AOBs have been a part of Florida's laws for more than 100 years, and they were designed to facilitate the claims process. However in recent years, many contractors have taken advantage of Florida's unique one-way attorney's fee shifting statute for insurance coverage litigation. The "one-way attorney fee" statute was enacted to protect Florida policyholders from large insurance companies. However, this rule has incentivized contractors, via the assignment of benefits, to charge property owners outlandish amounts and to then pursue needless, sometimes frivolous, and always expensive litigation against insurance companies. This has led to claims that the permissive AOB environment has driven up insurance premiums, harming businesses and homeowners alike, and threatening the livelihood of hundreds of independent insurance agencies and the agents they employ. According to the Department of Financial Services, there were 405 AOB lawsuits across all 67 Florida counties in 2006, and by 2016 that number had risen to 28,200.

Assignees such as water mitigation and roofing companies have increasingly filed lawsuits against insurers seeking inflated amounts for property damage repair or mitigation. Insurers struggled to resolve AOB disputes given the attorney fee exposure, which often dwarfs the amount in dispute.

After years of efforts by Florida lawmakers to curb the rampant abuse of AOBs applied to insurance policies, Florida Governor Ron DeSantis signed into law the new Florida Statute 627.7152, to be effective for AOBs executed on or after July 1, 2019.

Analysis:

Assignment Agreement Requirements:

The new legislation defines an assignment agreement as:

any instrument by which post-loss benefits under a residential property insurance policy or commercial property insurance policy…are assigned or transferred, or acquired in any manner, in whole or in part, to or from a person providing services to protect, repair, restore, or replace property or to mitigate against further damage to the property.

Florida Statute § 627.7152(2)(a) sets requirements for a proper assignment of benefits:

627.7152 Assignment agreements

(2)(a) An assignment agreement must:

1. Be in writing and executed by and between the assignor and the assignee.
2. Contain a provision that allows the assignor to rescind the assignment agreement without a penalty or fee by submitting a written notice of rescission signed by the assignor to the assignee within 14 days after the execution of the agreement, at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.
3. Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier. . . .
4. Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee. . . .

Assignee Burden:

The new law places the burden on an assignee to demonstrate that an insurer is not prejudiced by an assignee's failure to maintain records, cooperate with the insurer, provide requested documents and records, or delivery a copy of the executed assignment agreement. In addition, the assignee must provide the policyholder with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required. Under § 627.7152(2)(a), contractors will no longer be able to blindside their customers and insurers with exorbitant bills with the expectation that an insurance company will eventually pay it. Now, contractors will be required to provide detailed estimates in advance of performing the work in order to effectively obtain an assignment of insurance benefits. Further, the assignee must promptly notify the insurer of the assignment. Insurers will now be able to monitor costs as they are incurred and ensure contractors are not performing unnecessary repairs.

The assignee must perform the work in accordance with accepted industry standards. An assignee is also precluded from seeking payment from the assignor in excess of the applicable policy deductible, unless the insured has requested additional work be completed at the insured's own expense.

Pre-Litigation Requirements:

Under the new law, an assignee must provide the insured, insurer, and the assignor (if not the insured) with a written notice of intent to initiate litigation, at least ten days before filing suit. This notice cannot be served prior to the insurer's determination of coverage.The notice must include, among other things, the amount of damages in dispute, the amount claimed, and a pre-suit settlement demand. The assignee must also provide a detailed written invoice or estimate of services, the number of labor hours, and in the case of work performed, proof that the work has been performed in accordance with "accepted industry standards."

In the event of litigation, § 627.7152(3) addresses the burden of the assignee:

(3) In a claim arising under an assignment agreement, an assignee has the burden to demonstrate that the insurer is not prejudiced by the assignee's failure to:

(a) Maintain records of all services provided under the assignment agreement.

(b) Cooperate with the insurer in the claim investigation.

(c) Provide the insurer with requested records and documents related to the services provided, and permit the insurer to make copies of such records and documents.

(d) Deliver a copy of the executed assignment agreement to the insurer within 3 business days after executing the assignment agreement or work has begun, whichever is earlier.

Like a policyholder, assignees must cooperate with the insurer. If an assignee fails to maintain records, provide the insurer requested documents, or deliver the agreement as required by § 627.7152(2)(a), and if the case is litigated, the assignee will bear the burden of demonstrating a lack of prejudice to the insurer.

Insurer Notice Requirements:

Upon receipt of the notice, the insurer must respond in writing within 10 business days of receipt. The insurer must respond with either a settlement offer, a demand for appraisal, or another method of alternative dispute resolution. And, if the policy requires, and the insurer requests, that the insured(s) submit to examinations under oath ("EUO") or alternative dispute resolution methods, including appraisal, such requirements must be met prior to filing suit pursuant to an AOB.

(b) An insurer must respond in writing to the notice within 10 business days after receiving the notice specified in paragraph (a) by making a presuit settlement offer or requiring the assignee to participate in appraisal or other method of alternative dispute resolution under the policy. An insurer must have a procedure for the prompt investigation, review, and evaluation of the dispute stated in the notice and must investigate each claim contained in the notice in accordance with the Florida Insurance Code.

Insurers may avoid litigation through negotiation or appraisal. Assignees are encouraged to make reasonable settlement demands and to consider reasonable offers and failure to do so can trigger an award of attorney's fees in favor of the insurer.

(10) Notwithstanding any other provision of law, in a suit related to an assignment agreement for post-loss claims arising under a residential or commercial property insurance policy, attorney fees and costs may be recovered by an assignee only under s. 57.105 and this subsection.

(a) If the difference between the judgment obtained by the assignee and the presuit settlement offer is:

1) Less than 25 percent of the disputed amount, the insurer is entitled to an award of reasonable attorney fees.

2) At least 25 percent but less than 50 percent of the disputed amount, no party is entitled to an award of attorney fees.

3) At least 50 percent of the disputed amount, the assignee is entitled to an award of reasonable attorney fees.

Florida Statute § 627.428 is the one-way attorney's fee shifting statute in Florida's insurance code. This statute generously provides fee-shifting to "prevailing" policyholders and claimants. Under the new AOB statute, § 627.7152(10), awards of attorney's fees are discretionary in suits against insurers by assignees. Further, § 627.7152(10) requires assignees to obtain a judgment at least 50% greater than the insurer's pre-suit settlement offer in order to obtain an award of attorney's fees. For additional encouragement to accept reasonable settlement offers, assignees who fail to obtain a judgment at least 25% greater may be required to pay the insurer's attorney's fees.

Attorney Fee Shifting Provisions:

As it pertains to AOBs, Florida's "one-way" attorney fee statute is replaced with a formula that encourages reasonable resolution prior to litigation:

• For the Insurer (<25%): If the difference between the judgment obtained by the assignee and the insurer's pre-suit settlement offer is less than 25 percent of the disputed amount, the insurer is entitled to reasonable attorney's fees.
• For the Assignee (>50%): If the difference between the judgment obtained by the assignee and the insurer's pre-suit settlement offer is greater than 50 percent of the disputed amount, the assignee is entitled to reasonable attorney's fees.
• For Neither (25.1% – 49.9%): If the difference between the judgment obtained by the assignee and the pre-suit settlement offer is between 25.1 and 49.9 percent of the disputed amount, then neither the assignee nor the insured is entitled to reasonable attorney's fees.

Policy Options:

Lastly, insurers can avoid "assignment of benefits" issues altogether by prohibiting AOBs in their policies. Under Florida's new AOB law, insurers as of July 1, 2019 may sell insurance policies that preclude AOBs altogether, so long as the insurer also offers an identical policy with the assignment option (which can be offered at higher cost).

The bill creates a new § 627.7153, which allows: "[a]n insurer may make available a policy that restricts in whole or in part an insured's right to execute an assignment agreement" if certain conditions are met. Those conditions include that the insurer must also provide unrestricted coverage, the restricted policy must be available at a lower cost than the unrestricted policy, and policies prohibiting assignment in whole must cost less than policies prohibiting assignment in part.

Insurers selling policies precluding AOB must provide a consumer protection notice attached to the notice of premium, in 18-point, uppercase and bold font that clearly explains that the policy is unassignable. This explanatory notice must also be given to the insured "at least annually." If an insured elects the non-assignable policy, then such rejection of a fully assignable policy must be in writing or electronically.

Reporting Requirements:

Finally, the Florida Legislature has implemented insurer reporting requirements. Beginning on January 30, 2022, admitted Florida insurers will be required to furnish to Florida's Office of Insurance Regulation certain specified data on each commercial and residential property insurance claim paid pursuant to an AOB. Included in the data to be furnished is specific information related to claims adjustment, settlement timeframes, trends, information about the loss adjustment expenses incurred in the process, and this data must distinguish between litigated and non-litigated claims. While these reporting requirements may place a burden on insurers, it will be a guide post for legislators going forward to evaluate the effectiveness of the AOB reform bill, and whether additional steps should be taken to combat AOB abuse.

Conclusion:

Florida's new AOB law should help curb the rampant abuse of AOB by permitting non-assignable policies, requiring assignees to bear the burden of proof on insurer prejudice and to provide pre-litigation notice to insurers and insureds, affording insurers more resolution options, and implementing a more equitably balanced attorney fee shifting provision.

The law is prospective only, so it will not technically impact existing AOB litigation. However, through passage of this law, Florida has disincentivized unscrupulous contractors and leveled the courtroom playing field that should reduce the amount of AOB litigation. Ultimately, these changes are expected to benefit Florida policyholders with reduced insurance premiums.