Assignment Of Benefits Abuse Is Driving Up Insurance Costs In Florida

Florida’s assignment of benefits (AOB) crisis continues to spread statewide and has cost consumers billions of dollars in unnecessary litigation and inflated claim costs, according to an Insurance Information Institute (I.I.I.) study released today.

Source: I.I.I. | Published on December 13, 2018

An AOB is a document signed by either an auto or homeowners policyholder which allows a third party, such as an auto repair shop or a roofer, to seek direct payment from an insurer on a policyholder’s behalf. In Florida, a policyholder is permitted to sign an AOB document without notifying their insurer, or seeking the insurer’s consent. The process is further complicated when the third party, with a signed AOB document in hand, retains a plaintiff’s attorney to sue an insurer when the insurer disputes an inflated bill from the third party.

“We estimate Florida’s auto and homeowners policyholders have paid about $2.5 billion in insurer legal costs over the past dozen years, a troubling trend driven by plaintiff’s attorneys who are abusing Florida’s current AOB system,” said James Lynch, the I.I.I.’s chief actuary. “That doesn’t count the billions more in excess claim settlements that are at the heart of the problem.”

In the study, Lynch and Lucian McMahon, the I.I.I.’s senior research specialist, write that, “there were roughly 1,300 AOB lawsuits statewide in 2000. There were more than 79,000 in 2013, and nearly 135,000 through November 9, 2018, a 70 percent increase in just five years.”

As Florida’s insurers are hit with growing legal costs and paying inflated settlements, they are forced to pass these costs along to consumers, the people required to purchase auto and homeowners insurance. “Floridians are paying more for insurance than they otherwise should be—often much more,” the study states.

Moreover, Florida has what’s known as one-way attorney’s fees. This means a plaintiff’s attorney who sues an insurer, and loses, is under no obligation to pay the insurer’s legal fees. But an insurer must pay a plaintiff’s attorney’s fees in the event the plaintiff prevails. As such insurers will often settle lawsuits and pay slightly inflated AOB claims in Florida to minimize the insurer’s legal fees, the I.I.I. study notes.

The AOB system is most abused when it comes to three types of claims, the I.I.I.’s study reveals:

  • Auto Personal Injury Protection (PIP): A person injured in an auto accident signs an AOB form and gives it to a medical provider, who then either overbills the auto insurer or sues them, or both.
  • Auto Physical Damage: A person whose auto has a cracked windshield signs an AOB form and gives it to the repair specialist who is repairing the windshield. The repair specialist is now in a position to overbill the auto insurer and have their attorney sue if the insurer denies payment.
  • Homeowners: A homeowner discovers damage caused by a leaky pipe and then signs an AOB form and gives it to the contractor who is repairing the pipe. The contractor then either performs needless repairs or overbills the insurer. If the insurer contests the necessity of the repairs, or the size of the bill, the contractor’s attorney sues the homeowners insurer.

“The [Florida AOB] statute is meant to level the playing field between individual policyholders and economically powerful insurers. In practice it has incentivized plaintiff’s attorneys to file thousands of AOB lawsuits because there is no limit to legal fees that can be collected,” according to the I.I.I.’s study.