Hurricane Irma Dredged Up AOB Issues in Florida: Are Changes Ahead?

By Karthik Ramanathan, Ph.D., and Brendan Flaherty


In 2017, Hurricane Irma marked the end of Florida’s 12-year major hurricane drought and started another kind of storm—impacting assignment of benefits (AOB) and what the future may hold now that new legislation has instituted strict criteria regarding assignment agreements.

After causing severe damage to several Caribbean islands, Irma struck the Florida Keys as a Category 4 hurricane. Landfall and wind shear disrupted Irma’s structure before its final landfall on Florida’s west coast. The storm’s outsized kinetic energy was translated to a vastly expanded wind field, reaching so far that it caused onshore winds all the way up to Jacksonville. The resulting storm surge effectively dammed the St. Johns River, causing severe flooding in the city. Irma’s wind field deformed into an unusual shape that was more oblong than circular, yielding an asymmetrical wind field that presented challenges in capturing it in real time.

In the areas of lower sustained winds where property values are high, such as the tri-county region of Florida encompassing Miami-Dade, Broward, and Palm Beach Counties, another issue developed: Damage to roof shingles and other components of the building envelope could be subtle and difficult for the homeowner to view, let alone assess. (This type of damage stands in stark contrast to the destruction of homes and businesses in the vicinity of Hurricane Michael’s landfall in the Florida Panhandle in 2018.) After Irma, contractors approached homeowners in affected areas and offered to assess the damage; when minor damage was found, homeowners were asked to sign over their insurance benefits, allowing the contractor to handle all financial dealings directly to enact repairs. Given that disputing the assessment could prove costlier than simply paying the assessed cost of repairs, many insurers paid out these claims. This was because, if a litigated claim was resolved in favor of the contractor, the insurer was responsible for the fees of both the homeowner’s lawyer and its own.

Additional costs to insurers accrued in cases in which the covered damage to homes had been initially assessed by insurer-assigned contractors who were later contradicted by contractors going door to door. The result has been an increase in claim costs and a long lag time for claims, or “insurance creep,” as disputed cases make their way through the courts, incurring additional litigation costs and loss adjustment expenses. Even in cases where an insurance company settles or even wins the dispute, the one-way attorney fee structure associated with AOB litigation generally still leads to extra expenses for the insurer.

According to the Insurance Information Institute (I.I.I.), abuse of AOB lawsuits has been a growing concern in Florida, with claims jumping 70 percent from 2003 to 2018. How much has AOB affected claims from Irma? Analysis of claims data that AIR Worldwide sourced from its client companies together with data from Xactware (both Verisk businesses) reveals claim inflation of about 10 to 20 percent in the tri-county region of Florida.

What does the future hold?

During the major hurricane drought in Florida, AOB issues may have seemed less urgent. But given the drastic increase in claims and instances of repair cost inflation after Irma hit, lawmakers acted expediently, getting a law signed by Florida’s governor on May 23, 2019, that changed the one-way attorney fee structure.

As of July 1, 2019, the law requires the assignee to provide prior written notice to the named insured, insurer, and the assignor (if not the named insured) of at least ten business days before submitting a lawsuit on a claim. It also curtails the window of claim submissions after hurricane landfall, with clearer requirements and further provisions to allow the homeowner to rescind the AOB, along with several other provisions.

The new legislation institutes strict criteria regarding assignment agreements, providing additional protections to assignors. Now the assignment agreement must contain:

  • a provision allowing the assignor (the insured) to rescind the agreement, without penalty or fee, under certain scenarios
  • a provision requiring the assignee (the contractor) to furnish a copy of the executed agreement to the insurer within three business days after the date on which the agreement is executed or the date on which work begins, whichever is earlier
  • an itemized, per-unit cost estimate of the assignee’s intended services
  • a provision protecting the assignor from all liabilities, damages, losses, and costs should the policy (subject to the assignment agreement) prohibit the assignment of benefits

The agreement also serves as a waiver of claims against the assignor by the assignee for payment, including a prohibition against placing a lien against the assignor’s property or seeking relief against the assignor in court.

In addition to protecting Florida policyholders, AOB reform is intended to shield insurers and the Florida judicial system from unnecessary litigation.* In recent years, lawsuits from assignees seeking claim payments for inflated work estimates have skyrocketed. This is the result of Florida’s insurance marketplace, where assignees faced  little risk from submitting an inflated claim and filing suit for payment because the one-way attorney fee provision seldom required them to pay attorney fees. However, this environment is set to change with the AOB reform.

Under the provisions of the new law, assignees must provide the named insured, the insurer, and the assignor (if different than the insured) with prior written notice of intent to initiate litigation of at least ten business days and only after the insurer has made a determination of coverage. The notification needs to contain sufficient information about the  damages in dispute, amount claimed and  a pre-suit settlement demand. Upon receipt, an insurer must respond in writing within ten business days, making a pre-suit settlement offer that requires the assignee to participate in an appraisal or offer another method of alternative dispute resolution.

Under the new law, should the payment dispute proceed to  judgment, the pre-suit settlement demand and offer play a pivotal role in deterring frivolous lawsuits. If the difference between the adjudicated award and the pre-suit settlement offer is less than 25 percent of the disputed amount (the difference between the pre-suit settlement demand and offer), then the insurer is entitled to reasonable attorney fees at the expense of the assignee. If the difference is greater than or equal to 25 percent but less than 50 percent of the disputed amount, then neither party is awarded attorney fees. If the difference is at least 50 percent of the disputed amount, the assignee is entitled to reasonable attorney fees at the expense of the insurer.

Therefore, under the new AOB structure, it behooves assignees to price their work estimates reasonably or risk incurring costly litigation fees. Lawmakers ultimately hope this will ease the burden on insurers, which, in turn, could result in less drastic increases in premiums borne by policyholders. Only time will tell, but Floridians are watching intently.

*Excludes AOB for auto glass claims because provisions regarding attorney fees could not be reached.


Karthik Ramanathan, Ph.D., is assistant vice president and principal engineer at AIR Worldwide, a Verisk business.


Brendan Flaherty is senior risk consultant at AIR Worldwide.

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