What is an assignment of benefits?
An assignment of benefits (or AOB for short) is an agreement that gives your claims benefits, and in some instances complete control of your claim, to someone else. It’s usually used so that a contractor can "stand in your shoes" and file a claim, make decisions about repairs, and collect insurance payments from your insurance company directly for covered repairs. In some states, the contractor will even file a lawsuit against your insurer as your assignee.
Why do homeowners agree to an assignment of benefits?
Homeowners may sign an assignment of benefits form because they think it’s more convenient and efficient than dealing with the claims process firsthand.
Once a contractor has been assigned your benefits, they tell the insurance company what work they believe is required and negotiate the claim. For example, say you have a water leak in the house. You call a home restoration company to stop the water flow, clean up the mess, and restore your home to its former glory. The restoration company may ask for an assignment of benefits so it can deal directly with the insurance company without your input. That may sound like a relief at first glance – someone else can deal with all that!
But signing away your rights in the claims process may not be worth the risk.
Assignment of benefits in Florida: a case of rampant fraud
Because the assignment of benefits takes control out of the homeowner’s hands, insurance fraud is a major concern. Some contractors may take advantage of the situation and inflate repair needs and costs or bill for work that was never completed. They may also hire attorneys to sue the insurance company if it does not pay the full amount of their estimate or denies claims.
These lawsuits became a huge problem in Florida – by 2018, there were 135,000 AOB lawsuits, a 70 percent increase in 15 years. On the whole, the FBI estimates fraudulent claims account for nearly $6 billion of the $80 billion appropriated for post-hurricane reconstruction.
Florida eventually passed a bill in 2019 to curb the abuse of the assignment of benefits.
Ultimately, AOB fraud hurts homeowners the most. It increases homeowners insurance rates across the board, and you may be stuck with incomplete work and no recourse.
What responsibilities does the AOB contractor have?
Once you sign an AOB, a contractor has full power to make all decisions about the claim without consulting you. The assignment of benefits gives contractors the ability to:
- File the insurance claim.
- Work directly with insurance claims adjusters.
- Make repair decisions.
- Complete repairs.
- Directly bill the insurance carrier for all work completed.
- Sue your insurance company regarding your claim.
Sometimes the assignment of benefits limits the scope of the work the contractor was hired for. For example, say your home has a leaky pipe. You may hire a plumber to fix the leak, a remediation company to dry the walls and carpet, and a general contractor to replace the bathroom cabinets. Each of the three contractors may have a respective assignment of benefits for their part of the job.
How assignment of benefits impact homeowners
Under some circumstances, an assignment of benefits agreement could work out for homeowners who don’t want to handle their insurance claim. If the contractor is reputable, performs the work, and knows what information the insurance company needs, it can be a big help.
For example:
- The claims adjuster will work directly with the contractor.
- The contractor would handle remediation and repairs.
- The contractor would bill the insurance company, not the homeowner.
AOB arrangements only work for covered damage in need of repair. If you must replace belongings or appliances, you’d still need to work directly with your insurer and payments would go to you.
Protecting yourself in an assignment of benefits agreement
Don’t sign an assignment of benefits agreement right off the bat. Before you hire any contractor:
- Get multiple quotes.
- Check references, licenses, and their insurance.
- Get written estimates for potential work.
- Get a guarantee to back the workmanship.
- Make sure you get to approve the completed work.
- Request copies of all paperwork sent to your insurance company.
- Require that the contractor show you the documents you are actually signing.
You might be tempted to hire the first contractor you find, but you save yourself headaches if you do some due diligence before signing an assignment of benefits. Great contractors use this to expedite repairs and spare you some work. Take a beat to find that great contractor.
