What is an Assignment of Benefits?
In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work. In exchange, the contractor agrees that it will not seek payment from you for that scope of work, except for the amount of any applicable deductible. In other words, you give part of your insurance claim to your contractor, and your contractor agrees not to collect from you for part of its work.
The most important thing to know about an assignment of benefits is that it puts your contractor in control your claim, at least for their scope of work. Losing that control can significantly affect the direction and outcome of your claim, so you should fully understand the implications of an AOB (sometimes called an assignment of claims or AOC) before signing one.
How Does an Assignment of Benefits Work in Practice?
Let’s say you’re an insured homeowner, and Hurricane Ian significantly damaged your roof. Let’s also assume your homeowner’s policy covers that damage. A roofer, after inspecting your roof and reviewing your insurance policy, might conclude that your insurer is probably going to pay for a roof replacement under your insurance policy. The only problem is that it’s early in the recovery process, and your insurer hasn’t yet stated whether it will pay for the roof replacement proposed by your contractor. So if you want your roof replaced now, you would ordinarily agree to pay your roofer for the replacement, and wait in hopes that your insurer reimburses you for the work. This means that if your insurance company refuses to pay or drags out payment, you’re on the hook to your roofer for the cost of the replacement.
As an alternative to agreeing to pay your roofer for the full cost of the work, you could sign an assignment of benefits for the roof replacement. In this scenario, your roofer owns the part of your insurance claim that pertains to the roof replacement. You might have to pay your roofer for the amount of your deductible, but you probably don’t have to pay them for the rest of the cost of the work. And if your insurance company refuses to pay or drags out payment for the roof replacement, it’s your roofer, and not you, who would be on the hook for that shortfall.
So should you sign an AOB? Not necessarily. Read below to understand the pros and cons of an assignment of benefits.
Are There any Downsides to Signing an Assignment of Benefits?
You lose control of your claim. This is the most important factor to understand when considering whether to sign an AOB. An AOB is a formal assignment of your legal rights to payment under your insurance contract. Unless you’re able to cancel the AOB, your contractor will have full control over your claim as it relates to their work.
To explain why that control could matter, let’s go back to the roof replacement example. When you signed the AOB, the scope of work you agreed on was to replace the roof. But you’re not a roofing expert, so you don’t know whether the costs charged or the materials used by the roofer in its statement of work are industry appropriate or not. In most cases, they probably are appropriate, and there’s no problem. But if they’re not – if, for instance, the roofer’s prices are unreasonably high – then the insurer may not approve coverage for the replacement. At that point, the roofer could lower its prices so the insurer approves the work, but it doesn’t have to, because it controls the claim. Instead it could hold up work and threaten to sue your insurer unless it approves the work at the originally proposed price. Now the entire project is insnared in litigation, leaving you in a tough spot with your insurer for your other claims and, most importantly, with an old leaky roof.
Misunderstanding the Scope of Work. Another issue that can arise is that you don’t understand the scope of the assignment of benefits. Contractor estimates and scopes of work are often highly technical documents that can be long on detail but short on clarity. Contractors are experts at reading and writing them. You are not. That difference matters because the extent of your assignment of benefits is based on that technical, difficult-to-understand scope of work. This can lead to situations where your understanding of what you’re authorizing the contractor to do is very different from what you’ve actually authorized in the AOB agreement.
In many cases, it’s not necessary. Many contractors will work with you and your insurer to provide a detailed estimate of their work, and will not begin that work until your insurer has approved coverage for it. This arrangement significantly reduces the risk of you being on the hook for uninsured repairs, without creating any of the potential problems that can occur when you give away your rights to your claim.
Do I have to sign an Assignment of Benefits?
No. You are absolutely not required to sign an AOB if you do not want to.
Are There any Benefits to Signing an Assignment of Benefits?
Potentially, but only if you’ve fully vetted your contractor and your claim involves complicated and technical construction issues that you don’t want to deal with.
First, you must do your homework to fully vet your contractor! Do not just take their word for it or be duped by slick ads. Read reviews, understand their certificate of insurance, know where they’re located, and, if possible, ask for and talk to references. If you’ve determined that the contractor is highly competent at the work they do, is fully insured, and has a good reputation with customers, then that reduces the risk that they’ll abuse their rights to your claim.
Second, if your claim involves complicated reconstruction issues, a reputable contractor may be well equipped to handle the claim and move it forward. If you don’t want to deal with the hassle of handling a complicated claim like this, and you know you have a good contractor, one way to get rid of that hassle is an AOB.
Another way to get rid of the hassle is to try Claimly, the all-in-one claims handling tool that get you results but keeps you in control of your claim.
Can my insurance policy restrict the use of AOBs?
Yes, it’s possible that your Florida insurance policy restricts the use of AOBs, but only if all of the following criteria are met:
- When you selected your coverage, your insurer offered you a different policy with the same coverage, only it did not restrict the right to sign an AOB.
- Your insurer made the restricted policy available at a lower cost than the unrestricted policy.
- If the policy completely prohibits AOBs, then it was made available at a lower cost than any policy partially prohibiting AOBs.
- The policy includes on its face the following notice in 18-point uppercase and boldfaced type:
THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7153 OF THE FLORIDA STATUTES.
Pro Tip: If you have an electronic copy of your complete insurance policy (not just the declaration page), then search for “policy does not allow the unrestricted assignment” or another phrase from the required language above to see if your policy restricts an AOB. If your policy doesn’t contain this required language, it probably doesn’t restrict AOBs.
Do I have any rights or protections concerning Assignments of Benefits?
Yes, you do. Florida recently enacted laws that protect consumers when dealing with an AOB.
Protections in the AOB Contract
To be enforceable, a Assignments of Benefits must meet all of the following requirements:
- Be in writing and executed by and between you and the contractor.
- Contain a provision that allows you to cancel the assignment agreement without a penalty or fee by submitting a written notice of cancellation signed by the you to the assignee:
- within 14 days after the execution of the agreement,
- at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or
- at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.
- Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier.
- Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee.
- Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
- Contain the following notice in 18-point uppercase and boldfaced type:
YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.
- Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees.
Under Florida law, a contractor (or anyone else) receiving rights to a claim under an AOB:
- Must provide you with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required.
- Must perform the work in accordance with accepted industry standards.
- May not seek payment from you exceeding the applicable deductible under the policy unless asked the contractor to perform additional work at the your own expense.
- Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, submit to examinations under oath and recorded statements conducted by the insurer or the insurer’s representative that are reasonably necessary, based on the scope of the work and the complexity of the claim, which examinations and recorded statements must be limited to matters related to the services provided, the cost of the services, and the assignment agreement.
- Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, participate in appraisal or other alternative dispute resolution methods in accordance with the terms of the policy.
- If the contractor is making emergency repairs, the assignment of benefits cannot exceed the greater of $3,000 or 1% of your Coverage A limit.