The ABC's of AOB's

by Mark Goldwich

Image courtesy of cartoonstock.com

Whether you're visiting a doctor’s office or other medical facility, they will usually require you sign a form called “Assignment of Benefits”. These forms are used by the medical providers to bill the patient’s insurance company directly for the services they render. This allows them to access the insurance benefits rather than requiring payment directly from the patient. In a homeowner's insurance claim, assignment of benefits forms are often similarly used by water mitigation companies, mold specialists, and other contractors. Similar to assignment of benefit forms in the medical field, the assignment of benefits during a property insurance claim lets contractors bill the insurance company directly for the services they perform at your home. As with the medical services, these homeowner services are often done on an emergency basis, and advance payment is not an option.

So why is this an issue? Well, that depends who you talk to. Contractors will tell you the assignment of benefits are important and needed because consumers don’t have the knowledge or claims savvy that the contractors do, leaving the consumer at the mercy of the insurance company and their paid representatives.  On the other hand, an insurance industry trade group recently provided a position paper on assignment of benefits stating:

The single biggest factor driving the explosion of AOB-related lawsuits is that trial attorneys can collect “one-way attorney fees’’ when suing insurance companies over claim disputes. One-way attorney fees allow attorneys suing insurers to collect legal fees if they win but don’t allow insurers to collect fees if they prevail. One-way attorney fees were intended to level the playing field between consumers and big insurance companies but have become an incentive for attorneys and vendors to file AOB lawsuits. In the majority of AOB lawsuits, the policyholder has already been made whole and had their home or auto repaired. Rather than a “David versus Goliath’’ issue, it has become a battle between attorneys and vendors against insurance companies.

But according to attorney Sean Shaw of the Merlin Law Group:

This is precisely the point of the attorney fee statute…to level the playing field. Insurance companies have the resources to hire an attorney in every case and fight any and all claims. The insured does not have that ability. The purpose of the fee statute is to discourage insurance companies from fighting valid claims and to reimburse successful insureds if they are forced to sue. I assume the industry opposes the fee statute in all circumstances since the logic of their position hear would extend to all subjects…not just AOBs. In other words, the industry is saying that the fee statute is an incentive for attorneys to sue insurance companies in all circumstances. I understand that insurance companies don’t like the fee statute because it puts them at risk…but that is exactly why it is a great tool for consumers.

In a legal brief to the First District Court of Appeal in Security First Insurance Company vs. State of Florida, Office of Insurance Regulation, Security First suggested that the fraud and abuse surrounding AOBs lead to higher premiums for insurance consumers:

          The typical scenario surrounding the use of an “assignment of benefits” involved         vendors and contractors, mostly water remediation companies, who were called by an insured immediately after a loss to perform emergency remediation services, such as water extraction. The vendor came to the insured’s home and, before performing any work, required the insured sign an “assignment of benefits”—when the insured would be most vulnerable to fraud and price-gouging. Vendors advised the insured, “We’ll take care of everything for you.” The vendor submitted its bill to the insurer that was, on average, nearly 30% higher than comparative estimates from vendors without an assignment of benefits. Some vendors added to the invoice an additional 20% for “overhead and profit”, even though a general contractor would not be required or hired to oversee the work. Vendors used these inflated invoices to extract higher settlements from insurers. This, in turn, significantly increased litigation over the vendors’ invoices. 

But without AOBs, those in favor of AOBs say consumers would be unable to complete repairs and would be at the mercy of insurance adjusters. In his editorial Insurance-assignment forms simplify, attorney Paul T. Zeniewicz makes the case for AOBs:

Courtesy of cartoonstock.com

Think about the last time you went to the emergency room. You filled out paperwork for each health-care provider (physician, anesthesiologist, etc.), and your insurance company dealt directly with those providers. This is because you signed an "assignment of benefits," or "AOB," form. An AOB is a legal form that allows a medical provider to bill your insurance carrier directly.  AOBs are backed by more than 100 years of Florida insurance law. AOBs allow home-repair contractors to bill insurance carriers without requiring anything out-of-pocket from the homeowners after their home has been damaged.

Imagine your kitchen is flooded from a broken pipe. Every second the damage to your home grows worse. Your contractor tells you, "The bill to remove the water from your home is $5,000, and I need payment immediately." Your insurance company won't issue payment for 60 days; meanwhile, water and mold destroy your home.

Insurance companies do not like AOBs because vulnerable homeowners are much easier to push around than a licensed contractor. The idea that contractors use AOBs to "inflate" their bills is nonsense. Although the overwhelming majority of Florida contractors are outstanding, reputable businesses, a minority inflate prices. An AOB only determines who gets stuck with the inflated balance.  With AOBs, the insurance company has to fight the dishonest contractor. Without AOBs, homeowners are stuck with the inflated bill. AOBs protect homeowners from fraudulent contractors because the insurance company, not homeowner, has to fight the fraud.

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The bottom line on AOBs is, insurance companies, their attorneys, and legislators who receive large campaign contributions from insurance companies, are consistently and firmly against the AOBs, while restoration contractors and insurance consumer advocates are in favor of AOBs as a way of leveling the playing field. Both can make strong arguments for their respective sides.

As a public adjuster, I am not a proponent of AOBs, but if the insurance companies are dead set against it, it is probably good for the insurance consumer, and given the size and power of insurance companies, insurance consumers need all the help they can get. But I will add, you need to know the contractor you are dealing with if they are asking you to sign an AOB form, simply because in the hands of somebody bad, they can be used for bad things. I also find a lot of contractors use these AOB forms as a way of getting away with adjusting claims without a license, and this is a 3^rd degree felony in Florida.

Courtesy of ahumanproject.com

It’s also important to note how insurance companies and their representatives describe the subject as a “crises” requiring “immediate reform” in order to “stem fraud and escalating claim costs”, because they do this every time they want to get their way. It reminds me of Shakespeare’s quote, “The lady doth protest too much, methinks”. And while we’re quoting literature, I would also say don’t look up if the insurance industry is running around like Chicken Little screaming, “The sky is falling!” Instead, you might be wise to cover your behind.

 Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.