An article appeared in the Wall Street Journal yesterday in which it was reported that assigning insurance claim benefits to contractors in Florida has caused significant homeowner insurance premium increases. This has become quite prevalent. A homeowner suffers damage which is covered by insurance, such as hurricane damage. When they seek to have the repairs done the contractor insists on the homeowner assigning their insurance claim benefits to them. Then the payment is made directly to the contractor rather than the homeowner and the homeowner has nothing more to say about the handling of the insurance claim.
If the contractor takes the position the insurance company should pay more than is offered then the contractor can retain legal counsel and file suit. If the insurance carrier isn’t successful in obtaining full payment from the insurance carrier then the homeowner is often left having to pay the difference. Homeowners in New Smyrna Beach and Sanford were mentioned in the article.
Lawsuits Based on Assignment of Benefits
It’s not really surprising that when the party who is going to get paid for the work is in charge of how much they’ll seek in payment from the insurance carrier that they might, from time to time, be a little ambitious. This is why there were 28,000 lawsuits based on assignments of benefits filed last year when only 406 were filed in 2006. There have been 20,000 filed just through July of this year. Imagine what the Irma claims will ultimately do to that number. In turn, this is why the homeowner insurance premiums have gone up significantly.
Why an Assignment of Benefits to a Contractor is a Bad Idea
If it’s not already obvious it is a bad idea to make an assignment of benefits to a contractor. That’s like having the fox guard the henhouse. Great deal for the contractor but not so great for the homeowner. The best position for the homeowner is to control the claim, and negotiate the terms of the necessary repairs with the contractor accordingly. This way the homeowner can at least attempt to find someone who will do the work for what the insurance carrier will pay, or who will come closest, while still being sufficiently well qualified. If a contractor won’t agree to this then I suggest you keep looking for one who will. And if the insurance company is unreasonable the homeowner can retain legal counsel of their choosing to file suit and protect their interests.
Do You Have to Use Your Insurance Company's Contractor?
Ultimately the choice is yours. You aren’t required to use the contractor your insurance company has chosen. Just ensure you do your research about the contracter you end up choosing.
Working with Public Adjusters
I’ve written previously on public adjusters and how they can be problematic. In certain circumstances public adjusters can be helpful, however, generally, a homeowner is better off dealing with their insurance carrier directly at the outset and seeing what they will do. If the claim is extensive, or complex, then perhaps additional assistance might be necessary. But, again, a public adjuster may not be the best answer. An attorney may be a better option. At least an attorney can file suit, if warranted, to try and force an insurance carrier to be reasonable. Most of the time, frankly, the insurance carriers are reasonable given the terms of the policies.
I bring up public adjusters because contractors will often suggest to homeowners that they ought to engage a public adjuster. Similarly, the public adjusters frequently work with certain lawyers, and law firms, which handle insurance claims and try to steer homeowners to them. There is nothing inherently wrong with any of this. It just becomes a problem when claims are not handled in the best interests of the homeowners (or business owners, when it comes to general commercial liability policies).
Because homeowners, and business owners, are not familiar with the insurance claim process, and are feeling somewhat anxious, at best, after suffering damage, they are susceptible to taking what may seem to be the quickest, and easiest, way to a solution. However, in the wrong hands they may only be making their situation worse. It can be a challenge, and a little disconcerting, but insureds are better off keeping control over their insurance claims, or seeking the advice of competent legal counsel for assistance, as opposed to turning over control to contractors, public adjusters, and others, whose interests are not necessarily well aligned with theirs.
While our focus at Snell Legal is business law and commercial litigation, we are willing to provide guidance to homeowners with insurance claims so that they are not unwittingly exploited.