Coral Gables, June 15, 2022 – SL FINANCIAL is an actuarial consulting and advisory firm based in Miami, Florida. We offer complete actuarial solutions in both traditional (re)insurance and alternative risk financing industries.

What is an Assignment of Benefits (AOB)?

An AOB is a contractual agreement between an insurance policyholder and a business, in which the policyholder gives over (“assigns”) to the business some of the policyholder’s rights and benefits under the policy.

The business might require this assignment before it repairs or replaces a policyholder’s property. With an AOB, the business can do its job, then bill the insurer. In a normal situation, AOBs are an efficient, customer-friendly way to settle claims. Insureds get the services they need without slogging through the details of settling a claim. AOBs are common in health insurance. Preapproved service providers can bill the insurer directly for covered costs. They also have long been used for personal auto physical damage claims (e.g., a body shop estimates repair costs subject to insurer approval). In both cases, the insurer usually has an established relationship with the service provider. Standard homeowners’ policies usually allow AOBs.

What makes the Florida case unique?

In Florida, abuse of AOBs has fueled an insurance crisis. The state’s legal environment has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then file tens of thousands of lawsuits against insurance companies that deny or dispute the claims.

This “mini-industry” has cost consumers billions of dollars as they are forced to pay higher premiums to cover needless repairs and excessive legal fees. The abuse therefore acts somewhat like a hidden tax on consumers, helping to increase what are already some of the highest insurance premiums in the country.

The following provisions of Florida legislature were identified as key drivers of the abuses:

• One-way attorney’s fee: If plaintiff wins lawsuit, insurer pays their attorney’s fees – but if plaintiff loses, they don’t pay insurer’s fees
• No insurer consent needed: Insureds can assign their benefits to a third-party without insurer consent or knowledge

How is the Florida AOB abused?

AOB abuse in Florida has two components: (1) Vendors submitting inflated claims and (2) Plaintiff’s attorneys filing excessive lawsuits alleging bad faith or breach of contract when the insurer denies payment or offers a lower amount for the inflated claim. In the case of abuse, vendors receive AOBs from policyholders, conduct unnecessarily expensive repairs or no repairs at all, then bill the insurer. If the insurer denies coverage or offers payment below the billed amount, attorneys file suit, usually alleging breach of contract or bad faith. The disputed dollar amounts are typically low relative to the claim – and the costs of filing lawsuits with low damages are small when compared to the “benefit” of potentially unlimited attorney’s fee payouts.

What are typical AOB abuses?

• Personal injury protection (PIP) claims: A person injured in a crash assigns their benefits to a medical provider, who then overbills the insurer – and sues if the insurer disputes the claim.
• Homeowners’ property insurance: A homeowner discovers a leaky pipe has damaged their home. A contractor convinces the claimant to sign an AOB, then performs needless repairs or overbills. If the insurer fights back, the contractor’s attorney files suit.
• Auto physical damage claims to repair damaged windshields and other automobile glass: As with PIP and homeowners’ claims, the provider obtains an AOB, overbills, then sues if the claim is denied or trimmed.

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Achille Sime

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