Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
On January 12, 2018, the Florida House of Representatives passed a bill (HB 7015) that would dramatically affect the way contractors and their lawyers use assignments of benefits (“AOBs”) in first-party property insurance claims and lawsuits. The biggest changes in the bill impact how AOBs must be written, new obligations on assignee contractors in the claim investigation process, limitations on when assignee contractors can file lawsuits, and how and when attorney fees are awarded (see all the details of the bill below).
The vote in favor of the bill was 82-20. The vote came during the first week of the legislative session. In order for the bill to become law, it still needs to be voted out by the Florida Senate and signed into law by Governor Rick Scott.
AOB reform faces an uncertain future in the Florida Senate. Last year, the Florida House of Representatives passed an AOB reform bill, but the Florida Senate did not act on it. This year, the Florida Senate is considering three AOB reform bills, but it is unclear if any will pass.
Despite its uncertain future, state leaders issued a press release immediately after the bill’s passage voicing strong support. Governor Rick Scott said, “I appreciate the Florida House for passing meaningful reforms that will help Florida families.” Attorney General Pam Bondi said “[a]s Attorney General, consumer protection is one of my top priorities, and I applaud the Office of Insurance Regulation’s efforts to protect policyholders. This legislation aims to protect homeowners who are simply trying to repair their homes after a disaster.” Insurance Commissioner David Altmaier said, “I am thankful for the support of the Cabinet, bill sponsors, and all House members who have been working hard to address AOB reform.” Chief Financial Officer Jimmy Patronis said, “House Bill 7015 is the multi-layered legislative approach our state needs to address the rapid climb in AOB water loss claims.”
The bill is opposed by the Florida Justice Association (FJA). That group represents approximately 3,000 trial attorneys. The bill is also opposed by the Florida Association of Restoration Specialists (FLARS). That group lobbies on behalf of independent contractors.
Here are the highlights of HB 7015 as reported by the Florida House of Representatives’ Staff Analysis.
The bill defines an “assignment agreement” and establishes requirements related to the execution, validity, and effect of such an agreement. Specifically, the bill requires an AOB to (1) be in writing; (2) include a seven-day period within which the insured may rescind the AOB; (3) include an estimate of services; (4) include a notice to the insurer upon execution of an AOB; and (5) include a notice to the insured regarding the legal implications of an AOB.
The bill prohibits an AOB from containing any fee related to administering or rescinding the AOB, such as a rescission penalty fee, a mortgage-processing fee, a cancellation fee, or an administrative fee. Additionally, the bill prohibits an AOB from altering any term or defense in the insurance policy relating to a managed repair arrangement.
The bill transfers duties under the insurance policy to the assignee contractor. If the assignee contractor does not fulfill the duties, the assignee contractor bears the burden to prove why such a failure did not limit the insurer’s ability to perform under the insurance policy. The duties are for the assignee contractor to (1) maintain and provide requested service records for copying; (2) cooperate in the investigation of a claim, and (3) deliver the AOB to the insurer as required.
The bill also transfers duties to the assignee contractor that must be performed before the assignee contractor can file a lawsuit against the insurer. If requested by the insurer, the assignee contractor must participate in (1) examinations under oath and recorded statements that are reasonably necessary; and (2) appraisal or other alternative dispute resolution processes in accordance with the terms of the insurance policy.
The bill requires the assignee contractor to provide the insured with revised statements regarding work to be performed as supplemental or additional repairs are required and to perform work in compliance with current industry standards. By entering into an AOB, the assignee contractor and its subcontractors waive any claim against the insured, including the right to claim a lien against the insured’s real property, for payment related to the services performed.
The bill requires an assignee contractor to give an insurer and the insured written notice 10 days before filing a lawsuit. The notice to sue may not be served before the insurer has made a determination of coverage. The notice must specify the damages in dispute, the amount claimed, the pre-suit settlement demand, and must include an itemized, detailed written invoice or estimate of the work performed or to be performed. If the work includes water remediation services, the invoice must include proof that the assignee contractor possesses a certification from an entity that requires repairs be performed according to a standard that is approved by ANCI. The insurer must respond in writing within the 10-day timeframe by making a settlement offer or requiring appraisal or other alternative dispute resolution.
The bill provides that, if the parties fail to settle and litigation results in a judgment, the bill’s provisions provide the exclusive means for either party to recover attorney fees. The bill allows an award of attorney fees based on how much the litigation improved recovery over the amount offered during settlement negotiations. To accomplish this, the bill defines the difference between the insurer’s pre-suit offer and the assignee contractor’s pre-suit demand as “the disputed amount.” Attorney fees are then awarded as follows. If the difference between the judgment and the insurer’s settlement offer is less than 25 percent of the disputed amount, then the insurer is entitled to attorney fees. If the difference between the judgment and the insurer’s settlement offer is at least 25 percent but less than 50 percent of the disputed amount, neither party is entitled to fees. If the difference between the judgment and the settlement offer is at least 50 percent of the disputed amount, the assignee contractor is entitled to attorney fees. Finally, the bill provides that, if the insurer fails to inspect the property or provide written or verbal authorization to begin repairs within seven calendar days of first notice of the loss, the insurer waives its right to attorney fees.
We at Butler have been at the forefront of advising insurers on how to manage and defend against the wave of AOB litigation that has hit Florida over the past seven years. We are encouraged by the speedy passage of HB 7015 this year, but we know the legislative process can be a challenge. The bill still has an uncertain future in the Florida Senate. Please contact Timothy Engelbrecht at 813-281-5805 or by email at email@example.com if you have any questions or are looking for ways to assist with the legislative effort to bring AOB reform to Florida.