Florida Passes Industry-Backed AOB Reform Bill

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

The insurance industry and consumer 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 passed a measure (SB 122) on April 24 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 shift 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 he would sign the bill, which would then become law on July 1, 2019.

“The exponential growth in AOB abuse has contributed to mounting insurance costs for Floridians for far too long,” said DeSantis.

DeSantis had not signed the bill as of press time.

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

“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 [this bill] is a significant step towards stemming the insurance product affordability and availability crisis that has grown from years of compounding AOB abuse,” said Insurance Commissioner David Altmaier.

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.”

Consumers may see lower rates as a result of the legislation sooner rather than later. Citizens Property Insurance Corp. said in a statement 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.

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 [Consumer Protection Coalition] 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,” the CPC, an advocacy group, said.

Not everyone, however, agreed the legislation was as necessary as the insurance industry claimed. Florida Senator Gary Farmer, who opposed the bill, said on the Senate floor 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.