Florida Legislature Passes Industry-Backed AOB Reform Bill; Governor Expected to Sign

After seven years of failed attempts, Florida legislators have passed property insurance reform to address the abuse of a policyholder benefit known as assignment of benefits (AOB). 

Article by , Insurance Journal | April 24, 2019

After seven years of failed attempts, Florida legislators have passed property insurance reform to address the abuse of a policyholder benefit known as assignment of benefits (AOB).

The insurance industry and consumers advocates say the abuse has caused higher insurance premiums in the state and made insurance harder to obtain.

By a vote of 25-14 the Florida Senate on Wednesday passed a measure (SB 122) that addresses the abuse of post-loss AOBs for residential or commercial property insurance claims and limits one-way attorney's fees related to AOB agreements. The bill was a committee substitute for House Bill 7065, which passed the House on April 11.

The bill's provisions:

  • Define “assignment agreement” and establishing requirements for the execution, validity, and effect of such an agreement
  • Prohibit certain fees and altering policy provisions related to managed repairs in an assignment agreement
  • Transfer certain pre-lawsuit duties under the insurance contract to the assignee and shifting the burden to the assignee to prove that any failure to carry out such duties has not limited the insurer's ability to perform under the contract
  • Require each insurer to report specified data on claims paid in the prior year under assignment agreements by January 30, 2022, and each year thereafter
  • Allow an insurer to make available a policy prohibiting assignment, in whole or in part, under certain conditions
  • Revise the state's one-way attorney fee statute to incorporate an attorney fee structure in determining the fee amount awarded in suits by an assignee against an insurer
  • Require service providers to give an insurer and the consumer prior written notice of at least 10 business days before filing suit on a claim.

The Senate bill was sponsored by Senator Doug Broxson, chair of the Banking & Insurance Committee.

Florida Governor Ron DeSantis said Wednesday he would sign the bill, which would then become law on July 1, 2019.

Advocates of reform praised the passage of the bill, saying it was long overdue and will bring much needed relief to Florida homeowners.

Insurance Commissioner David Altmaier issued the following statement to Insurance Journal following the passage of the AOB reform bill.
“OIR's main focus is to work towards decreasing insurance costs for consumers living in Florida, while balancing the solvency needs of companies operating in Florida. The passage of HB 7065 is a significant step towards stemming the insurance product affordability and availability crisis that has grown from years of compounding AOB abuse.”

President of the Florida Association of Insurance Agents (FAIA) Jeff Grady said the passage of AOB reform is also a big win for insurance agents.

“This a long awaited day for Florida consumers and the industry as a whole. Agents have been impacted by AOB fraud resulting in poor loss ratios and cancellations of company appointments,” Grady said. “We are grateful for the leadership within both the legislature and the Florida cabinet to finally enact AOB reform and eliminate this fraud from our insurance marketplace.

Logan McFaddin, regional manager of the American Property Casualty Insurance Association, said its member companies are seeing AOB abuse happen every day to their policyholders and addressing this abuse is “vital to putting a stop to the number of AOB lawsuits filed in Florida, which are only growing steeper with each passing year and resulting in higher insurance costs.”

“This law will protect Florida home and business owners alike from bad actors who are taking advantage of them and our legal system just to put more money in their own pockets,” she said.

Consumers may see lower rates as a result of the legislation sooner rather than later. Citizens Property Insurance Corp. said in a statement Wednesday that its actuaries have estimated the reforms would reduce the statewide average rate need from 25.2 percent to 10.1 percent for homeowners policyholders. In South Florida, the epicenter of the AOB abuse, the average rate need would drop from 30.4 percent to 12.8 percent. Citizens said figures will change slightly as policy information and data are updated.

The Consumer Protection Coalition (CPC), an anti-AOB abuse group spearheaded by the Florida Chamber of Commerce that includes insurers, contractor groups and agent associations, said the changes to one-way attorney fees “should eliminate incentives for filing costly lawsuits.”

“Other provisions add commonsense protections for consumers, including allowing policyholders the right to rescind an AOB without penalties and requiring written estimates for work,” CPC said in a statement.

AOB reform for auto glass — another facet of AOB abuse that has been increasing in Florida — was included in a prior version of the Senate bill but was removed to match the House bill. The industry says it will continue to fight for this issue to be addressed as these lawsuits also continue to rise.

“While the CPC celebrates today's victory, it is disappointed auto glass provisions were not included in the bill and encourages lawmakers to address auto glass in future AOB reforms. Thousands of Floridians have unknowingly become the subject of litigation over their windshield replacement claims without their knowledge or consent. This practice must stop,” CPC said.

Liz Reynolds, National Association of Mutual Insurance Companies Regional Vice President, Southeast Region, echoed this sentiment.

“While it's upsetting that the final bill did not include auto glass AOB reform, we will not give up the fight for those important consumer protections in the next legislative session,” she said.

As happens frequently in Florida, the new law could be challenged in court, but Fred Karlinsky, co-chair of the Insurance Regulatory & Transactions Practice for the law firm Greenberg Traurig, P.A. in Fort Lauderdale and Tallahassee, said he believes it would hold up.

“The law is well-written and I believe it will withstand any potential challenges that are likely to come,” Karlinsky said. “This law, and what the industry hopes will be subsequent action by the Florida Legislature if needed, was overdue and necessary to curb the growth we have seen in the state regarding AOB fraud.”

Karlinsky said because laws apply prospectively, the bill is not likely to impact AOB suits that have already been filed but should stem future abuse.

“At the very least, I hope that the message being sent by this bill would give pause to some of the individuals and companies who have participated in AOB fraud that the tide is turning against them and that they should rethink their claims,” he added.

Not everyone, however, agrees the legislation is as necessary as the insurance industry claims. Florida Senator Gary Farmer, who opposed the bill, said on the Senate floor Wednesday the reforms treat contractors unfairly and that the industry hasn't proven that there is an AOB “crisis” in the state.

“This bill is designed to cure a crisis that has not been actuarially shown and does things that treat some vendors unfairly,” Farmer told his colleagues.