How to spot an AOB homeowner’s insurance scam

Tue Dec 03 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.

Thankfully, Florida passed a bill in 2019 aimed to curb the abuse of assignment of benefits. Then the state passed two additional bills in two different special sessions in 2022. The first removed the ability to get attorney fees for AOB vendors; the second completely prohibited AOBs.

Louisiana also passed its own bill prohibiting AOBs in 2023

While these bills help protect homeowners, you still need to understand 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.

  • File a lawsuit against your insurance company regarding your claim.

Homeowners who are dealing with major damage may assign their benefits to the business making the repairs because they believe it has more experience working with an insurance company to settle a claim. They may believe the business can help them better navigate the claims process

But in actuality, these vendors are not licensed to assist with the claims process and there is no need for an assignment of benefits.

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 vendor regarding that portion of your claim.

  • You lose all rights regarding that portion of your claim.

  • You lose the right to mediate that portion of your claim.

  • 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 and Louisiana’s legislature actions on AOB lawsuits should help prevent these opportunistic practices. 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 allow 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 or offers a free inspection to see if there is any damage.

  • A contractor promises something for nothing or for just the cost of your deductible, such as a free roof or kitchen renovation.

  • Someone claims the damage is greater than it clearly is.

  • 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 never need an AOB to get your claim processed or the repairs started.

  • Contact your carrier. Before executing any AOB, repair, or mitigation agreement, check with your insurance carrier or agent to first report the damage and then get their opinion on the validity of the agreement.

It’s not a small thing to sign away the rights to your insurance benefits. Assignment of benefits are only truly needed when you go to your doctor.

Editor’s note: This post was originally published in December 2019. It has been updated for accuracy and comprehensiveness.

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