Tag Archives: Assignment of Benefits

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.

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

Florida Homeowners Insurance Claims and Litigation Handbook


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.


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.


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.

Have Any More Questions about Florida Homeowners Insurance Claims?

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The Florida Policyholders Bill of Rights Working Group Issues its Final Report

Florida Homeowners Insurance Claims and Litigation Handbook

ins a

As discussed this summer, Florida’s Insurance Consumer Advocate Robin Westcott organized a Bill of Rights Working Group to create a Bill of Rights for Florida’s insureds.  They addressed the following issues in great detail:

  • education, transparency, and monitoring the insurance marketplace;
  • improvements to the claim process;
  • assignment of benefits and emergency remediation companies;
  • examinations under oath;
  • alternative dispute resolution;
  • post-claim underwriting; and
  • coverage provided by repair rather than indemnity payments.

The final report is here:

Download (PDF, 2.16MB)

The Group wants the Bill of Rights to have a lasting impact.  For the parts of the Bill that reflect existing case law, they want the Bill to codify the existing case law into statutory law.  For the parts of the Bill that are not yet law, they want the Bill to make new law. Lastly, there is an educational component.  To help insureds navigate claims, they want insurers to provide insureds with a copy of the Bill when they file a claim.

The report is a great snapshot of today’s insurance industry concerns.  I think the Group did a great job of addressing the current landscape.  My only criticism is that I would have liked the Group to disclose, in the Bill, some of the data on these claims.  To get the new recommendations turned into law, the Group should disclose the data that proves these concerns are justified.  In all fairness, the Group might not have needed the data.  The Group was comprised of several insurance professionals with decades of experience.  Thus, they likely used their private data to form their conclusions and recommendations, even if they did not disclose it.

I think the Bill of Rights will be very helpful for insureds when navigating a claim; however, the Bill’s primary impact on insurers appears to be focused on the assignment of benefit-water extraction claims.  If the legislature adopted all the recommendations, AOB contractors will have some new obstacles to deal with, including licensing requirements; limitations to the scope of their AOB contracts; and compliance with certain standards for water extraction.

Aside from the AOB-related recommendations, the rest of the Bill codifies/creates obligations and limitations for insurers, including more standards for communicating during the claim and examination under oath process; prohibitions on post-claim underwriting; and expectations for insurers when they elect to repair.  Ultimately, some of these obligations are already existing law, and I bet most insurers already comply with the majority of the recommendations.

Only time will tell the impact of the Group and its recommendations. There is no doubt that they discussed a lot of major concerns.  We will wait and see what the legislature does with these recommendations. When that time arises, I will keep you posted.


The assignment of benefits issue is not going way, and its up to insurers to not let this be the next attorney-driven trend.

How can insurers deal with the assignment of benefits issue?  First, get the best management and attorneys together and decide exactly what to do on these cases. Second, pay for routine documents and evaluations only once, then automate any documents or processes that will occur in all of these cases.  Third, enter all of the case information into software (instead of Word documents and emails) so that you can use data to help guide you towards settlement.  Fourth, as failures and successes arise, continue to optimize your system to ensure you achieve the best possible outcomes while spending the least.

If you have any questions or would like to see checklists or guides for handling assignment of benefits cases, please message me.

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AOB Claims and the Bill of Rights Working Group

Florida AOB & Industry Litigation Trend Report Image


After a water leak, homeowners often hire a contractor to make emergency repairs.  Contractors and homeowners and insurers often disagree about the cost to repair.  Read this article to learn how insurers, contractors, and the legislature are trying to resolve this dispute.

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Florida Homeowners Insurance Claims and Litigation Handbook

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Johnson Strategies authored a fantastic post today about the impact of assignment of benefit claims on insurers and how the Homeowners’ Policy and Claims Bill of Rights Working Group is trying to address this problem.

How much are insurers losing as a result of the AOB claims?  Here is a quote from the post:

Addressing fraud this systemic starts with understanding that water damage claims are number one across all insurers–approaching 50% of  the total annual claim payout, with an average claim often in excess of $10,000. Using Citizens as a gauge, the 2012 total forecasted payout just for bursting pipes (not weather related roof leaks, or back up of sewers, etc) was in excess of $142,000,000. 

Using a hypothetical carrier with 180,000 policies I showed how just the deductible and plumbers’ referral fee resulted in fraudulent claim inflation of $3,375,000 every year.  

For all Florida property carriers including Citizens that’s roughly $150 million annually.

Then…when you add in the cost of unnecessary repairs, unnecessary drying services or water detection and the rank-and-file up-charging that everyone knows (and ICA workshop testimony confirms) is rampant, well…you get the ugly picture.

See the full post here (parentheticals omitted)(emphasis added).

Johnson Strategies suggests the legislature address the following concerns:

  • the substantial financial incentive for plumbers to refer AOB contractors;
  • AOB contractors perform all of the water damage mitigation services;
  • loose licensing requirements;
  • no required permits;
  • no required inspections; and
  • no requirement for pre-work estimates.

The Working Group made suggestions to address all of these concerns. Now, we must wait to see whether identifying these issues will be followed with a genuine solution from the legislature.


Although this may lead some carriers to take approaches based on emotion, assignment of benefits cases are the perfect type of case for statistical data evaluations to drive decision making.  They are also the perfect type of case to use document automation and litigation project management to achieve better outcomes at a fraction of the costs.

Don’t hire attorneys to have junior associates get you nowhere on these files for millions of dollars.  If you want checklists, guides, or legal document templates for handling claims like this one, please message me.

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