Understanding Assignment of Benefits and Hurricane Recovery

There are a number of reports out there warning property owners to be cautious of the Assignment of Benefits agreement they may be offered after filing a claim for hurricane damage. Reports claim consumers could be substantially overcharged if they sign the AOB with an unsavory contractor or restorer. Once consent is provided, these agreements allow a third party to make policy decisions directly with the insurer, without the homeowner’s involvement.

What’s the AOB?

The AOB can make the claims process much more convenient, but it can also expose homeowners to significant consequences if the agreement falls into the wrong hands. AOBs have been used for years in various health and life insurance policies. With homeowner insurance claims, restoration companies and contractors are the most likely to be used. Once the agreement is signed, a third party would have the authority to file a claim and get paid directly from the insurer.

Power of the AOB

Once the AOB is signed, it becomes a legally binding agreement. There is no right of recession associated with the AOB agreement. When damage does occur, homeowners should not let any third party or remediation professional to contact the insurer on your behalf. The policyholder should always be the one to make the first contact with the insurer. It’s worth noting that you don’t have to sign an AOB agreement in order to get the residence repaired or a claim processed.

The AOB agreement signs over the rights and benefits of the policy to a third party. The agreement also means that the insurer may only communicate directly to the third party, and will no longer communicate with the policyholder about the claim. The policyholder loses all rights to make decisions on repairs, the right to mediate the claim and all other rights to the claim. With some AOB agreements, the third party will have the power to endorse checks on the behalf of the policyholder.

AOB Issues to be Aware of

After the AOB has been signed, the third party has the authority to file suit against the insurer with or without the knowledge of the policyholder. Failure to comply with the conditions and terms of the AOB can subject the policyholder to penalties, financial fees and property liens. Anytime you get ready to sign an AOB, make sure you read over the entire document carefully first. It’s important policyholders understand which rights and benefit they could potentially be signing away.

Policyholders have no right to cancel the AOB agreement once it’s been executed. With the third parties in control, the fees and costs can be artificially inflated without the policyholder’s consent. When insurance companies calculate their rates, these inflated costs are passed on to policyholders. In some areas of Southeast Florida, property insurance rates has increased by double-digits as a result of some questionable AOB agreements.

The AOB agreement is designed to make the claims process more convenient for the policyholder, but it can be problematic if managed recklessly or by someone with ill intent. Before committing to any AOB, policyholders need to ensure the do an appropriate amount of due diligence and read the agreement in its entirety.