued the insurer for breach of contract, but a circuit judge dismissed the case. Restoration 1 appealed and said the restriction on assignment of benefits was illegal, but the appeals court ruled for the insurer.

Ability to make timely repairs

The Restoration Association of Florida, which includes contractors and law firms, criticized the decision, with a spokeswoman saying it will “further hinder and delay a homeowner’s ability to make timely repairs to their own homes.”

“Mortgage companies are not equipped, qualified, or trained in homeowner insurance claims nor should they be,” spokeswoman Amanda Prater said in a statement. “The primary focus after a homeowner suffers a loss to their property should be to ensure timely professional repairs are made to further mitigate damages and to keep homeowners safe in their own homes.”

The Fourth District decision, however, conflicted with a ruling last year by the Fifth District in a similar case, which could lead to the issue ultimately going to the Florida Supreme Court.

Curb cost of water claims

In June, Citizens Property Insurance delayed until December a decision on 2019 rate increases, after initial proposals of an average 7.9% increase for residential policyholders and an average 8.9% increase for commercial policyholders, including condominium associations. Officials said they wanted to assess the impact of a new “managed repair” program designed to curb the cost of water claims.

Related: Appeals court rules against insurer on ‘assignment of benefits’

Under the program, Citizens policyholders who suffer water damage from a non-weather event such as a burst water pipe or faulty water heater have the option of making regular claims under their policies but with a $10,000 cap for repairs, including a $3,000 limit for emergency services, such as water removal.

If they opt to use the managed-repair program, they will have their damage repaired by Citizens-approved contractors. There would be no limit on the repair costs and the work would be covered by a three-year warranty.

Jim Turner (j.turner@newsserviceflorida.com) reports for the News Service of Florida.