Homeowners Guide to Assignment of Benefits

What is Assignment of Benefits? Learn what you need to know and avoid the pitfalls of signing the wrong documents.

          

 

It’s a scene that has been portrayed countless times in movies and on television. A desperate individual in a rush, usually due to an emergency or stressful circumstance, is persuaded into signing a document by the promise of a quick fix to their problem. As the story unfolds, the individual is shocked as the unforeseen consequences of the hastily signed document come to pass. This enduring Hollywood plotline has become a harsh reality for numerous Florida home insurance customers who have signed a document that includes Assignment of Benefits (AOB) language following a household emergency. To prevent becoming the next unwitting star of an AOB drama, please learn how you can protect yourself and your family.

 

How Assignment of Benefits Starts

Following a pipe leak or other household accident, your first instinct might be to call the proper contractor to help you get your home back to normal – fast! The contractor is ready to start working, but before he begins repairs he asks you to sign some “standard documentation.” He might say something like “I can’t begin working until these documents are signed.” He might even offer to help relieve you of the “burden” or “headache” associated with dealing with your home insurance company. Wanting to resolve the problem as quickly as possible, you sign the paperwork, unaware that it’s an assignment of benefits document or a contract that includes an assignment of benefits clause.

 

Important fact: You should always call your Florida homeowners insurance company first to ensure that your loss is properly documented and maintain control of the process.

What Does Assignment of Benefits Mean?

So what exactly did you just agree to? By assigning your benefits (claims proceeds) to your contractor, you’ve just signed over all rights to your claim. The contractor is now in total control of reporting the amount of loss to your insurance company and negotiating the payment. You, the homeowner, are no longer in control of your insurance claim.

The Issue

Now that your contractor is in control, he can bill your insurance company for work he hasn’t done, overcharge your insurer, or simply take your proceeds and never even begin working on your home. Either way, you can on the hook to pay for your contractor’s scams.

The Consequences

If the inflated bill exceeds what is covered by your homeowners insurance policy, you’re on the hook to pay the difference. The contractor could place a lien on the home, and contractor liens in Florida can be enforced by foreclosure. This type of fraud, while extremely costly to individual homeowners who’ve fallen victim to the scam, affects all Florida homeowners. Fraud is currently one of the primary drivers in home insurance premium costs. AOB fraud is far from a victimless crime!

 

Good to know: Although AOB scams are often associated with water extraction claims, unscrupulous roofing contractors are a growing source of AOB fraud.

How to Prevent Yourself From Becoming a Victim

• Following water damage or a home emergency, the first call should be to your homeowner’s insurance company. They can refer a licensed, experienced and reputable contractor. This will also help expedite your claims process.

 

• Never partner with a contractor who requires you to sign an assignment of benefits document.

• Ask the contractor for proof of liability insurance.

 

• Never sign a document you don’t fully understand. When in doubt, call your homeowners insurance company for help.

 

• In the event of a family member’s home emergency, make sure to tell them not to sign anything that requires them to assign their benefits to a contractor.

 

                                     Contact us for all your Insurance needs! (321)725-1620

Bob Lancaster Insurance

Serving Florida since 1964

Adjusting Homeowners’ Claims in the Sharing Economy

Would you rent your home to a total stranger? This may seem like a daunting prospect at first, but internet companies like Airbnb, HomeAway and VBRO have helped millions of people to do just that. Reassured by social media tools that allow users to rate and review their transactions and recommend service providers to their friends, many property owners have been quick to benefit from collaborative consumption.

The “sharing economy” has developed from a low key local phenomenon into a highly lucrative business model. However, this has raised some interesting issues for carriers and their adjusters.

The Legal Position

In New York, the Attorney General has been cracking down on hosts renting multiple units that are in effect illegal hotels. Residents of most New York apartments are prohibited from renting out their properties in their absence for less than thirty days, and building management companies have issued warnings that subletting may breach the terms of tenancy and risk the security of all residents.
Authorities in San Francisco recently introduced legislation to lift the ban on rentals of less than thirty days, with some important restrictions. The rental must be of the owner’s permanent home (their residence for at least 275 days in the preceding year); the rental terms cannot exceed ninety days in any given year. Also, the property owner must obtain a business license and permit. Each listing must hold at least $500,000 in liability insurance and city hotel taxes must be paid for all rentals.

Clearly when advising a client on a potential rental or investigating a claim for damages, it is prudent to check the legal position in their area, and ensure that they have met any administrative requirements.

Service Providers Offer Limited Coverage

It is also worth closely inspecting any protection offered by the service connecting the property owner with the tenant. For example Airbnb has a “host guarantee” which does offer significant cover, but is no real replacement for a wide ranging insurance policy. HomeAway offers damage protection insurance up to $5,000 for an additional fee.

Property owners must also understand what damage is covered by any such guarantee. They should also know if the service provider can be trusted to live up to their promises.

In one case, a New York property owner returned home to find that her seemingly harmless tenant had thrown a wild party and trashed her apartment. Initially, Airbnb was not helpful, and the homeowner’s basic insurance did not cover the damage. However, when Airbnb was threatened with bad publicity the company decided that their host guarantee was applicable and they agreed to pay for the damages.

Typically, these kinds of service providers do not offer any cover for a liability and only limited cover for damage to property. If the service provider will not offer any relief, the homeowner will turn to their insurance carrier. But does the business exclusion on a standard policy apply to home sharing? Typically, no.

Business Insurance may be Appropriate

Many insurance companies will agree to extend the homeowner’s coverage to the renter for a single occasion as long as they are notified in advance. However, if the property is to be rented out on a more regular basis, the property owner would be best advised to purchase business insurance, such as a hotel or bed and breakfast policy for short term rentals or a landlord policy for longer term rental.

Business insurance will not only provide protection against damage to the structure and contents of your client’s home, but will generally include liability coverage in case the tenant (or one of their guests) is injured on the property. Without this cover the property owner may find themselves facing costly legal fees and medical expenses. Policies may also include cover for loss of rental income while repairs are being effected, which is very reassuring if owners have mortgage payments to cover from the rental income.

How Big is the Risk?

While it is certainly the case that home sharing increases the risks of property damage or the incurring of liability for injury, carriers and adjusters should take care not to overestimate the risks.
Airbnb claims that since their inception they have not encountered any liability claim or judgment in excess of $10,000. HomeAway (which has been in business since 2005) purports not to have encountered any serious judgments or claims. Furthermore, insurance for rental properties is not new and policies covering vacation properties are already common to most carriers.

Contact us for all your Insurance needs! (321)725-1620

Bob Lancaster Insurance

Serving Florida since 1964

Does a "Duties after Loss" provision Obligate the Insured to Produce Documents to the Insurer Unsolicited?

When a loss occurs, policyholders must always be mindful of their property insurance policy’s section titled “Duties after Loss.” A policyholder is required to perform specific duties after a loss and failure to meet the obligations may jeopardize a claim.

In a recent case before Florida’s Second District Court of Appeal, an insurer argued that a policyholder was precluded from recovery of damages because they withheld an expert report until after they commenced a lawsuit and this was a breach of the requirement in the policy’s Duties after Loss section. In Herrera v. Tower Hill Preferred Insurance Company,¹ the insureds submitted a claim to their insurer, Tower Hill for damages resulting from a sinkhole at their home. Tower Hill retained an expert who concluded that a sinkhole was not the cause of damage to the home. Tower Hill told the insureds that they could participate in neutral evaluation. They also advised the insured that if they demanded additional testing, Tower Hill would continue its investigation subject to a reservation of rights pending a determination of sinkhole activity.

The insured did not notify Tower Hill of any objection to the insurer’s expert report, and did not demand neutral evaluation or additional testing. In the meantime, the insured retained its own expert to review Tower Hill’s expert’s report, to perform testing and to investigate further the damage to their home. The insured’s expert concluded that sinkhole activity caused the damage to the home. The insured commenced a lawsuit for breach of contract against Tower Hill. In opposition to Tower Hill’s motion for summary judgment, the insured attached their expert’s report as an exhibit, which Tower Hill had never seen before. Tower Hill alleged that the insured breached the following policy provision:

SECTIONS I AND II- CONDITIONS

* * * *
2. Concealment or Fraud.
a. Under Section I - Property Coverages, with respect to all “insureds” covered under this policy, we provide no coverage for loss under Section I - Property Coverages if, whether before or after a loss, one or more “insureds” have:
(1) Intentionally concealed or misrepresented any material fact or circumstance . . . .

The trial court granted Tower Hill’s motion for summary judgment and held that the insured’s failure to disclosed their expert’s report to Tower Hill before filing the lawsuit constituted a concealment precluding coverage. On appeal, the Second District reversed the trial court’s ruling and held that the policy did not require the insured to provide the report to Tower Hill “unless they had the report at the time of the claim but before insurer denied it” and that the “Duties After Loss” provision of the policy required the insureds to respond to requests but it did not obligate the insureds to produce documents to Tower Hill unsolicited.

Contact us for all your Insurance needs! (321)725-1620

Bob Lancaster Insurance

Serving Florida since 1964

They covered what? You'll never believe these 11 home insurance reimbursement stories

Home insurance coverage doesn't end at the structure itself. Furniture, rugs, clothes ... everything within the home is covered as well.

And that's where things get interesting.

When it comes to homeowners insurance claims, it's rarely a straightforward case of covered or not covered. Insurers often have to make judgement calls on reimbursements when faced with wildly unique situations.

   

Insure.com recently gathered some of the more incredible homeowners insurance claims stories. Check out their top 10 below.

 

1. Eaten jewelry

 

"Although animals are typically excluded from coverage, I had a case where a dog allegedly ate a piece of jewelry and the insurance company wanted to buy the dog at an unbelievably high price. The insurance company claimed a right to salvage of the jewelry in the dog. This is typical to some property, like a car, if they pay for the value of the car," says Chip Merlin, president of Merlin Law Group in Tampa, Fla.

“After the owner refused, the insurance company continued in its claim that the dog with jewelry in it was salvage and demanded the dog be turned over. I don't know for certain what they were planning to do with the dog, but the insurer quickly backed down after a phone call from me. They paid for the lost jewelry, which may or may not have been sitting in the poor dog's stomach."

2. A relocated wedding

"Under the ‘loss of use’ coverage, an insured was supposed to have a wedding in their back yard for their daughter but because of a fire, they had to move it to a hotel. We ended up claiming the increased cost for having it at a hotel," recalls Diane M. Swerling, principal at Swerling Milton Winnick Public Insurance Adjusters Inc. in Wellesley Hills, Mass.

3. Interior designer fees

"Consumers might not know that they can ask for decorator fees, which are covered if the insured did use a decorator before,” says Dick Burr, director of claims at Young Adjustment Co. in Philadelphia. ”This can be quite a big expense that will be incurred again once repairs have been made, so we have requested reimbursement for interior design fees several times."

4. Beanie Babies

"People have asked for just about anything,” says Burr. “At one time, someone asked for $30,000 worth of Beanie Babies. We collected; however, today's new policies restrict that. We now have to deal with hoarders. That is another world when you walk in and there is nowhere to walk."

5. A dump truck

"We once got a full-size construction grade dump truck covered under personal property because it was not registered for the road and the person legitimately used it to move firewood to and from his wood-burning stove,” says Greg Raab, manager at Adjusters International in Utica, N.Y. “Per policy language, it was covered, just like ATVs or lawn mowers that are used for property maintenance would be."

6. Spoiled wine

Ron Reitz, a public insurance adjuster and president of Quality Claims Management Corp. in San Diego, recalls, "We had an interesting wine loss. The wine was heated to an approximate temperature of 85 degrees for a period of 10 days after a backup and overflow of a sewage pipe caused flooding and other damage.” The repair crew used heat to speed up the drying process.

“Of course the effect of heat on wine is not good. We had a challenging time convincing the insurer of the magnitude of the loss since we were essentially arguing the value was gone because the wine could not be sold in a secondary market and it was prematurely aged, but in the end, the client did get reimbursed."

7. Imported olive oil

"Expensive cooking ingredients such as imported olive oil are covered at full value, as long as the homeowner is not running a business out of the home (i.e. catering, etc.). So if you're shopping at Whole Foods, we recommend that you keep your receipts,” says Raab.

8. Pairs or sets


Losing one item in a pair or set doesn’t mean you have to live with a mismatched set.
"If one of a pair gets damaged, then both have to be replaced. I've seen this used to claim custom-made lanterns, antique candlesticks, etc.,” says Reitz. “I had a client who had some beautiful lighting on the walkway of their house. The lanterns were original and hard to replace, but one of them was damaged in a storm. Well, you can't just go out and buy one more, so the insurance company had to pay to replace both of them.”

9. Bug-repelling basement

"Years ago a client had a house fire at their 500-acre horse farm. He had pesticide stored in the basement before the fire. After the fire, I noticed that swarms of flies would come in to the basement and die almost immediately,” recalls Ronald Papa of National Fire Adjustment Co. in Amherst, N.Y. “We had experts from Cornell University examine the site. Although the shelf life of this chemical was only supposed to be six weeks, it turned out that when it was heated by the fire and it dissolved into the concrete, it remained potent for months. This was also toxic to humans. As a result, the house had to be demolished and rebuilt from the basement up."

10. Marijuana

"Our client thought of himself as a green thumb and took to growing marijuana plants in his attic. One day, the lamps got too hot, caught fire and took the whole home with them,” says Raizner. “The illegal plants were discovered after the blaze and the insurance company refused to pay for damages. Our client was charged in the incident but was able to plead the case down to a misdemeanor. The insurance policy [excluded] coverage for damage that resulted from the commission of a felony, so while they were a bit irked, the insurance company agreed to pay and the case was settled."

11. Security

"Security service for your damaged home is covered under building coverage,” says Burr. “These services can help keep out looters who may steal items and cause further damage to the property. The insurance company usually pays for this so it can be very beneficial to use these services."

                                        Contact us for all your Insurance needs! (321)725-1620

Bob Lancaster Insurance

Serving Florida since 1964

          

Homeowners' Claims: Water Back-Up, Overflow, or Discharge?

Water back-up is one of the more confusing coverages in homeowners’ policy. It involves more than back-up, as overflow is mentioned in some of the coverages. But what is a back-up, and how is it different from an overflow or a discharge? All these things come in to play when there is a water loss, and what causes the back-up or overflow may make a difference in whether or not there is coverage.

First let’s look at definitions. A back-up is an accumulation caused by a stoppage in the flow; something prevents the water from continuing down its path, so it is forced to reverse direction and go back the other way. A collapsed drain pipe can cause a back-up; water can no longer proceed down its normal course and is forced to change direction. A blockage can cause a back-up; the blockage prevents the water from going forward, and the water has to reverse itself.

An overflow is when the water exceeds its boundaries; the space is filled to capacity and water then spreads beyond its limits. A tub left running creates an overflow. The tub can no longer hold the water running into it, so the water overflows onto the floor and surrounding area.

A discharge is a flowing or issuing out; water coming from a pipe. A leaking pipe discharges water from the hole in the pipe; it is not a back-up or an overflow, it is simply water issuing from a pipe at the wrong spot.

Discharge or Overflow?
The ISO HO 00 03 provides coverage for water damage that is the result of a discharge or overflow of a plumbing, heating, air conditioning, or household appliance if it is on the residence premises. This covers pipes that leak behind walls, floors, or ceilings; washing machines and dishwashers that overflow, toilets that overflow, or storm drains off premises that overflow due to high rains or floods.

It is important to note that a sump, sump pump or related equipment, or a roof drain, gutter or downspout or similar equipment is not considered a plumbing system or household appliance. A discharge or overflow caused by a storm drain, water, steam, or sewer pipe  is covered as well if it is off the premises.

The coverage is for repair of the damaged property—the walls, floors, tiling, and carpet, areas that got saturated and need to be repaired or replaced. Even the tear out of a wall, for example, to get to a leaking pipe is covered. What is not covered is the leaking pipe itself; a pipe leak is often caused by simple wear and tear or age of the system, and that is a maintenance item. However, even if the insured is hanging a picture and pokes a hole in a brand new home and new pipes, the damage to the pipe is not covered. The exclusion for damage to the item causing the loss is all encompassing, and has no exceptions.

The policy specifically excludes water that overflows from sumps, sump pumps, or related equipment or water that backs-up through sewers or drains. However this is where a lot of losses occur; sump pumps may fail or be unable to handle the flow of water during a severe storm or flood, and sewers or drains may back-up due to a stoppage in the flow. Overflows are excluded for sumps because that is a common cause of loss; the sump cannot handle the volume of water it receives. For example, if the drain backs up and overflows because of heavy rainstorms, that is not covered under the policy.

To provide coverage for this occurrence there is the Water Back-up and Sump Discharge or Overflow endorsement, HO 04 95. This provides $5,000 of coverage for back up through a sewer or drain or overflow or discharge of a sump, sump pump or related equipment, even if the equipment suffers a mechanical breakdown. For example, the sump pump motor burns out and the basement floods; there is $5,000 of coverage for that damage. The coverage is for water or waterborne material, so coverage is provided for damage caused by items floating in the water. This coverage does not, however, increase the limits of liability for coverages A, B, C, or D in the homeowners’ policy. This takes the problem of defining back-up or overflow out of the equation of certain losses, since the endorsement provides the coverage that is excluded in the main policy itself.

Water, whether it be from pipes, sewers, sumps, or floods, is one of the bigger issues in homeowners policies. There is a lot of confusion surrounding what is and is not covered. Once you consider the definition of the terms, you are on your way to understanding the coverage. As always, policy language rules the day.

Contact us for all your Insurance needs! (321)725-1620

Bob Lancaster Insurance

Serving Florida since 1964