Partnering to Protect Homeowners from AOB Scams

Education is the first step in protecting the rights of homeowners

When her washing machine supply line failed, Hillsborough county Florida homeowner “Jane Doe” called a plumber right away. The plumber referred her to a water mitigation company.

That would make sense to many homeowners. Except for one small detail that ended up doing more damage than a broken line…

The water mitigation company required the homeowner to sign an agreement that included an Assignment of Benefits (AOB) clause before it started the repairs. The company then began replacing walls, tearing up baseboards, and installing new carpet. While this work should have cost about $4,200, the water mitigation company sent a bill to the insurance company for more than $20,000.

In my last AOB post, “How an Assignment of Benefits Agreement Could Cost You Your Rights During Home Repair,” I talked about the sometimes “hidden” home repair contract clause called an Assignment of Benefits that can potentially take away a Florida homeowner’s rights. Obviously, that’s the last thing someone needs after a loss.

In a nutshell, the technically legal AOB clause assigns rights of the homeowner’s insurance policy to a third party, such as a water mitigation company for example, and allows that company to collect payment directly from the insurance company. Sadly, homeowners insurance companies are seeing a huge increase in contractors using the AOB contract clause to charge astronomically higher repair costs than required. On average, a water claim containing an AOB costs $7,500 more than a claim without assignment of benefits.

That proved even more true for Jane. In addition to the inflated water mitigation repair cost, the company hired a mold company that sent a $1,600 bill to the insurance company for work it never even did.

The potential ripple effect of signing an Assignment of Benefits

Even though Jane’s insurance company made timely, appropriate payments on the claim, the water mitigation company filed suit for its inflated invoices. Due to litigation, the claim remained open for more than a year. During that time, the insurance company received a panicked phone call from Jane. She was three days away from closing on the sale of her home when she discovered that the new owners could not get insurance on the home because the water loss claim was still open.

By signing away her rights to the claim, Jane was unaware of the situation and unable to take action while the water and mold company acted purportedly “on her behalf.” When homeowners sign an AOB form, the contractors now represent the homeowner, and the insurance company can no longer speak with the homeowner in detail about the claim.

Unfortunately, more and more real-life stories like this are being written every day. They are stories about real people, often our own policyholders, who suffer far more than water or other damage to their homes. Security First Insurance has seen the use of AOBs skyrocket, and averages one AOB-related lawsuit a day or approximately 250 AOB-related suits per year.

The issue of contractors using an AOB agreement to obtain rights to a claim extends far beyond the associated policy and property. Like Jane, “John Doe,” a homeowner in Lakeland, FL experienced a similar ripple effect from an AOB scam. John noticed a leak in his ceiling, and discovered it was coming from a malfunctioning A/C unit. To clean up his home and repair the water damage, John contacted a water mitigation and mold company. Before beginning any work on the home, the companies required John to sign an AOB agreement.

It wasn’t long before the water and mold companies submitted heavily inflated invoices and sued John’s insurance company. Months later, John attempted to purchase a separate policy for rental property from an entirely different insurance company, but he was denied coverage due to the open claim on the other policy.

Why do we care, and what are we doing to educate customers?

If a homeowner decides to call an outside vendor to repair damage before calling the insurance company or agent–the first thing a homeowner should do–what difference does it make to the insurance company? The insurance company could simply pass the legal expense and other costs incurred by AOB scams onto customers.

But doing that would prevent companies like Security First Insurance from delivering on a commitment to putting customer satisfaction first. We look at it this way: Nothing is more important than offering the best services to our customers. That means raising awareness of the potential for AOB scams and educating consumers about the first—and best—steps to take when their homes are damaged.

In another instance, multiple areas in the home of one 84-year-old woman from Sanford, FL were damaged when the pipes backed up. Understandably, this homeowner was upset and sought the quickest fix. But one AOB later and this unsuspecting homeowner lost her rights to the claim settlement check, incurred $5,000 above the actual cost in repairs, and now lives with the damage and a potential lawsuit.

It doesn’t matter that the insurance company paid what it was responsible for paying. By not first contacting her insurance company or agent, she unwittingly opened the door to dishonest contractors.

Check out our home advisory for the important steps to take before calling a contractor to repair damage to your home.

So if these scams are so prevalent, who is working to stop them?

In addition to other concerned groups and consumer advocates, Security First Insurance has been fighting on behalf of its policy holders, and in 2013, requested the Florida Office of Insurance Regulation (OIR) to allow the use of new policy language that would reduce abusive practices. That initial request and the appeals filed by Security First Insurance have all been denied.

A change to our company’s insurance policy language would create greater protection against the misuse of the AOB agreement—one of Florida’s worst issues of homeowner’s insurance fraud. The fact that the legal system is upholding the AOB for now is precluding Security First Insurance from offering some of its customers the best possible experience.

We care because insureds get harmed, and the additional costs do not benefit the policyholder. In addition to ensuring ultimate customer satisfaction, we care because this is an industry-wide problem that basically holds homeowners for “ransom.” And simply paying the ransom doesn’t solve this ever-growing problem.