Assignment of Benefits: New Law Effective July 1, 2019

A sweeping insurance reform bill was signed into law by the Governor on May 23, 2019.  The law creates two entirely new sections in Chapter 627 of the Florida Statutes, which governs Insurance Contracts.  The bill creates Section 627.7152, Florida Statutes, which regulates assignment agreements that are regularly known in the industry as Assignment of Benefits (“AOB”).  The bill also creates Section 627.7153, Florida Statutes, which expressly authorizes an insurer to contractually prohibit an insured from assigning their post loss benefits if certain conditions are met.  The bill goes into effect on July 1, 2019.

I. FLA. STAT. 627.7152: Regulation Of Assignment Agreements

Fla. Stat. 627.7152 substantially regulates any contracts assigning post loss benefits of an insurance contract.  Specifically, Fla. Stat. 627.7152 provides 1) the required language and provisions that must be contained within an assignment agreement; 2) substantial rescission rights to insureds; 3) limitations to the right of an assignee to collect attorney’s fees against an insurer in litigation; 4) prohibits an assignee from collecting any fee from the insured except for the deductible, betterment or contracted work; 5) conditions precedent to filing suit against an insurer.

a. Required Language in Assignment Agreements

If your business ever performs work in consideration of an assignment of insurance benefits you now must revise your contractual agreements to comply with seven (7) separate requirements, which are:

1. Contract Must be in Writing;
2. Contain a Provision Allowing Rescission (discussed in more detail below);
3. Contain a Provision Requiring the Assignee to Notify the Insurer of the Assignment within Three (3) Days of Execution of the Assignment Agreement;
4. Contain a Written, Itemized, Per-Unit Cost Estimate of the Services to be Performed;
5. Must Relate Only to Work to Protect, Repair, Restore or Replace a Dwelling or Structure or to Mitigate Against Further Damage;
6. Contain a Required Notice in Bolded All Caps in at Least 18 Point Uppercase Font; and
7. Contain a Provision Requiring the Assignee to Indemnify the Assignor if an assignment of benefits is Given when the Insured’s Insurance Contract Prohibits, in whole or in part, AOB’s.

Importantly, Fla. Stat. 627.7152(2)(d) states “[a]n assignment agreement that does not comply with this subsection is invalid and unenforceable.”

b. The Insured’s Right to Rescind an Assignment Agreement

One of the required provisions in the new law is the obligation of the assignee to include a contractual right to rescind in any contract containing an assignment of benefits.  The language in the statute regarding rescission is a little cumbersome and hard to understand.  However, the statute requires three different rights of rescission to be contained within an assignment agreement.  First, the assignor must have the right to rescind the assignment agreement within fourteen (14) days of execution of the agreement by giving written notice.  Second, if work hasn’t been “substantially completed” within thirty (30) days after the work is scheduled to commence then the assignor can rescind the assignment agreement by written notice.  Third, thirty (30) days after the assignment agreement is signed, and no commencement date is listed in the contract, contractor/assignee has not “begun substantial work on the property” the assignor can rescind by giving written notice.

If the contractor doesn’t include a commencement date in their assignment agreement the window to perform is tight.  The new law may prevent a contractor utilizing an AOB from ordering materials or performing work prior to fourteen (14) days from execution of the assignment agreement. [1]  If a commencement date isn’t listed in the contract then work must have substantially begun before day thirty (30), after execution date.  This may be a very tight window if the assignee can’t practically order materials until day fifteen (15), after execution date.

The statute makes no express exception that would prohibit the right to enforce rescission in emergency situations.  However, the statute does contemplate the use of an assignment of benefits in emergency situations because the statute limits the amount of the assignment in emergency circumstances to the greater of $3,000.00 or 1% of the Coverage A limit.  Additionally, one of the seven (7) required provisions in an assignment agreement is that it contain a written, itemized, per-unit cost estimate for the services to be performed.  Given that rescission is available fourteen (14) days after the assignment agreement is signed, that an itemized cost estimate (which may not be possible to provide in an emergency situation) must be included in the assignment agreement and that the assignment in an emergency situation is limited to $3,000 or 1% of Coverage A, it is not clear if an assignment agreement has any real world application in an emergency situation.  Time will tell if this statute negatively impacts the ability of property owners to hire competent contractors after an emergency situation.

c. An AOB Acts as a Limited Waiver to Sue a Named Insured

Fla. Stat. 627.7152(7)(a)-(b), prohibits an assignee from making any claim or suing an insured for any of the scope of work contained within the assignment of benefits.  Exceptions to this rule allow the assignee to pursue and/or sue the insured for the deductible due under the policy, for any betterment that is performed and approved by the insured and any contracted work performed before the assignment agreement is rescinded.  This is an important provision because often after an assignment agreement is signed a public adjuster or an attorney is hired to ensure payment from the insurer is adequate.  If the statute acts as a waiver of the assignee’s right to pursue the assignor for unpaid work then the public adjuster, who normally takes a percentage of the claim, will now have to be paid out of the assignor’s pocket as the assignee is prohibited from being paid out of the insured’s pocket.  No Florida Statute requires an insurer to pay a public adjusters’ fee and public adjusters generally charge between 10% and 20% of the claim.  It is unlikely that public adjusters will agree to be paid out of pocket instead of from the insurance proceeds.

The potential problem is demonstrated by the following example:  A hurricane damages a business and the owner needs to have work quickly performed so the business can get up and running.  The business hires a contractor, signs an assignment agreement and work begins before payment is ever made.  The insurer initially provides an inadequate offer of payment on the claim.  Then the owner hires a public adjuster, which will receive 10% of the proceeds of the adjusted claim.  The adjusted claim is $200,000.  By definition, it will cost $200,000 to make the repairs because the insurer cannot pay more on the claim than the amount of damage.  The public adjuster is then paid $20,000 for adjusting the claim and there is $180,000 available to the assignor/contractor but assignor/contractor is contractually obligated to perform $200,000 worth of work.  Previously, the contractor/assignee would submit a bill to the owner/assignor for the $20,000 that was paid out of the claim to the adjuster.  Now, it appears the public adjuster will need to bill his/her services directly to the insured.

d. Assignee’s Rights in Litigation have been Limited

Prior to an assignee pursuing litigation to seek adequate payment, a notice setting forth a presuit settlement demand must be provided to the insurer and the insurer will have ten (10) business days, after receipt of the notice, to respond before a lawsuit can be filed.  The insurer’s response is required to make a settlement offer, elect appraisal rights or elect alternative dispute resolution provided for in the insurance policy.  If litigation is instituted after expiration of the notice requirements, an assignee’s right to recover attorneys’ fees is significantly limited.  If the difference between the judgment obtained and the assignee’s presuit offer is less than 25% of the difference between the assignee’s presuit offer and the insurer’s presuit offer the insurer is entitled to attorneys’ fees against the assignee.  If the difference between the judgment obtained and the assignee’s presuit offer is at least 25% but less than 50% of the difference between the assignee’s presuit offer and the insurer’s presuit offer neither the assignee nor the insurer is entitled to fees.  If the difference between the judgment obtained and the assignee’s presuit offer is at least 50% of the difference between the assignee’s presuit offer and the insurer’s presuit offer the assignee is entitled to attorneys’ fees against the assignee.

II. FLA. STAT. 627.7153: Insurers’ Right To Prohibit Assignment of Benefits 

In addition to significantly regulating assignment agreements, Fla. Stat. 627.7153 expressly allows insurers to contractually prohibit an insured from assigning insurance benefits.  For an insurer to contractually restrict the right to execute an assignment agreement it must include a mandated notice, bolded and in all caps of at least 18 point font.  Under the statute the insurer can provide a policy that fully restricts the right to execute an assignment agreement or a policy that partially restricts a right to execute an assignment agreement.  The statute requires that an unrestricted policy be offered, that the partially restricted policy be available at a lower cost than the unrestricted policy and that policy prohibiting assignment in whole be available at a lower cost than the partially restricted policy.  If an insured elects a partially restricted or fully restricted policy the insured must reject a fully assignable policy by a form that must contain a mandated heading, bolded and in all caps of at least 18 point font.  The mandated notice informs the insured that they are electing to purchase an insurance policy that restricts the assignment of benefits.

III: Conclusion

The new law regulating assignment of benefits effects all contracts entered into after July 1, 2019.  Contracts assigning insurance benefits are unenforceable if they do not comply with the new statute.  Although this article is not a comprehensive review of all of the changes, it does address the portions of the law that may have the biggest impact on businesses utilizing an assignment of benefits as part of their business model.  Simply ensuring that your assignment agreements are updated to comply with the law is not likely sufficient to ensure compliance with the law.  Contractors must also ensure that they are reviewing the insured’s insurance policies to ensure that the policy doesn’t prohibit assignment.  Additionally, contractors must develop a business model that allows them to be fully paid out of the insurance proceeds when a public adjuster or an attorney has been retained to obtain adequate compensation.  The new law is complex and adequate preparations should be made to ensure compliance.

[1] The new law states that the assignor is obligated for “work performed” prior to the assignment agreement being rescinded.