Five Ways to Solve the Assignment of Benefits and Water Damage Restoration Insurance Problems

Florida Homeowners Insurance Claims and Litigation Handbook



The assignment of benefits issue is still not resolved. While most people in the insurance industry just seem to spew anger about it, some are coming up with solutions. I’ll highlight a few of the potential solutions that have been raised.


Imagine that you had an agreement with Ford for a Ford Fusion. You want a good car that works, looks good, and is durable. It’s a $21,000 car new.

Now imagine that Ford sends you a letter saying they assigned your financing agreement to Lincoln. In the letter, Lincoln tells you that they are giving you the Lincoln MKZ, a $36,000 car, and that you have to pay the difference.

Unfortunately, they are basically the same car. You voice your concern and refuse to pay almost twice as much for the same car. In response, Lincoln sues you.

Also, imagine that by law, if Lincoln wins the lawsuit, they can get hundreds of thousands of dollars in attorney’s fees. On the other hand, if you win, the law says you don’t get anything.

That’s the problem Florida’s homeowners insurers face every day. State Representative David Santiago recently authored a scathing article in the Tampa Tribune: Home repair insurance claim fraud hammering Florida. According to experts, assignment of benefits claims are Florida homeowners insurers’ biggest cost driver.

We have heard a lot about the problem. Let’s discuss the solutions available!

Florida Homeowners Insurance Claims and Litigation Handbook

Florida Homeowners Insurance Claims and Litigation Handbook

Florida Homeowners Insurance Claims and Litigation Handbook and Litigation Data Reports:

Before we go on, if you are in the Florida homeowners insurance claims industry and are looking for a guide with the key cases, strategies, laws, attorneys, and adjusters, or if you’re looking for Florida litigation data reports, please visit this page to learn more about our Florida Homeowners Insurance Claims and Litigation Handbook.

Five Ways to Fix the AOB Problem

1. Write it Out of the Policy

One insurer is currently initiating this effort in Florida’s First DCA. Here is a link to that insurer’s Initial Brief on the issue:

There’s no need to further analyze that option – the brief says it all.

2. Cut Out the Middlemen

If 10 people show up to work every day, 10 people expect to get paid.

That’s what’s happening here.

A plumber makes a repair. In exchange for a referral fee, the plumber recommends a water extraction company and maybe a public adjuster. To be “made whole” to use the phrase loosely, the extraction company needs to at least cover the deductible the homeowner is generally required to pay. Additionally, the public adjuster takes a large percentage of the claim proceeds for payment.

Then, if the insurance company refuses to pay the surcharge to this cast of characters for their involvement, the extraction company hires an attorney. The attorney then needs to obtain his or her maximum fee, which can range from 33% to 40% of the payout. Ultimately, for everyone to walk away satisfied, this team has to obtain a lot more than the cost to repair the damage.

That may not be what insurers should owe them, but the circumstances dictate that the best business decision may be to just pay it.

Insurers could circumvent this process by entering into managed repair agreements with or buying the largest plumbing operations and water extraction companies in the industry. For carriers paying $3,000,000 per year in referral fees and “waived deductibles”  this could be a worthwhile investment.

3. Use Data Analytics to Resolve these Cases More Efficiently

Forget about paying the plumber, public adjuster, and water extraction company for a second. Insurers also have to pay their staff and panel counsel millions of dollars per year to adjust and defend these claims.

If all insurers can do is save their cost of doing business, that still could result in good news. Reducing or eliminating insurers’ cost of doing business can have a huge impact on their bottom line. Insurers don’t need courts or the legislature to reduce their costs; all they need is to better understand what has already happened.

We already discussed the baseline amount of money that the cast of characters needs to break even. What if insurers just paid them that based on prior claim and case data? The insurers could save millions in loss adjustment expenses for their own staff and panel counsel. Hypothetically, the cast of characters’ break-even point would be decreased if less of them needed to be involved, such as the attorney.

Insurers could use data analytics to report on a variety of factors that impact settlement, including the public adjuster’s, water extraction company’s, and attorney’s settlement amounts in historical data. Insurers could also use data on prior damage estimates to reach benchmarks that insurers know these parties will accept as a settlement.

People may lie, but data doesn’t. If insurers want to know how to efficiently resolve the next claim or case, the first thing to do should be (but isn’t always) looking at how they have resolved thousands of prior claims and cases.

4. Pass a Law Banning Assignment of Benefits

Insurers, public adjusters, and other groups have joined forces to try to pass legislation to eliminate the assignment of benefits issue. This same group was unable to succeed the last time they tried.

As discussed in Home repair insurance claim fraud hammering Florida, these efforts are still in progress.

We at First Party Property Insurance Blog discussed the legislative efforts against assignment of benefits in this article:

Based on what happened in the last legislative session, the people pushing these reforms are facing an uphill battle. Nevertheless, if it is possible for Florida to pass a homeowners insurance bill without loopholes, legislation has the power to close the door on assignment of benefits claims forever.

5. Defend All of the Cases and Take Them to Trial

This is not my favorite option, and I will tell you why at the end.

The option: turn off the faucet of money and see what happens. These companies and their representatives (adjusters and attorneys) may not have the financial stability to aggressively pursue these claims for years without being paid. That is something worth considering. Litigating is expensive. Cash flow is king.

Assignment of benefits contractors also have one disadvantage specific only to them. Regular homeowners insurance lawsuits involve a homeowner and damage to their home. Most juries are going to feel sympathetic for the homeowner. Most juries would want people to do the same thing for them if they were the homeowner that felt wronged by a big, powerful insurance company.

However, in a case where the assignment of benefits contractor is the plaintiff, juries are less likely to have that same empathy. If the juries think that both companies are being stubborn, they may be just as willing to side with the insurance company as they are with the water extraction contractor.

Further, homeowners insurers should be able to defend their position. The question will usually be “how much does it cost to repair a water damaged house?” With two companies battling it out (instead of one person versus a big company), insurers should be confident enough in their legal team that they can defend their coverage payment decision.

This option was the fifth option for a reason. I think it’s the worst option. Here is why:

  • Win or lose, the insurers will have to spend millions in legal defense costs, and they probably won’t be able to recover most of it;
  • If they lose, they not only have to pay their attorneys millions; they also have to pay millions to the plaintiffs’ attorneys; and
  • The difference between winning and losing in cases like these can be as little as $1.

Now you know why this is my least favorite option.


Cutting out the middlemen sounds like the most fun option; however, it sounds difficult to execute as well.

There is a clear winner here: Option 1. Amending the insurance policy is the least expensive of the 5 options. It also has the potential to completely resolve the issue.

So what if that fails? My second favorite option is Option 3 – Data Analytics. If you are a First Party Property Insurance Blog reader, then you know how strongly I believe in the power of business intelligence to change homeowners insurance litigation. If you are not an avid reader, check out my article for Claims Journal: Claiming What’s Yours: Why Homeowners Insurers Need Claims Litigation Analytics. Technology has changed everything else in this world. Why not us?

Today, both passing a law and trying all of the cases seems like too much risk for reward. The law could pass; however, contractors and their attorneys will likely find a loophole the first time around. Try reading the homeowners insurance statutes. Unless you have First Party Property Insurance Blog’s Annotated Homeowners Insurance Statutes Page saved in your browser, it’s very difficult for anyone to understand the laws without years of experience. As for trying all of the cases, I already explained all the risk involved. These options are not that exciting.

Again, I think amending the policy and data analytics are the ways to go.

If you have any questions about this article or anything else Florida homeowners insurance related, please contact me.