How an “Assignment of Benefits” Agreement Could Cost You Your Rights During Home Repair
Beware the Home Repair Contract Clause that Takes Away a Homeowner’s Rights
You come in the front door after a long day at work, slip off your shoes, and make your way to the kitchen to start dinner when you step into a puddle of water. In fact, you discover a small lake has formed. Water has flowed from a busted water heater onto the hardwood floors of your kitchen, soaked the hallway carpet, and ruined that pile of clothes you were going to toss in the washing machine before bed.
After you grab every towel in the house and call your spouse, what do you do next?
There are two possible scenarios. Choosing the right one can lead to your ultimate customer satisfaction. Choosing the wrong route could cost the loss of your rights as a consumer, not to mention thousands of dollars.
Choice #1
For many people, the next step is to call a plumber. Sure, he can fix the water heater, but as he’s assessing the problem, he tells you that all the water needs to be cleaned up before the dreaded “mold” sets in. He knows just the water mitigation company for the job. They will even work with your insurance company to save you the headache and take care of the mess before it causes any further damage. So far so good. “All you have to do” is sign their contract so they can get to work.
Choice #2
After mumbling a few choice words, you immediately call your homeowners insurance company or your insurance agent. You are then referred to a trustworthy and licensed vendor who assesses the damage, supplies a written estimate of the costs, and provides expert service for a fair market price. The damage is soon just a bad memory, and the koi pond in your backyard goes back to being your home’s only water feature.
The hidden risk of signing an assignment of benefits contract for home repair
Remember that contract the water mitigation company required you to sign? What you might not have noticed is the Assignment of Benefits (AOB) clause, which may even have been located on the back of the contract. This clause allows the company to collect payment directly from your insurance company. There are certainly vendors who deal fairly and ethically with consumers and offer dependable services like water mitigation or roof repair, for instance. But homeowners insurance companies are seeing a huge increase in other companies using the AOB to charge astronomically higher repair costs than required. Security First Insurance has seen the use of such AOBs skyrocket, and averages one AOB-related lawsuit a day or approximately 350 AOB-related claims per year. On average, a claim containing an AOB costs $3,500 – $7,500 more than a claim without assignment of benefits.
What happens when a dishonest vendor uses AOB to take advantage of an unsuspecting customer? First, you lose the right to determine how your home is cleaned up and repaired. If you are dissatisfied with how the claim is being handled and you call your insurance company, only then will you get the bad news: Your insurance company can’t discuss the claim because the vendor has notified them that you have signed away your right to it.
At worst, a lien could be placed on your home; and at best, the damage is fixed, but if anything goes wrong with the repairs, you have no recourse with the contractor. In the long run, you still pay more, because the abuse of AOBs costs roughly $50 million a year, an increase in costs that is passed directly to consumers in the form of higher homeowners insurance premiums.
Why you should call your insurance company first
When using a vendor referred to you by your insurance company, you have the peace of mind that the work will be accomplished and the vendor will only require you to sign a work authorization form, not an AOB contract.
Security First Insurance has a list of preferred contractors that have been carefully evaluated. Florida contractors in the preferred contractor network have agreed to respond to customer needs within two hours from the time you call. They have valid licenses and a proven track record of providing professional and courteous service. They will not require you to sign forms that include assignment of benefits language, and you retain your rights to manage the claim.
So who is helping protect consumers from AOB scams?
Although AOBs are not inherently bad things, sometimes policies that are meant to protect us can be used to the benefit of unscrupulous companies. In an upcoming post, I’ll discuss why companies are getting away with this practice and what is being done to protect consumers.
