New Appellate Decision May Impact the Validity of Assignment of Benefit Claims and Lawsuits
On September 5, 2018, the Fourth District held that homeowners’ insurance policies may require signatures of all insureds and mortgagees to validate an assignment of claim benefits to a third party. See Restoration 1 of Port St. Lucie v. Ark Royal Insurance Co., 4D17-1113 (4th DCA 2018).
History of Assignment of Benefits
An Assignment of Benefits (commonly abbreviated as AOB) is a form signed by an insured that allows a third party to “stand in their shoes” and seek payment from the insurer. These type of agreements are common in home improvement, plumbing, and roofing contracts. Upon the assignment of benefits, the third party has the sole authority to file a claim, make improvement decisions, and collect insurance payments from the insurer.
While AOBs have been a convenient way to handle the claims process, it has also been subject to abuse- which may be responsible for higher insurance premiums. After signing an AOB, the policyholder is often bound by the agreement with the third party and cut off from future decision-making regarding the rights in the policy to resolve a claim. Now, the decision to relinquish control may become more complicated.
In Restoration 1 of Port St. Lucie v. Ark Royal Insurance Co., the claimant (Restoration 1) cleaned up water damage at the home of the policyholders. Upon completion, one of the two named policyholders signed an AOB to give Restoration 1 the right to pursue payment for the claim arising from the damage. After the insurance company (Ark Royal) refused to pay the claim, Restoration 1 filed suit against Ark Royal for breach of contract. Ark Royal claimed that the AOB did not comply with the policy due to it lacking signatures from the second policyholder and the mortgagee bank. The policy contained a condition that
“[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagee(s) named in this policy.”
The trial court agreed with Ark Royal, finding the policy condition unambiguous, and dismissed the case.
Appeals Court Decision
On appeal to the Fourth District Court of Appeal, Restoration 1 relied upon West Florida Grocery Co. v. Teutonia Fire Insurance Co. to argue that the consent of the insurer is not needed for an assignment of benefits after loss because an insurer has no interest in benefits already paid out. The appellate court, however, rejected the argument, reasoning that there is a vast difference between requiring the insurer’s consent and requiring the consent of those persons and entities named in the policy or issuing the mortgage.
Notably, the court’s discussion focused on the vested interests that the insureds and mortgagees have in relation to a claim. The court found that the facts of West Florida Grocery did not extend to the facts of the case at hand—an AOB which was not signed by all named insureds and the mortgagee. Thus, the court held that those parties with a vested interest in a claim are required to sign off on the AOB to a third party in order for it to be valid.
Impact on Future AOBs
The end result of the holding is that all named policyholders and mortgagees may have to sign the AOB in order for the AOB to be valid. Some commentators contend that this ruling will lead to AOBs becoming obsolete due to the expected hesitation of mortgagee banks to sign off on this transfer of rights and benefits.
Proponents of the ruling, however, argue that this change will protect parties with valid, vested interests in the property and lead to the decline of fake and exaggerated AOB claims. Additionally, policyholders could see lower premiums in the future because this ruling may help deter some of the abuse that has been seen with AOBs in the past.