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October 18, 2016

This newsletter is a publication of Southern Loss Association, Inc., P.O. Box 421564, Atlanta, GA 30342. All rights reserved. 

In the summer of 2016, SLA published an article titled “Assignment of Benefit Litigation in Florida.” The article was an introduction to the topic of assignments of benefits (“AOB”) in Florida and how they are being used in insurance claims and litigation. Many readers asked for a follow up article that would provide some additional information and analysis on certain AOB topics. This article will spotlight four of those topics and give the reader some additional information and analysis on each of them.

Has Florida law always allowed AOBs?

Florida law has allowed an insured to assign her right to receive post-loss insurance benefits at least as far back as 1917. In the case of W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 210-11 (Fla. 1917), the Florida Supreme Court held that an insured can assign post-loss insurance benefits even without first obtaining the consent of the insurer. The Florida Supreme Court reaffirmed the holding of Teutonia again in 1998 in the case of Lexington Ins. Co. v. Simkins Indus., Inc., 704 So. 2d 1384, 1386 n. 3. (Fla. 1998) by stating that “an insured may assign insurance proceeds to a third party after a loss, even without the consent of the insurer.” In 2015, Florida’s First District Court of Appeals cited Teutonia and Simkins in the case of Sec. First Ins. Co. v. State, Office of Ins. Regulation, 177 So. 3d 627, 628 (Fla. 1st DCA 2015). There, the First District Court of Appeals stated “we find an unbroken string of Florida cases over the past century holding that policyholders have the right to assign such [post-loss] claims without insurer consent.”

Does an insurance policy’s “assignment” clause prevent an AOB?

Many residential and commercial insurance policies contain an “assignment” clause. The clause often states something to the effect of “Assignment of this policy will not be valid unless we [the insurer] give our written consent.” This clause has been interpreted to mean that an insured cannot assign the entire insurance policy to another without the consent of the insurer. See Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 185 So. 3d 638, 641 (Fla. 2d DCA 2016). The purpose of the “assignment” clause is to protect the insurer against the insurance policy being assigned to cover property or individuals that the insurer did not agree to insure when it underwrote and issued the insurance policy.

However, a number of recent decisions make it clear that that same “assignment” clause does not prevent, bar, or invalidate a post-loss AOB. In One Call Prop. Servs. Inc. v. Sec. First Ins. Co., 165 So. 3d 749, 752 (Fla. 4th DCA 2015), Florida’s Fourth District Court of Appeals held that “[e]ven when an insurance policy contains a provision barring assignment of the policy, an insured may assign a post-loss claim.” Presumably, the rationale for this holding is that an assignment of post-loss insurance proceeds does not change the nature of the risk that the insurer agreed to insure when it underwrote and issued the insurance policy. The AOB only changes who the insurer has to pay now that the loss has occurred.

If an insured executes an AOB, can the insured still make a claim or sue to obtain insurance proceeds?

The Florida Supreme Court holds that once an assignment is made, the assignor no longer has a right to enforce the interest because the assignee has obtained all rights to the thing assigned. See Continental Cas. Co. v. Ryan Inc. E., 974 So. 2d 368, 376 (Fla. 2008). That means that, if an insured assigns her insurance proceeds to her contractor in return for the contractor’s work, the insured no longer has a right to seek those insurance proceeds from her insurer or sue the insurer for the proceeds that were assigned to the contractor. Florida’s Fifth District Court of Appeals has stated that only the insured or the contractor (not both) can own the ability to sue the insurer at any one time, and the one that owns the rights must bring the lawsuit if one is to be brought. Oglesby v. State Farm Mut. Auto. Ins. Co., 781 So. 2d 469, 470 (Fla. 5th DCA 2001).

However, oftentimes a contractor will only request that the insured assign a portion of insurance rights to the contractor sufficient to allow the contractor to get paid for his work from the insurer. In those situations, the contractor is not requiring the insured to assign all the insurance rights under the insurance policy for the loss to the contractor. A common example of this occurs in pipe break losses. The insured often hires a water extraction contractor to dry the house. The water extraction contractor requests the insured execute an AOB so the contractor can seek payment for his services from the insurer for the water extraction work. However, the AOB is limited to only the water extraction work, so the insured retains the rights under the insurance policy to seek payment from the insurer for the damages caused by the water.

So, to recap, if an insured assigns rights to a contractor, the insured cannot seek payment from the insurer for those assigned rights. However, if the insured only executes a limited AOB, the insured retains whatever rights were not assigned. Problems arise, though, when an AOB is unclear or is ambiguous as to what rights were assigned and what rights were retained.

Has an AOB ever been declared invalid?

Yes. The case of One Call Prop. Servs., Inc. v. St. Johns Ins. Co., Inc., 183 So. 3d 364 (Table) (Fla. 4th DCA 2016) involves a rare situation where the trial court invalidated an AOB and the appellate court affirmed. The insureds’ house was damaged by water. The insureds hired a contractor to extract the water. The insureds were husband and wife. The husband executed an AOB purporting to assign insurance rights to the contractor for the work the contractor did. The wife did not execute the AOB. Also, notably, the insureds’ house was their homestead. Homestead property enjoys certain legal protections in Florida.

The contractor presented the AOB to the insurer and demanded payment. The insurer refused to pay, and the contractor sued the insurer. The insurer moved for entry of final summary judgment in its favor arguing that the AOB was invalid.           

The insurer made three arguments in support of its position. First, the insurer argued that insurance proceeds covering the insureds’ homestead property are constitutionally protected in Florida to the same extent as the property itself, and a homeowner cannot be divested of those proceeds through an unsecured agreement, like an AOB. Second, the insurer argued that the AOB was invalid because the wife did not sign it. Third, the insurer argued that this particular AOB amounted to an impermissible public adjusting contract, and was thus invalid.

The trial court entered final summary judgment in favor of the insurer, and the appellate court affirmed. However, the appellate court only issued a one word opinion that stated “affirmed.” The appellate court did not explain why it affirmed the trial court. As such, this decision is not binding precedent on other courts, and this decision does not give any guidance as to which of the arguments presented by the insurer was the one that caused the appellate court to affirm.

While it is only speculation, it is possible that the appellate court rested its affirmance on the fact that the wife did not sign the AOB. In Florida, married people own property, including contract rights like an insurance policy, by a tenancy by the entirety. “The essential characteristic of a tenancy by the entirety … is that each spouse owns the whole of the estate, not an undivided share, moiety, or divisible part.” Newman v. Shore, 206 So. 2d 279, 280 (Fla. 3d DCA 1968). “Neither spouse may convey individually or forfeit any part of the estate so as to defeat the right of survivorship.” Id. It is well established in Florida “that an estate by entirety cannot be alienated by the act of either spouse alone.” Id. at 281.

Because of this, the appellate court may have concluded that, since the wife did not sign the AOB, and since married people cannot alienate their property (including insurance rights) without the consent of both married people, the AOB could not assign any rights without the signatures of both the husband and the wife. Because the wife did not sign, the appellate court may have concluded the AOB was invalid.