Florida Homeowners Insurance Analysis: Problems and Solutions for Assignments of Benefits and Water Remediation Companies

Florida Homeowners Insurance Claims and Litigation Handbook

Overview:

As we have said several times in the past here at First Party Property Insurance Blog, water damage claims are the most common type of Florida homeowners insurance claim.


Johnson Strategies once again delivered a fantastic post on the Florida Homeowners Insurance Industry.  This one is titled “Water Extraction: Florida’s Biggest Cost Driver?”

To summarize, Johnson delivers some terrific insight on how seemingly slight “tweaks” to an average water damage insurance claim payout can lead to hundreds of millions of additional homeowners insurer liability. In this article, Johnson also focused on how prevalent these “tweaks” are when the water damage claim involves a restoration contractor with an assignment of benefits.

As you know, in this article on Water Damage Claims, First Party Property Insurance Blog discussed various coverage issues with water damage claims. We also looked into Hail Claims, which make up a small but increasing share of water damage claims (not all hail claims involve ensuing water damage).  These two First Party Property Insurance Blog articles focused on coverage for these types of claims; however, Johnson’s article urges us to focus on the actual claim payouts when the claims are covered.

A Typical AOB Claim

As Johnson discussed, the Florida water remediation/restoration/extraction/assignment of benefits industry (yes, people use any and all of these terms to describe this industry) involves thousands, and probably tens of thousands, of fact patterns similar to this:

  • Plumber Repair: a homeowner calls a plumber to repair a water leak;
  • Referral: the plumber repairs the leak and recommends the homeowner contact a restoration company to make the repairs;
  • Assignment of Benefits (AOB): in exchange for doing the repairs at little or no cost to the homeowner, the restoration company requests the homeowner to assign the company the right to pursue the insurance claim against the insurance company (as assignment of benefits);
  • Damages Dispute: the restoration company and the insurance company disagree regarding the cost to repair the homeowner’s property, and the difference can be as little as $500 or as much as $50,000.00;
  • Lawsuit: the restoration company files a lawsuit against the insurance company and demands “proper” payment (as the restoration company sees it), and thousands of dollars in attorney’s fees and costs at the outset.

Although it may sound like a reasonable process, no one can deny that over the past few years these claims have skyrocketed without any objective justification.

If you are not familiar with how big of a role these claims play in Florida homeowners insurance, don’t worry, we got you.  Here is one of the most detailed reports on water damage claims from Citizens in 2012.  This will help you understand the sheer number of water damage claims Florida’s homeowners insurers face.

Download (PDF, 757KB)

The AOB Problem

A Few Hundred Dollars Here and There Adds Up

So why is this such an important problem?

Johnson Strategies estimates that this industry’s excessive charges for bursting pipe cases alone could cost insurers $150M per year. That does not include the actual extra repair payouts, public adjuster fees, plaintiffs’ attorneys’ fees, defense attorneys’ fees, and vendor fees. These amounts probably dwarf that $150M annual figure.

In addition, if you compare certain parts of Florida to other parts of Florida, this AOB process noted above is closely associated with an approximately $5,000.00 increase in costs per claim, and don’t compare Florida to any other state, because there is no comparison. In other words, this is a problem because for some reason Tampa and South Florida are the only targets.  The other areas must be doing something right.

Lastly, the article reminds us about what we learned from this video about AOB insurance fraud and how much insurance fraud could pervade this assignment of benefit process.

All of this suggests Florida homeowners insurers are losing control of their ability to efficiently resolve these claims.

Ultimately, the article concluded by urging the legislature to focus on fixing this problem.  As you may recall, the Homeowners Insurance Bill of Rights Working Group tried, but failed, to place strong prohibitions on assignment of benefits for insurance claims.

Lawyers and Courts are No Help

Lawyers and Courts have not systematically defeated this issue, but from what I hear, they are all going to keep trying.

Up until now, it has been tough for Florida’s homeowners insurers to commit to paying tens to hundreds of thousands of dollars to try a case when they can settle it for less than $10,000.00.  As Johnson Strategies points out, this willingness to compromise has added up to millions upon millions in additional recovery for the restoration industry and its attorneys.

Why settle?  The better question today, in this current legal climate, is “why not?” If a Florida homeowners’ insurer has a good case it wants to try, it will have to spend at least $50,000.00 to try the case unless it is using our proprietary software CaseGlide, and even the best cases may not be enough to convince a jury more than 70% of the time.  If the jury finds that the homeowners insurer undervalued the claim by $1.00, the Court could have to award the restoration company’s attorney hundreds of thousands of dollars in legal fees.

In summary, you have two main contributors

1. the lack of any meaningful legislation,

2. the cost to defend these cases with routine and manual legal work, on a case-by-case basis, exceeds the cost to resolve them.

Conclusion

As Johnson Strategies said, until the legislation comes (if ever), Florida homeowners insurers must use their power to take control today.

Insurers should not lie and convince themselves that powerful global defenses suddenly exist. Insurers should not continue paying millions of dollars to create arguments that have no statistically-justifiable results. So long as the law and insurance policies are the way they are (as I understand them), most of these cases are going to have to go to a jury trial if the insurer wants to prove its case.

What can insurers control?  Their costs to get these results.  No matter what you hear, these claims and cases aren’t going away.  The only way to address them will be from the top.  Insurers must use their power to take control of this process by demanding efficient legal services that produce better results at a fraction of the costs.  Otherwise, their own attorneys – the people that should be on their side – become a contributor to their inability to resolve these cases.   Continually charging insurers more than the cost to settle a case will never be an effective legal solution, especially when the results aren’t even very good.

But even if the attorneys can come up with legal defenses to efficiently litigate these cases, homeowners insurers still need to use their power to take control of the legal process. Insurers, when that attorney comes down from the heavens with the perfect legal strategy to control these claims, don’t pay for that same motion 1,000 times, pay for it once … and automate it.  Again, use your power and take control.

Once Florida homeowners insurers (and not attorneys) take the power and control over these AOB claims and litigation, they will be able obtain the best possible results in every case while spending the least amount of money to do so.  Until then, things will remain messy and continue to get messier.

Takeaway:

Let’s share strategies on the assignment of benefits claims.  If you share your strategies, I will share mine and those that I have received. Together, we can break this process down to the critical path for our clients.



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