There has been much ado in recent years about the existence of the assignment of benefits (commonly referred to as an AOB) in the property insurance context. You might have even heard of the evils of the AOB on your local news or in the paper.
An assignment of benefits is a document that an insured signs with a vendor of services which allows that vendor to provide remediation and/or mitigation services without the insured having to directly incur the cost. With the assignment of benefits, the vendor is able to submit their documentation to the insurance company and seek direct payment from the policy’s coverage limits.
The debate has raged on. Insurance companies cite widespread abuse of this mechanism for insureds to protect their properties from additional damage. Insureds, their representatives, and vendors cite to the necessity of the AOB to comply with arduous policy provisions requiring insureds to take necessary measures to protect their property once a loss occurs.
So who is right? Well, insurance companies have continued to challenge the insured’s ability to assign their rights in every way imaginable. From attempting to outlaw assignments entirely by changing the language in the policy to making new and creative arguments in courts across the state and lobbying for the abolition of AOBs altogether, insurance companies have tried it all and keep trying to suppress the rights of insureds. However, courts across the state continue to rule in favor of the insured’s contractual right to assign their benefits to these vendors.
One recent case is Nicon Construction v. Homeowners Choice Prop. & Cas. Ins. Co., (2d DCA May 11, 2018). Here, an appellate court again reinforced the insured’s right to freely assign their policy benefits, even allowing an insured to assign benefits to multiple parties. The insured had signed two separate assignments to two vendors who had provided services for water and debris removal as well as asbestos remediation related to a pipe burst.
The insurance company made the argument that the first assignment was for “any and all insurance rights, benefits, and causes of action.” The insurance company argued that the second assignment was invalid because the insured had already assigned all of their rights under the first assignment. Sounds confusing, right? That’s because it’s a very thin argument. Essentially, the insurance company’s argument was that the insured had assigned all of their rights under the policy to the first vendor in exchange for the services they provided. To put that into perspective, the average aggregate policy limits are about $300,000.00 and the average remediation or mitigation invoice is approximately $5,500.00. Who in their right mind would assign $300,000.00 of value in exchange for $5,500.00 of services? The answer is no one would.
Thankfully, the appellate court considered the intention of the assignment, construed the document as a whole instead of focusing on one isolated sentence, and reached the determination that the insured was only assigning benefits to the vendors for the services they each performed and not all of the rights to payment for the entire covered claim. The appellate court disagreed with the lower court, found that the second assignment was valid, and reversed the lower court’s findings.
This decision is just another example of the courts reinforcing the insureds’ rights to freely assign benefits in the balancing act of properly mitigating losses as required by the insurance company under the policy and taking matters into their own hands to mitigate losses cheaply for the carrier, but ultimately at the insureds’ own expense and at the risk of prejudicing their underlying claim for failing to mitigate.