Additional Protections for Contractors Who Receive an Assignment of Benefits Bruce E. Loren, Esq. and Michael G. St. Jacques, Esq. | Nov 07 2018

After a hurricane, Florida homeowners in need of repairs often execute an “assignment of benefits” in favor of their contractor, hoping to have their property repaired without any out of pocket cost (except for the deductible) and without the hassle of dealing with their insurance company. An “assignment of benefits” to a contractor is a very popular method to accomplish that goal, but the contractor should be aware of pitfalls and best practices to ensure it gets paid.

What is an Assignment of Benefits?

An Assignment of Benefits or “AOB” is a contract between a contractor and an owner under which the owner assigns or gives all of its rights to payment under the owner’s insurance policy to a contractor. The Consumer Protection Division of Florida’s Department of Financial Services provides homeowners the following explanation:

An AOB is an agreement that, once signed, transfers the insurance claims rights or benefits of your insurance policy to a third party. An AOB gives the third-party authority to file a claim, make repair decisions and collect insurance payments without your involvement.

The benefit of an AOB to owners is that they do not have to pay substantial monies out of pocket after a storm when cash might be tight, and it expedites the process of repair by allowing the contractor to deal directly with the insurance company.

When considering the likelihood of payment, it is important to understand that insurance companies and some state agencies do not look favorably on AOBs. Insurers sometimes challenge AOBs and refuse to pay claiming that the contractor over-charged for repairs and the AOB was prohibited under the insurance policy. Despite the ongoing friction between contractors and the insurance industry, numerous Florida courts have held that post-loss AOBs that assign the right to payment are permissible, despite language requiring consent of the insurer in the insurance policy. Florida courts have further held that an endorsement to the insurance policy that would prohibit post-loss AOBs was unenforceable. In other words, owners can freely sign an AOB without regard to a policy provision to the contrary.

Potential Problems for the Contractor

  • The joint check from the insurance company. Often, insurance companies issue a joint check in the name of the owner and the contractor, which prevents the contractor from receiving payment if a homeowner refuses to endorse the joint check. At minimum, the joint check provides an unscrupulous or bankrupt homeowner leverage to renegotiate the same right to payment that the homeowner already assigned to the contractor in the AOB.

To provide some protection, the AOB should include the following: “Any payments made directly to homeowner for the work performed by contractor (including any joint check), is not the property of the homeowner and the homeowner holds that money in trust for the contractor. Upon any receipt of monies from the insurance company, homeowner agrees to endorse over and/or pay those monies to contractor immediately.”

  • Include language in the AOB that the owner is fully responsible to pay certain charges. For example: “Owner agrees that he/she/it will pay to contractor any deductibles, betterment or additional work requested by owner or otherwise not covered by insurance.”
  • The contractor can record a lien against the property if the owner refuses to sign the joint check or fails to pay any other monies due to contractor.
  • The Contractor should not state, verbally or in writing, that it will negotiate the claim with the insurance company. The contractor cannot do so unless it is acting solely as a licensed public adjuster.

Assignment of Benefits has become very popular for contractors. Like everything else, problems may arise with payment. Be sure to follow these best practices and consult with an experienced construction lawyer if you have any questions or concerns.

Bruce Loren, Esq. and Michael St. Jacques, Esq. of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale, Florida, and devote their practices to construction law. Both Mr. Loren and Mr. St. Jacques have achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Florida Bar’s recognition of this expertise. The firm’s construction clients include owners/developers, general contractors, specialty contractors in every trade, suppliers and professional architects and engineers. Mr. Loren and Mr. St. Jacques can be reached at bloren@lorenkeanlaw.com and mstjacques@lorenkeanlaw.com or by phone at 561-615-5701.