In the past, when a homeowner needed certain roof repairs, that homeowner could not only look to a roofer to fix his or her roof, but potentially to an insurance company to pay that roofer for those repairs. This relationship was made possible through what is formally known as an Assignment of Benefits (AOB).
Under AOB agreements, a homeowner with property insurance coverage for roof damage could “assign” the “benefit” of being insured over to a roofer. That roofer could then begin repairs, protecting the homeowner’s household from Florida’s elements. At the same time or after completing the roof repairs, that roofer could then obtain the “benefit” of the homeowners’ insurance coverage for roof repair directly from the insurer.
The Florida Legislature recently overhauled the law governing AOB agreements with the enactment of House Bill 7065 (2019). This bill – which was signed into law on May 23, 2019 and took effect July 1, 2019 – makes drastic changes to the way the residential roofing industry used to operate, and sets out a number of new requirements and conditions that every roofer must consider before performing work under the new AOB statute.
The following are basic ground rules for obtaining the benefit of an AOB agreement:
- Make sure the homeowner’s insurance policy does not prohibit AOB
House Bill 7065 created Florida Statute § 627.7152, which allows insurance companies to sell a new type of insurance policy that prohibits AOB agreements between homeowners and service providers, like roofers. If a roofer performed work for a homeowner with one of these polices, that roofer would not be able to seek payment directly from an insurance company, even with the homeowner’s permission. These new policies should not be too difficult to spot, since the statute requires the policy states the following in 18-point uppercase and boldfaced type:
THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7152 OF THE FLORIDA STATUTES.
- Make sure all AOB agreements are in writing with the homeowner and conform to the new statutory requirements
The new statute requires that AOB agreements include a number of provisions not limited to the following:
- AOB agreements must be signed and in writing;
- AOB agreements must contain a provision notifying owners of their right to rescind the agreement in certain circumstances, without penalty, by submitting written notice;
- AOB agreements must contain a provision requiring the roofer to notify the insurer of the assignment within three business days of executing the AOB agreement;
- AOB agreements must contain a notice stating that, by executing the agreement, the owner gives up certain rights under the insurance policy; the notice must be written in bolded all caps and at least 18-point uppercase font;
- AOB agreements must relate only to work to protect, repair, restore, or replace a dwelling or structure, or to mitigate against further damage;
- AOB agreements must contain a written, itemized, per-unit cost estimate of the services to be performed; and
- AOB agreements must contain a provision requiring the roofer to indemnify the owner if an assignment of benefits is given when the owner’s insurance policy prohibits, in whole or in part, an assignment of benefits.
- Make sure a copy of the written agreement is sent to the insurance company within three days of forming the AOB agreement
The new statute requires that the roofer must provide the insurer a copy of the AOB agreement within three business days after the AOB agreement is executed or work has begun, whichever is earlier.
- Be cautious about when to begin work
The new statute requires the assignment agreement to contain a provision providing the insured with the right to rescind the agreement under certain circumstances. The statute creates three different rights of rescission, which include:
- The right to rescind the agreement within fourteen days (14) of its execution;
- The right to rescind the agreement if the work hasn’t been “substantially completed” within thirty (30) days after the work is scheduled to commence;
- The right to rescind if “substantial work on the property” has not begun within thirty (30) days after the assignment agreement is executed and the agreement does not specify a commencement date.
Therefore, if roofers don’t specify a commencement date in the AOB agreement, the window for performance is very narrow. The first right of rescission, allowing rescission within fourteen (14) days after the AOB agreement is executed, may prevent a roofer from ordering the materials necessary to perform the work until after that period has concluded. That roofer would then have roughly a two (2) week window to purchase the necessary materials and “substantially perform” the work. To avoid this situation, specifying a commencement date is critical. If a commencement date is specified in the AOB agreement, a roofer will have thirty (30) days after that date to “substantially complete” the work.
- Try to get paid up front
The new AOB statute prevents roofers from recovering uncompensated costs from homeowners, since the new statute provides that the roofer effectively waives any claim against the homeowner, including the right to claim a lien against the assignor’s property.
- Keep Track of All Costs and Expenses
The new AOB statute offers little guidance to help roofers feel confident about getting paid under AOB agreements. As a result, the best way to obtain full coverage for roof work under an AOB agreement is to keep meticulous records of all project expenses and keep the homeowner and insurer apprised of accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required. F.S. § 627.7152(4)(a).
- Don’t get stuck paying insurers’ legal bills
Even if an AOB agreement is properly formed, proper notice is given to the insurer, and the work has been completed, a roofer may still be forced to confront the most drastic change made by the new AOB statute: the new attorneys’ fee formula.
Florida Statutes § 627.7152(10) codifies a formula that determines when payment of attorneys’ fees shift and to whom. Notably, roofers no longer receive attorneys’ fees for every judgement won against an insurance company under AOB agreements. Under the new statute, roofers may be stuck paying the legal bills of insurance companies for imprudently contesting coverage in court. A roofer may have to pay an insurer’s attorneys’ fees, even if the roofer prevails in court.
Before initiating a legal action against the homeowner’s insurer, but only after the insurer has made a coverage determination under F.S. § 627.70131, roofers must make a pre-suit settlement demand. After that demand is received by the insurer, the insurer has the option of satisfying that demand or responding with a pre-suit settlement offer. Even if the settlement offer is less than what a roofer is awarded in a final judgement against the insurer, a roofer may still have to pay the insurer’s attorneys’ fees. Specifically, if the difference between the judgment obtained and the insurer’s settlement offer is less than 25% of the difference between the insurer’s offer and the roofer’s pre-suit demand, the roofer must pay the insurer’s attorneys’ fees. Under current law, a roofer may only receive attorney’s fees for disputing coverage, if the difference between the judgement and the settlement offer is greater than 50% of the disputed amount. For these reasons, roofers should seek advice of counsel in drafting and enforcing AOB agreements and formulating settlement demands.
James O. Birr, III
Carter Smith, JD Candidate
Alexa Nordman, JD Candidate