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Assignment of Benefits for Contractors: Pros & Cons of Accepting an AOB
Insurance , Restoration , Slow Payment
When a property owner files an insurance claim to cover a restoration or roofing project, the owner typically deals directly with the insurance company. They may not have the funds available to pay the contractor out of pocket, so they’re counting on that insurance check to cover the construction costs.
But insurance companies often drag their feet, and payments can take even longer than normal. Contractors often wish they could simply deal with the insurance company directly through an assignment of benefits. In some circumstances, an AOB can be an effective tool that helps contractors collect payment faster — but is it worth it?
In this article, we’ll explain what an assignment of benefits is, and how the process works. More importantly, we’ll look at the pros and cons for restoration and roofing contractors to help you decide if an AOB is worth it .
What is an assignment of benefits?
An assignment of benefits , or AOB, is an agreement to transfer insurance claim rights to a third party. It gives the assignee authority to file and negotiate a claim directly with the insurance company, without involvement from the property owner.
An AOB also allows the insurer to pay the contractor directly instead of funneling funds through the customer. AOBs take the homeowner out of the claims equation.
Here’s an example: A property owner’s roof is damaged in a hurricane. The owner contacts a restoration company to repair the damage, and signs an AOB to transfer their insurance rights to the contractor. The contractor, now the assignee, negotiates the claim directly with the insurance company. The insurer will pay the claim by issuing a check for the repairs directly to the restoration contractor.
Setting up an AOB
A property owner and contractor can set up an assignment of benefits in two steps:
- The owner and the contractor sign an AOB agreement
- The contractor sends the AOB to the insurance company
Keep in mind that many states have their own laws about what the agreement can or should include .
For example, Florida’s assignment of benefits law contains relatively strict requirements when it comes to an assignment of benefits:
- The AOB agreements need to be in writing. The agreement must contain a bolded disclosure notifying the customer that they are relinquishing certain rights under the homeowners policy. You can’t charge administrative fees or penalties if a homeowner decides to cancel the AOB.
- The AOB must include an itemized, per-unit breakdown of the work you plan to do. The services can only involve how you plan to make repairs or restore the home’s damage or protect the property from any further harm. A copy must be provided to the insurance company.
- A homeowner can rescind an AOB agreement within 14 days of signing, or within 30 days if no work has begun and no start date was listed for the work. If a start date is listed, the 30-day rule still applies if substantial progress has not been made on the job.
Before signing an AOB agreement, make sure you understand the property owner’s insurance policy, and whether the project is likely to be covered.
Learn more: Navigating an insurance claim on a restoration project
Pros & cons for contractors
It’s smart to do a cost-benefit analysis on the practice of accepting AOBs. Listing pros and cons can help you make a logical assessment before deciding either way.
Pro: Hiring a public adjuster
An insurance carrier’s claims adjuster will inspect property damage and arrive at a dollar figure calculated to cover the cost of repairs. Often, you might feel this adjuster may have overlooked some details that should factor into the estimate.
If you encounter pushback from the insurer under these circumstances, a licensed, public adjuster may be warranted. These appraisers work for the homeowner, whose best interests you now represent as a result of the AOB. A public adjuster could help win the battle to complete the repairs properly.
Pro: More control over payment
You may sink a considerable amount of time into preparing an estimate for a customer. You may even get green-lighted to order materials and get started. Once the ball starts rolling, you wouldn’t want a customer to back out on the deal.
Klark Brown , Co-founder of The Alliance of Independent Restorers, concedes this might be one of the very situations in which an AOB construction agreement might help a contractor. “An AOB helps make sure the homeowner doesn’t take the insurance money and run,” says Brown.
Pro: Build a better relationship with the homeowner
A homeowner suffers a substantial loss and it’s easy to understand why push and pull with an insurance company might be the last thing they want to undertake. They may desire to have another party act on their behalf.
As an AOB recipient, the claims ball is now in your court. By taking some of the weight off a customer’s shoulders during a difficult period, it could help build good faith and further the relationship you strive to build with that client.
Learn more : 8 Ways for Contractors to Build Trust With a Homeowner
Con: It confuses payment responsibilities
Even if you accept an AOB, the property owner still generally bears responsibility for making payment. If the insurance company is dragging their feet, a restoration contractor can still likely file a mechanics lien on the property .
A homeowner may think that by signing away their right to an insurance claim, they are also signing away their responsibility to pay for the restoration work. This typically isn’t true, and this expectation could set you up for a more contentious dispute down the line if there is a problem with the insurance claim.
Con: Tighter margins
Insurance companies will want repairs made at the lowest cost possible. Just like you, carriers run a business and need to cut costs while boosting revenue.
While some restoration contractors work directly with insurers and could get a steady stream of work from them, Brown emphasizes that you may be sacrificing your own margins. “Expect to accept work for less money than you’d charge independently,” he adds.
The takeaway here suggests that any contractor accepting an AOB could subject themselves to the same bare-boned profit margins.
Con: More administrative work
Among others, creating additional administrative busywork is another reason Brown recommends that you steer clear of accepting AOBs. You’re committing additional resources while agreeing to work for less money.
“Administrative costs are a burden,” Brown states. Insurers may reduce and/or delay payments to help their own bottom lines. “Insurers will play the float with reserves and claims funds,” he added. So, AOBs can be detrimental to your business if you’re spending more while chasing payments.
Con: Increase in average collection period
Every contractor should use some financial metrics to help gauge the health of the business . The average collection period for receivables measures the average time it takes you to get paid on your open accounts.
Insurance companies aren’t known for paying claims quickly. If you do restoration work without accepting an AOB, you can often take action with the homeowner to get paid faster. When you’re depending on an insurance company to make your payment, rather than the owner, collection times will likely increase.
The literal and figurative bottom line is: If accepting assignment of benefits agreements increases the time it takes to get paid and costs you more in operational expense, these are both situations you want to avoid.
Learn more: How to calculate your collection effectiveness
AOBs and mechanics liens
A mechanics lien is hands down a contractor’s most effective tool to ensure they get paid for their work. Many types of restoration services are protected under lien laws in most states. But what happens to lien rights when a contractor accepts an assignment of benefits?
An AOB generally won’t affect a contractor’s ability to file a mechanics lien on the property if they don’t receive payment. The homeowner is typically still responsible to pay for the improvements. This is especially true if the contract involves work that wasn’t covered by the insurance policy.
However, make sure you know the laws in the state where your project is located. For example, Florida’s assignment of benefits law, perhaps the most restrictive in the country, appears to prohibit an AOB assignee from filing a lien.
Florida AOB agreements are required to include language that waives the contractor’s rights to collect payment from the owner. The required statement takes it even further, stating that neither the contractor or any of their subs can file a mechanics lien on the owner’s property.
On his website , Florida’s CFO says: “The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.”
That sounds like a contractor assignee can’t file a lien if they aren’t paid . But, according to construction lawyer Alex Benarroche , it’s not so cut-and-dry.
“Florida’s AOB law has yet to be tested in court, and it’s possible that the no-lien provision would be invalid,” says Benarroche. “This is because Florida also prohibits no-lien clauses in a contract. It is not legal for a contractor to waive their right to file a lien via an agreement prior to performance.”
Learn more about no-lien clauses and their enforceability state-by-state
Remember that every state treats AOBs differently, and conflicting laws can create additional risk. It’s important to consult with a construction lawyer in the project’s state before accepting an assignment of benefits.
Best practices for contractors
At the end of the day, there are advantages and disadvantages to accepting an assignment of benefits. While it’s possible in some circumstances that an AOB could help a contractor get paid faster, there are lots of other payment tools that are more effective and require less administrative costs. An AOB should never be the first option on the table .
If you do decide to become an assignee to the property owner’s claim benefits, make sure you do your homework beforehand and adopt some best practices to effectively manage the assignment of benefits process. You’ll need to keep on top of the administrative details involved in drafting AOBs and schedule work in a timely manner to stay in compliance with the conditions of the agreement.
Make sure you understand all the nuances of how insurance works when there’s a claim . You need to understand the owner’s policy and what it covers. Home insurance policy forms are basically standardized for easy comparisons in each state, so what you see with one company is what you get with all carriers.
Since you’re now the point of contact for the insurance company, expect more phone calls and emails from both clients and the insurer . You’ll need to have a strategy to efficiently handle ramped-up communications since the frequency will increase. Keep homeowners and claims reps in the loop so you can build customer relationships and hopefully get paid faster by the insurer for your work.
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Assignment of Benefits: What It Is, and How It Can Affect your Property Insurance Claim
Table of Contents
What is an Assignment of Benefits?
In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work . In exchange, the contractor agrees that it will not seek payment from you for that scope of work, except for the amount of any applicable deductible. In other words, you give part of your insurance claim to your contractor, and your contractor agrees not to collect from you for part of its work.
The most important thing to know about an assignment of benefits is that it puts your contractor in control your claim , at least for their scope of work. Losing that control can significantly affect the direction and outcome of your claim, so you should fully understand the implications of an AOB (sometimes called an assignment of claims or AOC) before signing one.
How Does an Assignment of Benefits Work in Practice?
Let’s say you’re an insured homeowner, and Hurricane Ian significantly damaged your roof. Let’s also assume your homeowner’s policy covers that damage. A roofer, after inspecting your roof and reviewing your insurance policy, might conclude that your insurer is probably going to pay for a roof replacement under your insurance policy. The only problem is that it’s early in the recovery process, and your insurer hasn’t yet stated whether it will pay for the roof replacement proposed by your contractor. So if you want your roof replaced now, you would ordinarily agree to pay your roofer for the replacement, and wait in hopes that your insurer reimburses you for the work. This means that if your insurance company refuses to pay or drags out payment, you’re on the hook to your roofer for the cost of the replacement.
As an alternative to agreeing to pay your roofer for the full cost of the work, you could sign an assignment of benefits for the roof replacement. In this scenario, your roofer owns the part of your insurance claim that pertains to the roof replacement. You might have to pay your roofer for the amount of your deductible, but you probably don’t have to pay them for the rest of the cost of the work. And if your insurance company refuses to pay or drags out payment for the roof replacement, it’s your roofer, and not you, who would be on the hook for that shortfall.
So should you sign an AOB? Not necessarily. Read below to understand the pros and cons of an assignment of benefits.
Are There any Downsides to Signing an Assignment of Benefits?
You lose control of your claim . This is the most important factor to understand when considering whether to sign an AOB. An AOB is a formal assignment of your legal rights to payment under your insurance contract. Unless you’re able to cancel the AOB, your contractor will have full control over your claim as it relates to their work.
To explain why that control could matter, let’s go back to the roof replacement example. When you signed the AOB, the scope of work you agreed on was to replace the roof. But you’re not a roofing expert, so you don’t know whether the costs charged or the materials used by the roofer in its statement of work are industry appropriate or not. In most cases, they probably are appropriate, and there’s no problem. But if they’re not – if, for instance, the roofer’s prices are unreasonably high – then the insurer may not approve coverage for the replacement. At that point, the roofer could lower its prices so the insurer approves the work, but it doesn’t have to, because it controls the claim . Instead it could hold up work and threaten to sue your insurer unless it approves the work at the originally proposed price. Now the entire project is insnared in litigation, leaving you in a tough spot with your insurer for your other claims and, most importantly, with an old leaky roof.
Misunderstanding the Scope of Work. Another issue that can arise is that you don’t understand the scope of the assignment of benefits. Contractor estimates and scopes of work are often highly technical documents that can be long on detail but short on clarity. Contractors are experts at reading and writing them. You are not. That difference matters because the extent of your assignment of benefits is based on that technical, difficult-to-understand scope of work. This can lead to situations where your understanding of what you’re authorizing the contractor to do is very different from what you’ve actually authorized in the AOB agreement.
In many cases, it’s not necessary . Many contractors will work with you and your insurer to provide a detailed estimate of their work, and will not begin that work until your insurer has approved coverage for it. This arrangement significantly reduces the risk of you being on the hook for uninsured repairs, without creating any of the potential problems that can occur when you give away your rights to your claim.
Do I have to sign an Assignment of Benefits?
No. You are absolutely not required to sign an AOB if you do not want to.
Are There any Benefits to Signing an Assignment of Benefits?
Potentially, but only if you’ve fully vetted your contractor and your claim involves complicated and technical construction issues that you don’t want to deal with.
First, you must do your homework to fully vet your contractor! Do not just take their word for it or be duped by slick ads. Read reviews, understand their certificate of insurance, know where they’re located, and, if possible, ask for and talk to references. If you’ve determined that the contractor is highly competent at the work they do, is fully insured, and has a good reputation with customers, then that reduces the risk that they’ll abuse their rights to your claim.
Second, if your claim involves complicated reconstruction issues, a reputable contractor may be well equipped to handle the claim and move it forward. If you don’t want to deal with the hassle of handling a complicated claim like this, and you know you have a good contractor, one way to get rid of that hassle is an AOB.
Another way to get rid of the hassle is to try Claimly, the all-in-one claims handling tool that get you results but keeps you in control of your claim.
Can my insurance policy restrict the use of AOBs?
Yes, it’s possible that your Florida insurance policy restricts the use of AOBs, but only if all of the following criteria are met:
- When you selected your coverage, your insurer offered you a different policy with the same coverage, only it did not restrict the right to sign an AOB.
- Your insurer made the restricted policy available at a lower cost than the unrestricted policy.
- If the policy completely prohibits AOBs, then it was made available at a lower cost than any policy partially prohibiting AOBs.
- The policy includes on its face the following notice 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 627.7153 OF THE FLORIDA STATUTES.
Pro Tip : If you have an electronic copy of your complete insurance policy (not just the declaration page), then search for “policy does not allow the unrestricted assignment” or another phrase from the required language above to see if your policy restricts an AOB. If your policy doesn’t contain this required language, it probably doesn’t restrict AOBs.
Do I have any rights or protections concerning Assignments of Benefits?
Yes, you do. Florida recently enacted laws that protect consumers when dealing with an AOB.
Protections in the AOB Contract
To be enforceable, a Assignments of Benefits must meet all of the following requirements:
- Be in writing and executed by and between you and the contractor.
- Contain a provision that allows you to cancel the assignment agreement without a penalty or fee by submitting a written notice of cancellation signed by the you to the assignee:
- 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.
- 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.
- Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee .
- Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
- Contain the following notice in 18-point uppercase and boldfaced type:
YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, 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. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.
- Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees.
Under Florida law, a contractor (or anyone else) receiving rights to a claim under an AOB:
- Must provide you with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required.
- Must perform the work in accordance with accepted industry standards.
- May not seek payment from you exceeding the applicable deductible under the policy unless asked the contractor to perform additional work at the your own expense.
- Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, submit to examinations under oath and recorded statements conducted by the insurer or the insurer’s representative that are reasonably necessary, based on the scope of the work and the complexity of the claim, which examinations and recorded statements must be limited to matters related to the services provided, the cost of the services, and the assignment agreement.
- Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, participate in appraisal or other alternative dispute resolution methods in accordance with the terms of the policy.
- If the contractor is making emergency repairs, the assignment of benefits cannot exceed the greater of $3,000 or 1% of your Coverage A limit.
Homeowner’s insurance: understanding the a, b, c, ds of property coverages., the aob guide for florida property owners: rights, requirements, and faqs, actual cash value vs. replacement cost: how to calculate your insurance reimbursement.
Brelly’s tools and resources are your secret weapon to getting your insurance claim filed right, moving fast, and paid fully .
What is assignment of benefits, and how does it impact insurers?
What is assignment of benefits, and how does it impact insurers | insurance business america.
Assignment of benefits, widely referred to as AOB, is a contractual agreement signed by a policyholder, which enables a third party to file an insurance claim, make repair decisions, and directly bill an insurer on the policyholder’s behalf.
The Insurance Information Institute (III) describes AOB as “an efficient and customer-friendly way to settle claims.” Having a problem like a water leak in your home is stressful enough without having to negotiate an insurance claim. By signing an AOB, policyholders can leave that claim to the contractor they’ve brought in to fix the issue - in this case, potentially a plumber or a water remediation firm – and assuming that contractor acts in good faith, the repairs and the claim should be sorted without the policyholder losing too much sleep.
AOB – a fraudster’s playground In recent years, AOB has hit the headlines for all the wrong reasons. Loopholes in the way AOB is being used are enabling contractors and restoration companies to abuse the practice by inflating claims costs and charging insurance companies for work that was either unnecessary or simply wasn’t done at all. These fraudsters then keep any extra money for themselves.
Florida-based insurance brokerage, AssuredPartners, shared the following about AOB: “Once you sign an AOB, you lose control of the direction of your claim. The contractor takes control and can submit whatever they like to your insurance company, sometimes billing the company double, even triple the going market rate for their services, and sometimes including work that was never performed.
Read more: New to the insurance industry? Learn these basic terms.
“You don’t see this, and you can’t verify what was done but you have now committed to this contractor. You now have little to no recourse, nor are you able to comparison shop if you’re not satisfied with their work. Even if their work is incomplete, or you are unsatisfied with the end result, they can still claim compensation from the insurance company, which gets deducted from your benefits.”
A number of things could go wrong with AOB. When a vendor assumes control of a claim, that company is still bound by the terms and conditions of the original insurance policy. If a contractor violates any of those terms, the claim could be deemed void, leaving the policyholder out of pocket for a potentially significant loss.
Also, if the contractor files a claim and the insurance company does not agree with the dollar amount requested, under the AOB the contractor can engage in legal action against the insurer without the policyholder’s consent. According to the III, this can lead to: “a state of affairs in which legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.”
Protecting policyholders from AOB fraud The National Insurance Crime Bureau, whose mission it is to combat insurance fraud, has published a checklist for policyholders – also something that brokers can share with any clients considering AOB – to consider before hiring a contractor:
- Get multiple estimates for any work / repairs that need doing
- Ask for references and check reviews
- Never let a contractor pressure you into hiring them
- Get everything in writing, including the cost of the work, payment schedules, exactly what work will be done, time schedules for that work, guarantees, and so on
- Read the contract in full. If there are any blanks or concerns, do not sign the contract
- Do not pay a contractor in full or sign a completion certificate until the required work is done
- Check all documents that are sent to your insurance carrier, and make sure you understand them
- Work with an insurance broker to ensure you understand insurance policy language and to get help with the claims process
Impact of AOB on the insurance industry Insurers who choose to dispute inflated AOB bills are up against it in the era of plaintiff-friendly court verdicts. If the insurance companies fight in court and lose, they must pay compensation to the plaintiff’s attorneys, but the opposite is not true if the insurers win their case. So, the cost of the legal expense is prohibitive for the insurance company either way, which is why many insurers opt to settle.
Inflated claims and massive volumes of lawsuits have the predictable result of driving up insurance companies’ legal costs – and insurers are forced to pass those costs on to consumers in the form of higher insurance premiums and more restrictive policy terms and conditions.
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Assignment of benefits (aob).
Have you heard of the term assignment of benefits ? Do you know how it impacts you? An AOB is an agreement that, once signed, transfers the insurance claims rights or benefits of your insurance policy to a third party.
An AOB gives the third party authority to file a claim, make repair decisions and collect insurance payments without your involvement.
Review the resources below to better understand how transferring your insurance claims rights can impact you and your family.
Recent legislative changes prohibit a policyholder from assigning any post-loss benefits of a residential or commercial property insurance contract issued or renewed on or after January 1, 2023. Therefore, Assignment of Benefit agreements may not be established for claims made under contracts subject to this new law.
These legislative changes are part of Senate Bill 2-A which was passed on December 14, 2022, during the Legislative Special Session and signed by Governor DeSantis on December 16, 2022.
- EDUCATIONAL MATERIALS
What is an assignment of benefits?
An AOB is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner. AOBs have been used with life and health insurance policies for many years. However, AOBs are now being commonly used in homeowners’ insurance claims by restoration companies and contractors. Signing an AOB can be helpful with navigating the claims process, but if misused, it can lead to harmful consequences for the homeowner.
For example, you have a pipe leak in your home that causes water damage. If you call a restoration company to make repairs and sign an AOB that transfers your insurance rights to the company, the company can file a claim on your behalf and be paid directly.
What information must be included in an assignment of benefits?
The AOB must contain a written, itemized, per-unit cost estimate of the services to be performed by the third-party assignee and it must only relate to the work to be performed for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
The AOB must contain a notification in 18-point, uppercase, boldfaced font that advises you that you are giving up certain rights under your insurance policy to a third party. The notification must also include the rescission terms.
The AOB must contain a provision that requires the third-party assignee to indemnify and hold you harmless from all liabilities, damages, losses, and costs (including attorney fees) if the policy prohibits an AOB. The execution of the AOB constitutes a waiver by the third-party assignee and its subcontractors of claims against you for payment arising from the AOB. The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.
The AOB prohibits the third-party assignee from seeking payment from you in any amount in excess of the applicable policy deductible unless you have agreed to have additional work performed at your own expense.
The AOB cannot assign the right to recover attorney fees to the third-party assignee. In a suit related to an assignment agreement for claims arising under a residential or commercial property damage, the right to recover attorney fees stays with the assignor.
Florida law prohibits a third-party assignee from including the following charges/fees in an AOB:
- A penalty or fee for rescission of the AOB during the timeframes outlined in the AOB.
- A check or mortgage processing fee.
- A penalty or fee for cancellation of the AOB.
- An administrative fee.
If you are concerned with the language or terms of the contract, you should seek legal advice prior to signing the AOB. If you have questions as to whether the AOB incorporates the provisions required by Florida law, you may contact the Florida Department of Financial Services Insurance Consumer Helpline at 877-693-5236. If the AOB complies with all requirements stipulated by law, once the AOB has been signed, if the third-party assignee will not agree to release you from the contract, the only recourse is to pursue resolution in a court of law.
What responsibilities does the third-party assignee have under an assignment of benefits?
The assignee must provide a copy of the AOB to your insurance company within 3 business days following its execution, or the date work commenced, whichever is earlier.
The assignee must comply with certain policyholder duties as stipulated by the policy including the responsibility to maintain records of all services provided, cooperate with the insurance company’s claim investigation and provide the insurance company with requested records and documents related to the services provided. As a pre-condition to filing suit, the assignee must submit to examinations under oath or recorded statements related to the services provided, the associated cost, and the AOB itself.
Is an assignment of benefits a legal contract? How can I get out of the contract?
Yes. An AOB is a legal contract and it must contain three specific cancellation provisions.
- The AOB must provide you with an option to rescind the AOB contract within 14 days following its execution by submitting written notice to the third party.
- The AOB must provide you with the option to rescind the AOB at least 30 days following its execution if the AOB does not contain a commencement date, and the third party has not begun substantial work on the property.
- The AOB must provide you with the option to rescind the AOB if the third party has not “substantially performed” at least 30 days following the scheduled commencement date.
NOTE: Recent legislative changes prohibit a policyholder from assigning any post-loss benefits of a residential or commercial property insurance contract issued or renewed on or after January 1, 2023. Therefore, Assignment of Benefit agreements may not be established for claims made under contracts subject to this new law.
If I have suffered damage to my insured property, what should I do first?
If you have damage, you should take the necessary steps to mitigate the damage and prevent any additional damage from occurring. This would include any temporary repairs such as covering the roof or removing standing water. You should also immediately contact your insurance company to inform them of the damage and file a claim.
Do not allow a third party, such as a water remediation firm or contractor, to contact your insurance company for you. You should be the one to make the first contact with your insurance company. You do not need to sign an AOB in order to get your insurance claim processed or your residence repaired.
How does an assignment of benefits impact me, as a homeowner?
An AOB can be helpful with navigating the claims process, but if misused it can lead to harmful consequences. Below are a few things to keep in mind:
- You are signing over the rights and benefits of your insurance policy to a third party.
- Depending on the language in the AOB, the insurance company may only be permitted to communicate directly with the third party and you may lose all rights to the insurance claim, including the right to mediate the claim, or to make any decisions regarding the claim, including repairs.
- Depending on the language in the AOB, the third party may be able to endorse checks on your behalf.
- Once you have signed an AOB, the third party may file suit against your insurance company.
Tips to remember before and after you have suffered damage:
- Thoroughly review your insurance policy to ensure you understand the policy, including your coverage, deductibles and responsibilities after damage has occurred. You must also verify if your policy prohibits or otherwise restricts an AOB.
- Immediately following a loss, you have a contractual duty to mitigate your damages and make any temporary repairs to prevent further damage from occurring. Document any existing damage with photographs prior to making any repairs. Do not make permanent repairs prior to an inspection by the insurance company adjuster. The company has a right to inspect the damage prior to repair.
- Make sure you thoroughly review and understand any contracts you sign with repair companies, including an AOB. If you do not agree with the provisions of the AOB, you may be able to negotiate the provisions of the contract. You do not need to sign an AOB to get your insurance claim processed or your residence repaired. If you are asked to sign an AOB, make sure you read it carefully and clearly understand what rights and benefits you may be signing away.
- Verify the license (if one is required) of any contractor or vendor that you hire to make repairs to your property. You should also verify the company or person’s general liability and workers’ compensation insurance coverage.
Below is a checklist that may be helpful when reporting a claim:
- Contact your insurance company directly to report the damage and set up a time for the adjuster to inspect the damages. Do not allow a third party, such as a water remediation firm or contractor, to contact your insurance company for you. You should be the one to make the first contact with your insurance company - as soon as possible.
- Take photos of the damage.
- Make emergency or temporary repairs.
- Make an inventory of any damaged items.
- Save receipts for any repairs.
- Do not discard any damaged items without prior approval from the insurance company.
- Make a list of any questions you would like to ask the insurance adjuster.
- Request a copy of the fire or police report, if applicable.
Assignment of Benefits (AOB) is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner. AOBs are commonly used in homeowners’ insurance claims by water remediation companies and contractors.
Assignor is a person who assigns insurance claims rights or policy benefits to another person or entity through an AOB.
Assignee or Third-Party is a person or entity who is assigned insurance claims rights or policy benefits through an AOB and has the authority to file a claim with the insurance company, make repair decisions and collect insurance payments without the involvement of the homeowner.
Contract for Repair is a legal agreement for repairs that outlines the scope and cost of repairs to be completed. A contract for repair may state a certain amount is due up front before repairs can be started. If an initial payment is required, it will be listed on the contract and state the remaining balance is to be paid upon completion of the work. Most insurance companies will honor a contract for repair and make the check for outstanding amounts payable to the policyholder and the contractor.
Direct Payment Authorization Clause provides authorization for the direct payment of any benefits or proceeds to the company that is performing the work. This clause is found in an AOB and a contract for repair. Depending on the language in the AOB or the contract for repair, the third party may be able to endorse checks received from the insurance company on behalf of the policyholder for services provided by them. Also, the policyholder is responsible for payment of their deductible and any additional work requested by the policyholder not covered by the insurance policy.
Power of Attorney is a legal document by which one person authorizes another person to take specific actions on behalf of that person, as stated in the document.
Hold Harmless Agreement is an agreement that releases and holds a company harmless against all liability claims in the event the work is halted prior to completion.
Assignment of Benefits Video View this scenario-based video to understand how signing an Assignment of Benefits may impact you as a policyholder. Watch Video
Assignment of Benefits Brochure This downloadable brochure includes definitions, tips and information on Assignment of Benefits. English or Spanish
Consumer Tips & Red Flags Know your rights and the red flags to look for when making a decision concerning Assignment of Benefits. English or Spanish
What to Expect After Filing a Homeowners Claim Learn more about what to expect after reporting a claim to your insurance company or agent. English , Spanish or Creole
What to Expect After Filing a Homeowners Claim Related to a Hurricane Learn more about what to expect after reporting a hurricane-related claim to your insurance company or agent. English , Spanish or Creole
The Flood Claims Process Learn more about what to expect after reporting a flood claim to your insurance company or agent. English
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Should You Sign an Assignment of Benefits (AOB)?
When it’s time to replace your roof and you’ve narrowed in on which roofing contractors you want to use , sometimes you’re faced with more important decisions.
For instance, the roofing company may bring up the term “Assignment of Benefits” (sometimes called Assignment of Claims). If you’re not familiar, let us explain.
What is an Assignment of Benefits (AOB)?
An AOB essentially will transfer your rights for the insurance claim and the benefits of the policy to another party- in this case, a roofer. This gives the roofing contractor the rights to file the claim, make decisions for the repair or replacement of your roof, and collect the insurance payments. All of this is done without your involvement.
Sounds easy, right?
As with Contingency Contracts , there are several things to consider before signing an AOB.
What Should I Know Before Signing an AOB?
Make sure that you read the any contracts thoroughly before signing. This includes asking your roofing contractor to clarify anything you may not understand.
The contract should clearly articulate if there’s AOB and/or the roofer should point it out. If there’s any ambiguity, the AOB terms are buried, or if it’s wrapped up in fancy legal jargon then that should be a red flag. Here are some key things you need to know before signing an AOB:
- An AOB is not required in order for a roofer to do work on your home and don’t let any roofer tell you otherwise. In fact, many roofing contractors will already be acting on your behalf through the insurance claims process without having you sign an AOB.
- When you sign an AOB, it is a legally binding contract and therefore little option to back out should you change your mind.
- In some AOB terms, you can no longer communicate with your insurance policy as all rights have been handed over to the roofing company.
- Be careful of clever wording that may be used to explain an AOB without directly calling it out.
Generally speaking, there are very few Omaha roofing contractors that still have the AOB terms in their contract. It’s helpful to understand what it is and ask them for clarification on why they still use it.
Why You Shouldn’t Sign an Assignment of Benefits (AOB)?
The biggest reason to not sign an AOB is the loss of control in the home repair process. Your roofer now has the rights to all your insurance benefits and can work freely (and collect payment) without your input. This might be completely fine if they were a reputable roofer, but you have to ask yourself, why would a reputable roofer even require me to sign an AOB ? (Hint: Most won’t)
When you lose control over your home repairs, you also lose leverage. Since the insurance money is no longer in your hands, your roofer can “complete” a roofing job and submit for payment. There is very little accountability to the quality of work being done. As a homeowner, you can be dissatisfied with the work and have no way to enforce the roofer to rectify any issues- they’ve already received their payment.
In a normal situation where the homeowner is writing all the checks and still holds the AOB, they can require a roofing contractor to remediate any issues related to quality, scope of work, etc by simply withholding payment. In the case of AOB, you can’t withhold any checks since the roofer is filing and receiving money directly from your insurance company.
Are There Any Reasons to Sign an Assignment of Benefits (AOB)?
In the case of an AOB, the majority of the benefits fall on the roofing contractor. They will get paid no matter what and they can work freely without answering to the homeowners. (Note: While not all roofers who use AOBs will scam you, there is more of a opportunity to do so once this is in place.)
In the case of a homeowner, it would be considered a benefit to sign an AOB if the homeowner truly does not want to lift a finger (except paying their deductible). This “benefit”, however, has to be weighed against the loss of control and leverage you lose in regards to the repairs to your home. You’re relying 100% on the roofing contractor do what they say they’re going to do when they say they’re going to do it.
In our opinion, this is not a tradeoff worth taking.
Very few roofing companies in Omaha have an assignment of benefits as part of their contract. (This fact alone should tell you something.)
Many reputable roofers will already advocate on your behalf with your insurance carrier without requiring you to assign them the benefits of your policy. We highly suggest going this route since the few benefits offered by an AOB are underscored by the amount of control lost to the homeowner.
If you find yourself needing an Omaha Roofer, give Mutual Roofing a call at (402) 889-3381 to schedule your FREE inspection.
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How Florida’s New Assignment of Benefits Law will Protect You from Roofing Fraud
- By Arthur Wells
Starting on July 1st, 2019 the new Assignment of Benefits law will take effect, and more than likely it will affect you.
If you don’t know what an Assignment of Benefits is…
…or how it can benefit you… it’s ok, your not alone.
Read on to see what I mean.
What is an Assignment of Benefits?
According to the Florida Division of Consumer Services …
…an AOB is an agreement that once you sign, transfers the insurance claims rights or benefits of the policy to a third party service provider.
- filing a claim
- making repair decisions
- collecting insurance payments
… all without the involvement of you the homeowner.
The practice of AOBs has been a mainstay in the state of Florida for more than 100 years. The AOB was initially used for claims related to life and health insurance…
…but because of the frequency occurring with storm damage, it is now more popular with homeowner policies as well.
This process works for you the homeowner when navigating the claims process… as well as the contractors and restoration companies when it isn’t misused.
On the other hand…
…many service providers have taken advantage of policyholders, which resulted in:
- property liens
- and insurance fraud
…none of which placed any financial responsibility on the service providers.
Let me explain.
How an AOB Works
So how does an Assignment of Benefits work anyway?
Well, let me give you an example…
Suppose your home in Northeast Florida gets hit with a typical afternoon thunderstorm. Maybe worst case, a thunderstorm turns into a severe tropical storm. You never know what is going to happen in Florida with our weather! When this severe storm passes over your home, the high winds and rain can suddenly cause damages to your roof! Before you know it, water is pouring into your home through your ceiling! The next action is that you panic and call your Insurance company. Now you are faced with which direction you need to take with the new claim you have on your property.
After you call your insurance company,
You have two choices…
- Begin the process of getting repair quotes, and start the process of haggling with the insurance company. Plan on spending a lot of your time meeting with contractors, checking reviews, availability, credentials, and so on. or…
- Contact a reputable restoration company and sign an AOB.
As long as you choose a reputable company… you will come out having all of the repairs completed, without being involved in the process at all. Most of the time, your only responsibility should be your Deductible; resulting in having your home fully repaired back to pre-loss condition.
But, if misused, it could become a nightmare in many ways… including being held responsible for insurance fraud.
Should I Sign an AOB?
Are you wanting to replace or repair your roof…
…but your insurance company isn’t giving you enough money to cover it?
If so… you have the option of signing an AOB.
In this situation, your AOB contractor of choice can utilize their network of insurance professionals, to negotiate with your insurance company, for the full amount owed under your insurance policy.
By choosing a reliable, trustworthy Roofing contractor, or General contractor who deals with these exact details on a routine basis… they can help you get your roofing needs taken care of by your insurance company.
As an added protection to Florida property owners, the new AOB laws require that an AOB contract contains a provision allowing for 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.
Why Insurance Companies Don’t Want You to Sign an AOB
If you find out that insurance companies are short paying you, its because they want to save money.
So, rather than accepting a number that the insurance company gives you… Signing an AOB with a reputable contractor can virtually guarantee that the insurance carrier pays for all the work incurred despite the low-ball values they have placed on the loss/damages.
Remember the insurance companies are not going to look out for your best interest! They are a for-profit business and the less they pay on the claim the better of their bottom line is.
Tips When Using an AOB
Before signing an AOB, review your insurance policy to ensure you have clarity on your responsibilities following a loss.
Use these tips when opting for an AOB:
- Do not let the insurance company bully you!
- Personally contact your insurance company when damage occurs, as soon as possible, then contact a licensed contractor.
- Maintain control – Refuse to sign any documentation that resembles power of attorney legalese as this may relinquish control
- Do not let them pursue you to go with their “preferred contractor”
Red Flags to Watch out For
An AOB can often work in your favor, saving you a lot of money for repairs and alleviating hassles and headaches. But, there are red flags you should make you wary of signing an AOB. Here are a few items to consider when choosing a contractor:
Do not sign documentation they have if…
- They are not willing to explain the contract in its entirety.
- They are dancing around your questions.
- They are promising you money back to go with them. This is fraud!!
- They are requesting money up-front to start the job?
Why would you give anyone a deposit or up-front money for services not rendered yet? If they require money up front they probably do not have the financial resources to even start or finish your job/project! You should immediately take them off your list of contractors that you are interviewing!
This could result in alteration of contracts after you sign.
2. Out of state or non-local companies
Many of the fraudulent issues have occurred when Florida residents work with non-local companies.
These contractors will prey on homeowners following a storm… promising fast repairs and many times submitting claims with inflated pricing.
3. Feeling pressured or rushed to sign
If you’re not given ample time to review documents…
Make sure all your questions are fully answered.
… or if there’s paperwork besides the AOB, this is a sign to run the other way.
You should always feel at ease and of a clear conscience before signing a AOB!
(Yes I am a contractor who strongly believes this!)
4. Never pay upfront
Quality contractors are accustomed to being paid in full upon completion of a job well done.
Anyone who demands direct payment from you before any work is not a party you should conduct business with.
When searching for contractors, do your research.
Check reviews, ask friends, and neighbors, etc.
New or non-local companies having little or no positive feedback should raise a red flag for you.
How the Law Protects You
After many fraudulent claims, Florida’s new bill includes the following provisions that are intended to provide protection for consumers like you…
- “Assignment agreements” have now been defined. and requirements have been established for the execution, validity, and effect of these agreements
- Service providers are now required to give the consumer and insurer prior written notice of 10 business days or more, before filing suit on a claim
- The state’s one-way attorney fee has been revised, incorporating an attorney fee structure to help determine the fee amount awarded by an assignee against an insurer
- Insurers are now allowed to make a policy available that prohibits assignment under certain conditions
- Insurers are now required to report specified data on claims that were paid under assignment agreements in the prior year, with the deadline being January 30, 2022 and each year after
- Certain pre-lawsuit duties will transfer under the insurance contract to the assignee, shifting the burden to the assignee and making them prove that any failure to carry out these duties hasn’t limited the ability of the insurer to carry out the contract
- Certain fees are now prohibited along with the altering of policy provisions relating to managed repairs for an assignment agreement
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Assignment of benefits, what are the concerns or risks regarding aobs.
AOBs have long been a part of Florida’s insurance marketplace. However, abuses in the way they were being used in the marketplace have driven up costs for homeowners across the state due to unnecessary litigation associated with certain AOB claims.
Consumers should be aware, when signing an AOB, that they may become involved in the third-party vendor’s lawsuit against the insurance company if the third party and company are in dispute on the payment amount of the claim.
What precautionary measures can consumers take prior to signing an AOB?
OIR offers the following tips consumers should consider prior to entering into an AOB contract.
- Read your insurance policy carefully.
- Know what your responsibilities are after a loss.
- Know whether your insurance policy restricts your ability to assign your benefits and the terms of any restrictions.
- Know whether your insurer partners with any repair companies.
- Contact your insurance company prior to signing the AOB.
- Read the AOB carefully, ask questions, and do not feel pressured to sign it.
- Do not sign if there are blank spaces contained in the document.
Is a consumer required to sign an AOB to have repairs completed?
No. Consumers can file a claim directly with their insurance company. Filing a claim directly with the insurer allows the consumer to maintain control of the rights and benefits provided by their policy in resolving the claim.
How does a consumer know if they are signing an AOB?
After a loss, a consumer might call a roofer, contractor, plumber, water extraction company, or other third-party vendor to assist with emergency repairs. Once those vendors have assessed the damage, contractors or vendors may present consumers with a document to sign prior to beginning any work.
If the document is an AOB, it will sign over the consumer’s insurance benefits to the contractor or vendor and give this third-party the ability to negotiate and endorse claim payments or file suit against the insurance company on the consumer’s behalf.
An AOB must contain the following paragraph:
YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, 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. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.
Can the AOB agreement be canceled?
Yes. Following AOB reform in 2019, a consumer can cancel an AOB without any penalties or fees. To cancel, the consumer must give the third-party vendor signed written notice of the desire to cancel the AOB at one of three points during the repair process:
(1) Within 14 days after executing the AOB;
(2) At least 30 days after the date the third-party vendor is scheduled to start work, if that vendor has not already completed a substantial amount of the work; or
(3) At least 30 days after executing the AOB, if the AOB does not have a start date for the work and the third-party vendor has not begun substantial work on the property.
What significant changes came from the 2019 AOB reform?
According to the Department of Financial Services, there were 405 AOB lawsuits across all 67 Florida counties in 2006, and that number had risen to 28,200 by 2016.
To stem the AOB misuse, OIR worked with the Governor, Cabinet, and Florida Legislature to pass significant consumer protection reform related to AOBs. On May 23, 2019, Governor DeSantis signed into law House Bill 7065 (2019) (“HB 7065”), a significant reform to the AOB landscape, effective July 1, 2019.
HB 7065 created section 627.7152 , Florida Statutes, which contains definitions and required provisions for AOBs, referred to as “assignment agreements” in the statute, that are executed under residential or commercial property insurance policies. An AOB that does not comply with this new section is not valid under Florida law.
HB 7065 also created section 627.7153 , Florida Statutes, which provides standards for policies that restrict the right to assign post-loss insurance benefits in whole or in part under a property insurance policy. Insurers offering restricted policies must notify an insured at least annually of the coverage options available for the assignability of benefits and must attach that notice to the premium notice. A restricted policy must be available at a lower cost than a policy that provides the same benefits but does not restrict assignment rights.
Assignment of Benefits Data Calls
In June 2019, OIR issued Informational Memorandum OIR-19-02M to notify insurers that a data call would be issued sooner than required in order to evaluate the preliminary impact of HB 7065. OIR has proactively issued a data call in 2020 to evaluate the preliminary impacts of the legislation.
Previous AOB data call reports are listed below:
- 2017 Report released on January 12, 2018 – Press Release , Report
- 2016 Report released on February 8, 2016 - Press Release , Report
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What Roofers Need to Know About the New Assignment of Benefits Legislation
Reading Time: 7 minutes
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.
Authored by: James O. Birr, III Carter Smith, JD Candidate Alexa Nordman, JD Candidate
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Assignment of Benefits (AOB) 101 – What You Need to Know To Stay Safe
Assignment of benefits is a legal contract between you and a third party, such as a roofer, contractor, or other vendors. The AOB allows you to transfer specific rights that your insurance policy grants you to a third party. These rights can include filing a claim , financial payments to a contractor, and even allowing the third party to file a lawsuit on your behalf !
While there are reputable entities that use this form, AOBs have often been abused and broadly written. In some cases, they can give away all of your rights under your insurance policy to a third party. Unethical contractors commonly use AOBs to inflate damages and the cost of a claim, which results in legal battles and increased insurance premiums.
How To Avoid an Assignment of Benefits
Assignment of benefits (AOB) is commonly used when a homeowner experiences roof damage, a leaky pipe, etc., and they contact a contractor for assistance. The contractor may take this time to present the homeowner with an AOB. Most Assignment of Benefits agreements presented to the homeowner allows the contractor to stand in the homeowner’s shoes for insurance payment purposes.
What To Look Out For?
If the contractor hands you a form that reads, “I transfer and assign all insurance rights, benefits, and causes of action under my property insurance policy to the contractor.” They are asking you to sign away your rights to the claim under your homeowner’s insurance policy, and you don’t want that! If you experience a loss, be sure to contact your insurance company first before doing anything else . This will help protect yourself and avoid dealing with an AOB issue altogether.
Here are some red flags to look out for:
- Someone knocks on your door to tell you about damage to your home that you had no idea about
- Someone says you will get a free kitchen or free roof for no particular reason
- They claim the damage is a lot more than it clearly is
- Permanent repairs start before your insurance company is allowed to inspect or be notified
- They claim to cover your deductible
If something sounds too good to be true, it probably is. Don’t be a victim of AOB. Contact your Bankers’ agent if you have any questions or concerns. Our agents are available to answer any questions you may have, don’t hesitate to call us at 800-627-0000.
Stay safe! It’s hurricane season, and we’ve got tips to keep you and your loved ones safe, as well as a free hurricane survival guide . The National Oceanic and Atmospheric Administration Hurricane Center is another excellent resource that tracks hurricanes and tropical storms.
Orlando, FL +1 (321)332-3392 or (321) 384-6886 [email protected]
What is an Assignment of Benefits?
An Assignment of Benefits, or “AOB”, is a contract that gives the rights of your insurance claim or the benefits of your insurance policy to a third-party vendor such as a roofing contractor or a public adjuster.
Filing an insurance claim can be challenging. An assignment of benefits agreement may seem like a good idea. Especially if contractors make all kinds of promises to homeowners.
However, once the AOB is signed, it gives the roofing contractor the ability to file a claim, make decisions regarding the repair or replacement of your roof, and collect insurance payments — all without you being involved.
- The roofer will have the rights and benefits of your insurance policy.
- The insurance company will only communicate with the roofer regarding the claim.
- You won’t have any say or be able to make any decisions regarding the claim.
- The roofer will be able to file suit against your insurer without your knowledge, and you would be named as a party in the lawsuit.
- The roofer could endorse checks on your behalf.
- A roofer can inflate the cost and sue you for any unpaid costs your insurance company did not pay; or they can file a lien on your home in an attempt to collect.
- All of this can lead to higher insurance premium costs.
Unfortunately, unscrupulous roofing companies pressure people to sign AOBs, especially after a storm or hurricane when they go house-to-house claiming to do all the repairs and roof replacements for free if they have homeowners insurance. The result is homeowners lose the right to work directly with their own insurance company, and in many cases the roofing company will not complete the roof replacement or repairs in the time promised and the homeowner is left with no way to get out of the contract.
Here are a few tips to consider which can protect you:
- Do not sign documents on the spot or under pressure – any legitimate roofing company will not pressure you to sign anything, and you are not obligated to sign an AOB to have repairs done.
- Contact your insurance company immediately should the need to file a claim arises – many roofing companies go door-to-door after a storm or hurricane making promises to take care of everything with an AOB, even before many homeowners have contacted their insurance company.
- Remember the saying, “if it’s too good to be true it probably is” – If someone knocks on your door to tell you about damage you didn’t know about and promises a free roof, it is typically a sign of AOB abuse.
- Ask for everything in writing and time to review – If someone makes a claim for something for “free,” ask for it in writing and for time to review all estimates and contracts. Again, do not feel pressured.
- Work with trusted and credible companies – Like any industry, there are bad apples. Make sure anyone you work with has a Florida roofing license, ask them for proof of liability and workers compensation insurance, look them up in the Better Business Bureau (BBB) website to see their rating, their reviews and any complaints against them, look at their website and their social media reviews.
Have a question? Feel free to call us at 321-332-3392.
Will insurance cover my claim.
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We are CMR Construction & Roofing
Cmr construction & roofing spent the last 20 years protecting and preserving american communities. we are one of the nation's top 9 roofing companies and number one in the state of florida., 5 top facts property owners need to know about the assignment of benefits(aob), 1. what is an aob, 2. when is an aob used, 3. are aob contracts legal, 4. why would a property owner want an aob.
Many property owners sign the AOB because it’s easier for their contractor to complete the process and ensure the most up-to-date laws and insurance policies are followed. Here are some other reasons:
- Larger, Faster, More Complete Settlements: When a credible, experienced contractor steps in and assumes responsibility for the insurance claim process, it typically results in quicker, better settlements from insurance providers.
- Simplified Process & Less Responsibility: The AOB simplifies the process for the property owner, shifting the burden of the work onto the contractor. The responsibility, time, and hassles associated with the process are transferred to the contractor.
- No Surprises or Hidden Costs: Property owners are protected from expensive surprises, like out-of-pocket expenses, which are capped at the cost of the deductible. After the AOB is signed, the owner is also protected against certain fees like check or mortgage processing fees, administrative fees, and penalties or fees for recision within certain timeframes.
5. Which owner protections are in the AOB?
The AOB contains many protections. Here are a few provisions:
- A state-specified cancellation policy
- The contractor cannot seek a payment larger than the deductible unless the property owner requests additional work at their own expense
- The contractor cannot file a lien against the owner’s property or report the property owner to a credit reporting agency
- The property owner is indemnified from liabilities, damages, losses, and costs if the insurance policy prohibits an AOB
Top- 100 US Roofer Every Year Since 2017
Steve soule, about cmr construction & roofing.
We are proud to celebrate CMR’s 20th anniversary. Over the past two decades, we have consistently grown to become the 9th-largest roofing contractor in America. Our expertise, craftsmanship, and dedication to customer service set our award-winning team apart from the rest.
I highly recommend CMR Construction & Roofing
I recently had my hurricane-damaged roof replaced by CMR Construction & Roofing. They made it a pleasurable experience. I executed an AOB which allowed CMR to handle all the insurance company paperwork, including the inspection of the roof and financial documents. I now have a new roof that has enhanced the appearance and increased the value of my home.
CMR Construction & Roofing has done dozens of roofs for my friends and several clients. I have never had a company do a project for me that showed the customer comes first and needs to be satisfied 100%. I highly recommend CMR Construction & Roofing.
Cmr customer, excellent performance & professionalism.
I never write testimonials, but I must make an exception today. CMR has been 100% behind us from the day we called them for help. The roof was damaged by Hurricane Irma, and, as usual, our insurance company inspected the damage and denied our claim. They agreed that there were over 100 roof tiles broken, but said that it was not caused by the storm.
We started calling different roofing companies when our neighbor told us they were going with CMR. We decided to sign the AOB with CMR. While we were waiting for the insurance company to reconsider our claim, CMR put tarps over the whole roof, at no cost to us. When any tarp started to get worn, they immediately came over and replaced them the same day. As soon as the insurance approved the roof and we were able to move forward, CMR immediately completed our roof.
All I can say is that CMR is one of the most honorable companies I have ever dealt with in my life. I have dealt in my business with what you thought were honorable people only to be disappointed. The rep we worked with not only gave his word but stood behind it, every step of the way. His word is his bond, which is the way it was done in our parents’ time. Just a handshake was all you needed. Well, shake CMR’s hand, and you will never be disappointed.
Awards & recognition.
We are proud of the recognition we receive for our craftsmanship and commitment to helping the communities we serve.
Assignment of Benefits - Public
Web content display, assignment of benefits.
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Asset publisher, what is an assignment of benefits.
An assignment of benefits (AOB) is a contract between you and a third party – typically a contractor, roofer or water mitigation company – giving them the right to deal directly with Citizens and receive payment for your claim. You sign an AOB, you give up your right to manage your claim and ensure it is resolved to your complete satisfaction.
In 2019, the Florida Legislature passed common sense reforms aimed at bringing balance to the AOB process. As a result of these reforms, AOB vendors must adhere to certain legal requirements to receive payment for your claim. In addition, policyholders have been given the right to cancel an assignment agreement under certain circumstances and take back control of their claim.
How Do You Benefit From AOB Reform?
Aob reform protects your rights.
AOB Reform puts control back in your hands by giving you the right to cancel an assignment agreement under certain circumstances. This gives policyholders who felt pressured to sign an AOB, didn't understand what they were signing, or are unhappy with the work performed to take back control of their claim and ensure it is resolved timely and to their complete satisfaction.
AOB Reform Saves You Money
Following the enactment of 2019 reforms, Citizens filed a revised rate filing that reflects projected rate savings from the AOB reforms. Citizens has projected a reduced statewide rate need for homeowners multiperil policies from 25.2 to 7.2 percent, with roughly 67,000 policyholders expected to receive rate decreases.
Watch our interactive eBrief to learn how assignment of benefits reform helps you.
You've Signed an AOB - What's Next?
Even after signing an AOB, you still must comply with all the duties owed to Citizens under your policy. These duties can be found in your policy’s Duties After a Loss section.
Under Florida law , you have the right to terminate or cancel an assignment of benefits agreement under certain circumstances which are required to be described in the assignment agreement. The assignment agreement must provide that you have the right to cancel without penalty, however, you may be obligated to pay for any contracted work performed before the agreement is cancelled. Once you have notified your assignee that you are terminating your assignment agreement, you must notify Citizens as soon as possible by submitting notice of your cancellation either online or by mail. Until you do so, Citizens must continue to deal with and pay the assignee to whom you assigned your benefits.
AOB Reforms Policyholder Letter - June 2019
Claim Process When an AOB is Used
AOB Vendors and Legal Representatives
Under Florida Law , if a Citizens policyholder signs an AOB agreement with you, you must submit a copy of the signed assignment agreement to Citizens online or by mail/delivery within three business days of the contract being executed or work beginning, whichever is earlier. Citizens will review your agreement to ensure it meets all statutory requirements and inform you if the agreement cannot be accepted as written. Until an AOB complying with applicable legal requirements has been received, Citizens must deal directly with the policyholder for all claims-related correspondence.
Citizens has 90 days from the receipt of a claim to make a claims determination, unless factors beyond our control reasonably prevent us from doing so. Suit cannot be filed against Citizens unless a written Notice of Intent to Initiate Litigation which complies with Florida law is provided to us. The Notice of Intent must be provided to Citizens at least 10 days before suit is filed but cannot be provided before we have made a claim determination or the 90 day period to do so has elapsed. Citizens has 10 days to respond to the Notice of Intent by either making a presuit settlement offer or requiring participation in appraisal as provided for under the insurance policy.
AOB Reforms Vendor Letter - July 2019
For detailed information about Florida's new AOB requirements, review Ch. 2019-57, Laws of Fla. (2019)
Submit AOB Documents
Policyholders, vendors and legal representatives can submit AOB-related documents electronically or by mail.
You must have a valid claim and policy number to submit assignment of benefits documents online.
- The policy number can be found on the policy Declarations page or Policyholder ID card.
- Policyholders can submit a claim online through myPolicy or by calling our Claims hotline at 866.411.2742. All other authorized individuals must call our Claims hotline. Representatives are available 24/7.
Mail or Delivery
You can mail or deliver all required AOB documentation to Citizens at:
Citizens Property Insurance Corporation 301 West Bay Street, Suite 1300 Jacksonville, FL 32202
AOB - Prevent Fraud
Know the signs of aob abuse.
Although most AOB is not fraud, AOB fraud and abuse are on the rise. Be on the lookout for following AOB Fraud red flags:
- Someone knocks on your door and tells you there is damage you didn’t know about.
- You’re promised something for nothing, such as a free roof or kitchen renovation.
- Someone claims the damage is greater than it clearly is.
- Permanent repairs begin before your insurance company is notified or allowed to inspect damages.
Help Stop AOB Abuse
Calling Citizens as soon as you become aware of or suspect any damage puts you in control of your claim and ensures repairs are completed to your satisfaction and Citizens’ high-quality standards:
- Call Citizens First as soon as you become aware of a possible loss.
- Never sign anything related to a possible loss without first calling Citizens or your agent.
- Know your rights. Any AOB agreement signed on or after July 1, 2019, must contain a provision describing the circumstances under which an assignment agreement may be cancelled. If you were pressured to sign an agreement you don’t understand or aren't comfortable with, contact your agent to learn your rights.
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How to spot an AOB homeowners insurance scam
Tue Dec 3 2019
For Florida homeowners, a roof leak or other home insurance claim might just be the start of their troubles. Some contractors may take advantage of what’s called an assignment of benefits (AOB) agreement and leave homeowners in the lurch.
Though Florida passed a bill in 2019 aimed to curb the abuse of assignment of benefits, it’s important to recognize the potential pitfalls of signing over your claim benefits to another party.
Let’s look at what AOB abuse is so you don’t get taken for a ride.
What is an assignment of benefits?
An assignment of benefits is an agreement that transfers your insurance claims rights to another party. When you sign an AOB form, you give someone else the authority to:
- File an insurance claim.
- Make decisions about repairs.
- Collect insurance payments.
Homeowners who are dealing with major damage may assign their benefits to the business making the repairs because it has more experience working with an insurance company to settle a claim. A reputable restoration company may help the homeowner navigate the claims process . But a scammer may take advantage of the situation.
How can assignment of benefits be abused?
A disreputable business can easily abuse an assignment of benefits. Once you sign this agreement, you give up your rights as the policyholder. This may mean:
- Your insurance company will only communicate with the other party.
- You lose the right to mediate claims.
- You may have to pay penalties if you don’t comply with the AOB.
- The other party can sue your insurance company.
Dishonest contractors take advantage of this situation by padding the bill and hiring an attorney to sue the insurance company when it does not pay the bill in full or denies the claim. Some found the system so lucrative that they paid plumbers up to $2,500 for every homeowner who signs an AOB. Lawsuits filed by contractors who have been assigned benefits by their clients were on the rise, according to the Tampa Bay Times – AOB claims in Florida jumped from 405 in 2006 to 28,000 in 2016.
Florida’s new legislature caps attorney fees on AOB lawsuits, which should help deter these opportunistic practices. Florida insurance regulators Florida insurance regulators have also taken steps to share information and resources about AOBs and AOB scams.
How assignment of benefits abuse hurts homeowners
Assignment of benefits abuse, like all insurance fraud, can hurt policyholders. The abundance of AOB lawsuits against insurance companies drove up home insurance premiums to offset losses – in fact, this type of litigation is one of the reasons that home insurance costs in Florida have risen considerably in recent years. The hope is that the legislation to reform AOB practices will help bring those costs down over time.
Plus, most AOB agreements permit the contractor to collect their fees from the policyholder if the insurance policy doesn’t cover the damage or the insurance provider won’t pay the full amount demanded. If the AOB vendor tries to collect from you and you can’t pay, they can place a lien on your property for the amount owed.
How homeowners can avoid assignment of benefits abuse
To avoid unscrupulous vendors, watch out for these red flags:
- Someone knocks on your door and tells you there is damage you didn’t know about.
- A contractor promises something for nothing, such as a free roof or kitchen renovation.
- Someone claims the damage is greater than it clearly is.
- Permanent repairs begin before your insurance company is notified or allowed to inspect damages.
- The form looks unprofessional or has misspellings and poor grammar.
- Forms have any blank spaces to be filled in later, after you’ve signed.
You can also avoid an assignment of benefit scam by doing the things you would normally do before signing a contract:
- Ask questions. A reputable business owner is willing to answer any question you ask.
- Read the forms. Make sure you understand what benefits you’re signing away.
- Check your policy documents. AOBs may not be permissible for your policy, so be sure to check before you sign.
- Know your rights. You don’t need an AOB to get your claim processed or the repairs started.
- Contact your carrier. Before executing an AOB, check with your insurance carrier or agent to get their opinion on its validity.
Assignment of benefits can be useful in some situations, but be vigilant. It’s not a small thing to sign away the rights to your insurance benefits. That’s why we offer a discount when you choose to maintain your control during the claims process.
Editor’s note: This post was originally published in December 2019. It has been updated for accuracy and comprehensiveness.
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Roofing Fraud & AOB
Roofing fraud is alive and well, and some contractors might try and take your money and run. The situation you could find yourself in can seem legitimate, however, you need to be wary of a contractor claiming to take care of everything, including your insurance policy. These are specific warning signs you need to keep in mind when it comes to AOB fraud and roofers:
- A contractor approaches your house, claiming to spot significant damage to your roof.
- Most of the time, these roofers will show up on your doorstep after a major storm has blown through the neighborhood. While you may not be aware of any damage, the contractor’s claim startles you.
- They may convince you there are some repairs that need to be made, and the contractor may ask if you have a homeowners policy. They assure you that their company frequently performs insurance work.
- You then allow the individual to perform an inspection and submit a repair bid. While the roofer may be perfectly legitimate, there’s a chance that they are not. Be on the lookout for some red flags when the company returns with a proposal.
- The roofer might offer to take care of all dealings with a claims adjuster, and tell you all you need to do is sign the contract and ‘avoid the red tape’. Scan that contract for any reference to an assignment of benefits.
Many homeowners have been ripped off through assigning benefits directly to roofing contractors. By transferring these rights, insurance companies will only deal with the contractor and not you. Many times, roofers pocket claims proceeds and never return to make repairs. Be aware of other signs of a scam, such as a contractor may be willing to perform work on parts of your home that have no damage. They may ask you to sign on the spot so that work can begin immediately.
If you suspect something doesn’t feel right, take the necessary steps to avoid being swindled. Here’s what to do if you find yourself in a similar situation:
- Read the whole contract carefully.
- Keep an eye out for any reference to an assignment of benefits.
- Don’t give in to pressure tactics.
- Find another contractor to inspect the roof and assess the situation. If you need a list of reputable roofers, call your Southern Oak agent. We maintain lists of contractors with solid reputations.
- Most importantly, do not allow any repairs to begin before having us inspect the damage. Once you involve your agent, their presence may scare off any party with malicious intent.
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Know the dangers of signing an Assignment of Benefits (AOB) and how Heritage makes the repair process hassle-free.
Assignment of benefits – what homeowners need to know.
Assignment of Benefits is hot topic, especially in the Florida insurance market as the number of scams related to this practice increase.
What is Assignment of Benefits?
Assignment of Benefits is an agreement a repair contractor may ask you to sign that transfers your insurance policy benefits and rights to them. This eliminates your ability to work with your insurance company adjuster and may result in theft of your claims payment. While this practice has been around for over 100 years, and was originally designed to streamline the claims and repair process for homeowner, it’s been increasingly exploited by scam artists, especially in Florida over the last several years. The challenge is that the scam artists are getting paid while homeowners are losing their ability to get claims payments, and it delays the claims process.
If your home is damaged by a storm or other event, the good news is that Heritage Insurance has a pre-approved network for you called Contractors Alliance Network (CAN) . When working with CAN, you will sign paperwork that helps expedite your claims process compared to delaying it while lining the pockets of scam artist.
A scam artist contractor may encourage you to sign an Assignment of Benefits document under the guise that it will make the claims process much easier for you. Because of rampant fraud, this practice can trigger a chain of events that may result in a tremendous amount of hardship for the homeowner as unscrupulous contractors are now taking advantage of loopholes which allow them to inflate the cost of the repairs and request excessive claim amounts from insurers.
What Does This Mean for Homeowners?
Homeowners insurers are well-versed on the typical cost of repairs and will deny payment when presented with these ridiculous claim amounts from the contractor. The contractor gets together with their lawyer and files suit against the insurance company. For the homeowner who will likely be named as a party in the lawsuit, this could mean hours spent on depositions and other court-related activities. And, you could be sued for any remaining unpaid repair costs, or find that a lien has been put on your house in an attempt to collect. All homeowners throughout the state can expect premium costs to increase when insurance companies are tied up with unnecessary litigation.
How do Homeowners Protect Against this Abuse?
Heritage Insurance makes the claim process easy so there’s no need to sign an unauthorized Assignment of Benefits. Call Heritage Insurance first! 855-439-4719 , Option 1. Heritage Insurance has an authorized repair network that will expedite the claim process. While you may be contacted by non-authorized third party vendors to do repairs, please do not contract with any vendor except a vendor approved by Heritage . Policyholders will be asked to sign approved forms through a program called Contractors Alliance Network (CAN). Contractors Alliance Network prequalifies the best mitigation specialists and general contractors, who provide unparalleled service. The contractors are trusted, and licensed contractors who use the most effective mitigation and restoration techniques to ensure that your loss is handled quickly and professionally.
If you need immediate mitigation assistance such as water removal or a tarp on your roof, please fill out our please fill out our dispatching form and we will dispatch a repair team to your house.
Our Claims Department is available at (855) 415-7120, option 1 for policyholders who need to report a claim. Policies originating from Sawgrass Mutual should call (877) 853-4336, option 1 to report a claim. Commercial property policyholders should call (855) 439-4719.
For more information on how to stomp out this type of insurance fraud, see this brochure: Stomp Out Fraud
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Proposed changes to services sourcing under California’s market-based sourcing regulations
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For California corporate franchise tax purposes, sales from services or other intangibles are sourced based on the market for those services or intangibles. In the case of services, taxpayers must determine where the benefit of those services is received to properly include or exclude those receipts from their California gross receipts (Cal. Code Regs. tit. 18, § 25136 - 2 (c)). For other intangibles such as patents and trademarks, sales of that property are assigned to California to the extent it is used in California (Cal. Code Regs. tit. 18, § 25136 - 2 (d)).
To provide guidance for this rule, California adopted Cal. Code Regs. Section 25136 - 2 , effective for tax years beginning on or after Jan. 1, 2012, based in part on proposed market - sourcing regulations from the Multistate Tax Commission (MTC). (The revised MTC regulations for market - based sourcing are found in the MTC's adoption of the Uniform Division of Income for Tax Purposes Act (UDITPA). Specifically, the revised MTC market - based sourcing provisions are found in UDITPA Section 17.) The proposed MTC regulations addressing market - based sourcing were officially adopted by the MTC on Feb. 24, 2017. Before the MTC rules were officially adopted in February 2017, the California Franchise Tax Board (FTB) responded to practitioner and industry requests to address questions and calls for clarification of issues related to Section 25136 - 2 .
On Jan. 20, 2017, the FTB hosted an interested parties meeting (IPM) to address a number of topics, including the sourcing of asset management fees, clarification of the term "benefits received" for certain industries, the assignment of dividends, and the treatment of marketing intangibles. This discussion primarily addresses the definition of "benefits received" under the regulation for sourcing service receipts.
General definitions: 'Benefits received'
After the first IPM on Cal. Code Regs. Section 25136 - 2 , the FTB hosted a second IPM on June 16, 2017, and provided examples of proposed changes to the existing language of Section 25136 - 2 . In its definitions, Section 25136 - 2 provides examples to explain the application of the phrase "benefit of the service received." Under subsection (b), the proposal adds another example. Under this new example, Cal. Code Regs. Section 25136 - 2 (b)(1)(E), the FTB addresses service providers who provide services (on the ground) to a federal government agency, where the fieldwork is performed in multiple states. According to the proposal, the receipts from those services are apportioned to each state to the extent (the proportion) the benefit of the service is received in each state.
Observation : Instead of assigning the receipts to the location of the paying entity, which may be in Washington, D.C., this clarifies that even for federal government services, the sourcing is based on the actual locale (state) where the government receives the benefit, consistent with other forms of service contracts.
General definitions: 'Reasonably approximated'
One of the more controversial aspects of the new market - based sourcing analysis under Cal. Code Regs. Section 25136 - 2 is the use of the term "reasonable approximation." (Note that the "reasonable approximation" method is not original with California. See, e.g., MTC §17(d)(3) et seq. ) Under several scenarios within Section 25136 - 2 , where a taxpayer cannot fully determine the location of the benefit of its service, or the market for its service under traditional means (e.g., service contract language or books and records), the taxpayer may use a reasonable approximation based on evidence other than traditional evidence. For example, a taxpayer may look to population statistics to determine where its customer received the benefit of the service. Where a taxpayer must address the benefit received in a foreign country, the proposal makes the following suggested changes to Cal. Code Regs. Section 25136 - 2 (b)(7) (additions in bold type, subtractions in strikethrough ):
If it can be shown by the taxpayer that the benefit of the service is being substantially received or intangible property is being materially used outside the U.S., then the populations of those other countries [ foreign jurisdictions or geographic areas ] where the benefit of the service is being substantially received or the intangible property is being materially used shall be added to the U.S. population. Information that is specific in nature is preferred over information that is general in nature.
Observation : This proposed language and removal of "other countries" addresses situations where a service provider's customer has a market both within California and in a high - population country like China or India. Where that taxpayer must use a reasonable approximation to determine the benefit of the service, use of a population method could result in a high percentage of receipts being sourced from the United States (i.e., California) to China, if one bases sales factor apportionment on the comparative populations of California and all of China. From the FTB's perspective, the population method could result in too many receipts being removed from California, and the term "geographic areas" will allow auditors to adjust the assignment of receipts to countries where the results appear distortive. How the FTB will determine the appropriate "geographic area" in these situations is unclear. (Informally, the FTB has indicated it will provide additional clarification through more proposed examples.)
The FTB's proposed examples: 'Benefits received'
Under Cal. Code Regs. Section 25136 - 2 (c)(2)(E), the original regulation provides several examples of how to make the determination of where a customer's benefits are received for purposes of sourcing those receipts. In its proposal, the FTB has not altered any of the existing examples under this section but has added seven new examples of services provided to business entities. These newly proposed examples have been initially added as subsections 25136 - 2 (c)(2)(E)(8)-(14). While the results for each individual example will vary based on the facts, the FTB's analysis for arriving at its separate conclusions appears to be consistent with earlier examples.
For application to specific industries, taxpayers will want to review the existing and proposed examples carefully to determine if their own industry is addressed directly. Because the examples, though reasonably extensive, cannot address every factual scenario, it is more important to determine the proper analysis that can apply to multiple scenarios. With that in mind, this discussion does not address each new example in detail but provides a working list of the considerations, based on those examples, that the FTB appears to be following when arriving at its separate conclusions. (Also note that the proposal includes additional new language that addresses separate topics such as marketing versus nonmarketing intangibles, but those are beyond the scope of this discussion.) The analysis assumes at least some receipts are attributable to California sources:
- To reach a determination of the proper sourcing of service receipts, the taxpayer must first determine the nature of the taxpayer (e.g., a general service provider or asset management company) and the nature of the taxpayer's customer (individual or business entity).
- If the customer is a business entity, it must be determined whether it is a government entity or nongovernment entity (Cal. Code Regs. tit. 18, §25136-2(c)(2)(E), Example 8 (proposed)).
- A taxpayer must then decide if there is sufficient information within its own books and records to determine the various states where its customer received the benefit of the service. If the answer is yes, then, depending on the facts, the taxpayer can source its receipts based on data such as contract terms or the location of the service order (Cal. Code Regs. tit. 18, §25136-2(c)(2)(A). See also Cal. Code Regs. tit. 18, §25136-2(c)(2)(E), Examples 9, 11, and 13 (proposed)). If the answer is no, then the analysis continues.
- If the information within the taxpayer's books and records is not sufficient to determine the location of the benefit(s) of the taxpayer's service, then reasonable approximation may be used (Cal. Code Regs. tit. 18, §25136-2(c)(2)(B)).
- The method of reasonable approximation depends in part on the nature of the customer. For example, if the customer is a government entity, the reasonable approximation is based on the percentage of population in California compared to the population of the United States (Cal. Code Regs. tit. 18, §25136-2(c)(2)(E), Example 10 (proposed)).
The method of reasonable approximation also depends on the nature of the taxpayer. For example, if the taxpayer is an asset management company, and sufficient information is available from the taxpayer's books and records to determine the location of the customers and their interests, sourcing of receipts is based on the location of those customers (e.g., shareholders, beneficial owners, and investors) based on the value of their interests (Cal. Code Regs. tit. 18, § 25136 - 2 (c)(2)(E), Example 13 (proposed)). However, where an asset management company must use a reasonable approximation to assign its service sales, the proposal provides that the taxpayer assign receipts by reasonable approximation of the domicile of the shareholders, beneficial owners, or investors (using data such as ZIP codes and other statistical data) (Cal. Code Regs. tit. 18, § 25136 - 2 (c)(2)(E), Example 14 (proposed)).
Observation : Even within the sourcing rules specifically addressing receipts from services, a brief review of the FTB's existing and proposed rules and related examples reveals that making a determination for sourcing purposes is an involved, complex process. The FTB should be commended for adding additional examples in response to taxpayer/industry input. In complex tax areas, more guidance is typically a good thing. Taxpayers working through this analysis should also be aware that, among the new sections the FTB has proposed, a new paragraph has been added to the Special Rules section for determining the method of reasonable approximation. Under Cal. Code Regs. Section 25136 - 2 (h)(2), the FTB has proposed the following language:
The taxpayer's reasonable approximation method shall be used unless the Franchise Tax Board shows, by clear and convincing evidence, that such method is not reasonable. If the Franchise Tax Board shows that the taxpayer's approximation method is not reasonable, the Franchise Tax Board shall reasonably approximate the location of the receipt of the benefit of the services, the location of the use of the intangible property, or the location of the customer for sales from marketing securities. [Cal. Code Regs. tit. 18, § 25136 - 2 (h)(2)(C) (proposed)]
Note that the standard of review within the existing regulation is a "preponderance of evidence." For example, this "preponderance" standard applies when the FTB challenges the taxpayer's assigning of receipts based on the customer's billing address (under subsection (c)(1)(A)), the contract language or books and records in the normal course of business (under subsection (c)(2)(A)), or where the taxpayer assigns intangible property (under subsection (d)(1)(A)).
Observation : Though only proposed at this point, this language could be a cause of concern for several reasons. First, while the FTB should be commended for setting a higher standard for adjusting a taxpayer's result under the reasonable approximation method ("clear and convincing evidence"), the current proposal does not provide additional detail about what that phrase means in the corporate tax context. It is clear that it is a higher standard than "preponderance of the evidence," but how much higher is not clear.
Multistate taxpayers following the MTC regulation developments should also be aware that this differs from the recently adopted MTC market - sourcing rules. Under the MTC provisions, the use of the reasonable approximation method, if proper under the MTC regulations, is presumed correct (MTC §17(a)(7)). Therefore, the same analysis applied to the same type of receipts received outside of California in another state that has also adopted the MTC regulations could yield different results if that state has not adopted a modification similar to California's proposed Cal. Code Regs. Section 25136 - 2 (h)(2).
It is also unclear whether the FTB intends to maintain that higher standard in subsequent proposals. Applying a lower "preponderance of the evidence" standard would be consistent with other provisions within the existing regulation, but is not likely a positive step for taxpayers, as it will provide the FTB a lower threshold for adjustment on audit. Second, it is unclear at this point whether the audit standard that is established (allowing the FTB to revise the reasonable approximation method) will have sufficient taxpayer or industry input. Third, the new language does not provide a method for a taxpayer to challenge the FTB's interpretation of "reasonable approximation." If the FTB's method of determining a taxpayer's "reasonable approximation" can be challenged, that should be made clear in subsequent proposals.
More clarifying changes to come
For all of these proposed changes and additions, multistate service providers with a customer base in California must not only be aware of the existing complex of market - based sourcing rules under Cal. Code Regs. Section 25136 - 2 , but also be aware of the current thinking of the FTB. The FTB's proposed changes in its recent communications to the tax community give some insight to its approach to rules applicable to multiple industries. These proposed changes can provide some clarity where clarity was previously lacking. However, until more clarity is provided for a "reasonable approximation" standard, for both taxpayers and the FTB, certain changes such as the newly proposed Section 25136 - 2 (h)(2)(C) may also cause additional uncertainty. The FTB has indicated it will host another IPM on these issues. (The FTB indicated at its second IPM that it expects to host a third IPM within six months of the June 16 meeting.) Time will tell if the taxpayer community will receive sufficient clarity before any pieces of the FTB's proposal reach final approval.
Mark G. Cook is the lead tax partner with SingerLewak LLP in Irvine, Calif.
For additional information about these items, contact Mr. Cook at 949-261-8600 or [email protected] .
Unless otherwise noted, contributors are members of or associated with SingerLewak LLP.
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A property owner and contractor can set up an assignment of benefits in two steps: The owner and the contractor sign an AOB agreement The contractor sends the AOB to the insurance company Keep in mind that many states have their own laws about what the agreement can or should include.
An AOB is a formal assignment of your legal rights to payment under your insurance contract. Unless you're able to cancel the AOB, your contractor will have full control over your claim as it relates to their work. To explain why that control could matter, let's go back to the roof replacement example.
Reputable contractors and roofing companies will ask you to sign an Assignments of Benefits contract (AOB). The AOB transfers the insurance claims rights or benefits of your insurance policy to the service provider. Signing the AOB allows the service provider to be in direct contact with the insurance company about the claim filed.
Assignment of benefits, widely referred to as AOB, is a contractual agreement signed by a policyholder, which enables a third party to file an insurance claim, make repair decisions, and...
What is an assignment of benefits? An AOB is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner.
What is an Assignment of Benefits (AOB)? An AOB essentially will transfer your rights for the insurance claim and the benefits of the policy to another party- in this case, a roofer. This gives the roofing contractor the rights to file the claim, make decisions for the repair or replacement of your roof, and collect the insurance payments.
What is an Assignment of Benefits? According to the Florida Division of Consumer Services… …an AOB is an agreement that once you sign, transfers the insurance claims rights or benefits of the policy to a third party service provider. This includes: filing a claim making repair decisions collecting insurance payments
Assignment of Benefits An Assignment of Benefits, or an AOB, is a document signed by a policyholder that allows a third party, such as a water extraction company, a roofer, or a plumber, to "stand in the shoes" of the insured and seek payment directly from the policyholder's insurance company. What are the concerns or risks regarding AOBs?
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.
An assignment of benefits (AOB) is a contract between you and a third party - typically a contractor, roofer or water mitigation company - giving ... Your roof is older, so you let them take a closer look. They quickly climb down and tell you there is damage
Assignment of benefits is a legal contract between you and a third party, such as a roofer, contractor, or other vendors. The AOB allows you to transfer specific rights that your insurance policy grants you to a third party.
An Assignment of Benefits, or "AOB", is a contract that gives the rights of your insurance claim or the benefits of your insurance policy to a third-party vendor such as a roofing contractor or a public adjuster. Filing an insurance claim can be challenging. An assignment of benefits agreement may seem like a good idea.
The Assignment Of Benefits (AOB) 1. What is an AOB? An AOB is a legal agreement that transfers the insurance claims benefits of an insurance policy to a third party (e.g., a contractor). It gives the third party the authority to file an insurance claim on behalf of the property owner. 2. When is an AOB used?
An assignment of benefits (AOB) is a contract between you and a third party - typically a contractor, roofer or water mitigation company - giving them the right to deal directly with Citizens and receive payment for your claim. You sign an AOB, you give up your right to manage your claim and ensure it is resolved to your complete satisfaction.
Some found the system so lucrative that they paid plumbers up to $2,500 for every homeowner who signs an AOB. Lawsuits filed by contractors who have been assigned benefits by their clients were on the rise, according to the Tampa Bay Times - AOB claims in Florida jumped from 405 in 2006 to 28,000 in 2016.
Many homeowners have been ripped off through assigning benefits directly to roofing contractors. By transferring these rights, insurance companies will only deal with the contractor and not you. Many times, roofers pocket claims proceeds and never return to make repairs.
Assignment of Benefits is an agreement a repair contractor may ask you to sign that transfers your insurance policy benefits and rights to them. This eliminates your ability to work with your insurance company adjuster and may result in theft of your claims payment.
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On Jan. 20, 2017, the FTB hosted an interested parties meeting (IPM) to address a number of topics, including the sourcing of asset management fees, clarification of the term "benefits received" for certain industries, the assignment of dividends, and the treatment of marketing intangibles.
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Benefit Roofing specializes in shingle roofs, flat roofs, tile roofs, roof coatings, and more! Although Benefit Roofing is primarily known for our high-quality roof repair and replacement services, we have a variety of offerings available to our clients across Los Angeles. Whether you want to repair, replace, inspect or maintain your roof, the ...
Roy's Roofing currently holds license 927463 (Roofing), which was Inactive when we last checked. How important is contractor licensing in California? The CSLB is one of the highest rated licensing boards in the US. Applicants are required to pass a written board exam and prove at least four years of prior, relevant work experience. In addition ...