Insurance Coverage and Bad Faith

Insurers Take Note: Florida’s New Assignment of Benefits Law

Insurers Take Note: Florida’s New Assignment of Benefits Law

The Florida Legislature passed House Bill 7065 (“HB 7065” or the “Act”), which takes effect today, July 1, 2019, as Section 627.7152, Florida Statutes. The Act regulates post-loss assignment of benefits (“AOB”) contracts entered into for services to protect, repair, remediate, restore, or replace property under a residential property insurance policy or commercial property insurance policy.  Provided below are key provisions of the Act of which insurers must be aware in order to protect their rights as well as ensure compliance with the Act. 

Valid AOB

The Act sets forth certain presuit procedures that must be met before a lawsuit may be brought by the assignee. The first hurdle the assignee must overcome is ensuring the AOB is valid.   To be valid, the AOB must be in writing and contain provisions including (1) a rescission notice[1], (2) a production provision[2], (3) a disclosure provision[3], and (4) an indemnity provision[4]. Second, the AOB must be accompanied by an itemized estimate. Third, the AOB must be for services within the scope of the Act.[5] Finally, the AOB may not include items such as (1) a check/mortgage processing fee, (2) a rescission/cancellation fee, or (3) an administrative fee. If the AOB does not comply with the above, it is presumably invalid and unenforceable as a matter of law.

Emergency Services

If an insured-assignor acts under an urgent or emergency circumstance[6] and executes an AOB, the AOB is limited to the greater of $3,000 or 1% of the Coverage A limit. This provision of the Act is unique insomuch as it appears to make an effort to write into every policy a limit for emergency circumstance, whether one exists or not. It is also important to note that the Act judges whether a given situation is an “urgent or emergency circumstance” from the perspective of the insured-assignor, not the assignee. Thus, whether a given situation is an “urgent or emergency circumstance” could garner much debate.   

Policy Conditions as a Condition Precedent to Suit

Prior to the Act, assignees (as opposed to the insured) were not necessarily required to adhere to certain policy conditions within the insured’s policy. Now, the Act makes clear that the assignee must adhere to certain policy conditions prior to bringing suit. For instance, if requested, the assignee must (1) submit to examinations under oath, (2) submit to recorded statements, and/or (3) participate in appraisal or other alternative dispute resolution. These conditions can be useful tools to obtain information and/or resolve a dispute without incurring unnecessary litigation costs.

Burden Shifting

The Act requires the assignee to: (1) maintain records, (2) cooperate with the insurer, (3) provide requested documents, and/or (4) produce the AOB contract within three business days after its execution or work has begun.[7] If an assignee fails to comply with any of the above, the Act presumes prejudice to the insurer, and shifts the burden to the assignee to prove no prejudice to the insurer. The Act also provides the assignee with several duties, such as (1) a duty to provide up-to-date repair estimate to the insurer, (2) a duty to perform all work in accordance with industry standards and provide proof of same, and (3) a duty not to seek payment from the insured exceeding the insured’s deductible.

Notice of Intent To Initiate Litigation

This provision of the Act is especially important. The failure to comply with its requirements may strip the assignee and/or the insurance company of their right to recover their attorney fees under a different provision of this Act. First, the assignee must serve[8] the insurer with a notice of intent to litigate at least ten (10) business days before suit is filed. However, the notice may not be served until the insurer has made a coverage determination. The notice must include: (1) the damages in dispute, (2) the amount claimed, and (3) a “presuit settlement demand”[9]. The assignee must also provide the insured with a detailed invoice or estimate.

After notice is properly served, the insurer must,within ten (10) business days, respond by either: (1) making a “presuit settlement offer”[10] or (2) invoking appraisal or other alternative dispute resolution procedures under the policy. The insurer must also develop a procedure to investigate, review, and evaluate the dispute outlined in the notice of intent. Lastly, the insurer must promptly inspect the property or submit written or oral authorization for repairs within seven (7) calendar days.[11]

This stage in the claims process is critical, and the insurer has a limited number of days to respond. It should be noted that a letter acknowledging the assignee’s presuit notice or simply rejecting the presuit settlement demand may not suffice under the Act. Furthermore, the Act is silent with respect to the penalties associated with an insurer’s failure to respond to the notice. 

Although the Act is silent, failure to timely respond could be deemed waiver of the right to invoke appraisal and/or waiver of the insurer’s right to provide a settlement offer recognized by the Act. Such a waiver would have significant residual effects where the “disputed amount”[12] of the claim is used to determine the right to attorneys fees after a “judgment obtained”[13]. If the insurer has effectively offered $0.00 (due to waiver), the assignee is put in a significantly better position to recover attorneys fees after judgment. Thus, it is imperative that the insurer respond timely and, assuming appraisal is not invoked, provide the most accurate settlement figure so as to increase its chances of recovering its attorney’s fees after judgment, or at least avoid paying attorneys fees. 

Attorney Fees

The Act provides a fee shifting provision that allows either side (or no one) to recover attorneys fees. The formula is based on the “disputed amount”, where if “judgment obtained” is less than 25 percent of the disputed amount, the insurer may recover attorneys fees. If judgment is 25-49 percent of the disputed amount, neither party may recover its attorney’s fees. If judgment is at least 50 percent of the disputed amount, the assignee may recover its attorney’s fees. It is worth noting that an appraisal award would not implicate this provision because it would have been invoked during the presuit notice period (or potentially waived). The definition of “judgment obtained” is “damages recovered, if any.” The definition is necessarily broad and presumably implicates any instance where a judgment is had (dismissal, summary judgment, or verdict). Because the Act is scattered with presuit conditions and requirements that must be met, there are numerous opportunities that could increase an insurer’s chances of recovering attorneys fees. This provision will be a driving factor in all aspects of AOB litigation moving forward.

Good for Insurers

In summary, due to the numerous presuit conditions and requirements that must be met before suit may be filed, and the potential $3,000 or 1% cap, the Act affords great opportunities to avoid or defend against AOB litigation. From a litigation standpoint, the Act puts insurers in a much more favorable position than before its passage. The crucial provision of the Act is the presuit notice period, where the insurer must “respond” within 10 business days. This period may have great implications for the insurer’s ability to avoid litigation and/or recover its attorneys fees in the event of litigation.

[1] A provision that allows the assignor to rescind the assignment agreement without a penalty within certain time periods.

[2] The assignee must provide the AOB contract to the insurer within 3 business days after execution or the date on which work begins, whichever is earlier.

[3] An 18-point uppercase notice explaining to the insured the consequences of executing the AOB agreement.

[4] A provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees, should the policy prohibit, in whole or in part, the AOB.

[5] The AOB must be for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.

[6] An “urgent or emergency circumstance” means a situation in which a loss to property, if not addressed immediately, will result in additional damage until measures are completed to prevent such damage.

[7] “In a claim arising under an assignment agreement, an assignee has the burden to demonstrate that the insurer is not prejudiced by the assignee’s failure to:”

[8] Notice must be served by certified mail, return receipt requested, or electronic delivery.

[9] “Presuit settlement demand” means the demand made by the assignee in the written notice of intent to initiate litigation.

[10] “Presuit settlement offer” means the offer made by the insurer in its written response to the notice of intent to initiate litigation.

[11] Failure to inspect the property or authorize the repairs results in a waiver of the insurer’s right to an award of attorney fees.

[12] “Disputed amount” means the difference between the assignee’s presuit settlement demand and the insurer’s presuit settlement offer.

[13] “Judgment obtained” means damages recovered, if any, but does not include any amount awarded for attorney fees, costs, or interest.