Are You Being Scammed? — Assignment of Benefits in Property Losses
According to the Coalition Against Insurance Fraud, about $80 billion is stolen every year by unscrupulous companies supposedly acting in the best interests of U.S consumers during critical moments. Hurricane Michael passing across the Florida Panhandle is one of those critical moments.
A type of fraud that seems to be gaining momentum is the “Assignment of Benefits” (AOB). Assignment of Benefits refers to a situation in which a policyholder signs a legal form that allows a plumber, a roofer or a water-removal operation, for example, to deal directly with the policyholder’s insurance company. Sounds convenient and it seems to make sense; let the professionals deal with each other. Right?
More often than not, it is a scam.
“Maybe you’ve just made an emergency call to a water extraction firm after discovering a flood in your kitchen,” a supporting document by the Consumer Protection Coalition reads. “Or a salesperson knocks on your door and asks to inspect your roof, saying you likely have damage due to recent storms. Or a stranger in a repair truck pulls up alongside you in a shopping center parking lot, saying they noticed your car windshield is cracked and it can be replaced on the spot – for free. Scenarios like these play out across Florida every day, and the story is hauntingly familiar. The repair person pulls out a document and says they can fix everything, but first you need to sign here. They promise to work directly with your insurance company, and say you won’t have to worry about a thing. At that moment, alarm bells should go off in your head. If you sign, you could become the latest victim of “Assignment of Benefits” fraud and abuse. And it may prove very costly to you and your family.”
By signing an Assignment of Benefits form, a policyholder gives the third-party vendor outright power to control the claim. The vendor then can falsify the claim and make it larger and more costly in scope. That can leave the policyholder on the hook if the insurance company balks and does not pay the full amount that was fraudulently submitted. Worse, in some cases the vendor can sue the policyholder’s insurance company without the policyholder’s consent.
The bottom line – you lose control over the claim and the repair process involving your own property.
“An explosion of claims and lawsuits involving AOBs is driving up the cost of home and auto insurance across Florida and directly impacting the price you pay,” the Consumer Protection Coalition document reads. “AOB fraud and abuse is real, is growing rapidly – and is already taking money out of your pocket!”
How rampant is the ruse? The Florida Office of Insurance Regulation reports that in 2016, the latest year for which statistics are available, there were 28,000 cases confirmed compared to 400 cases in 2006.
“AOBs have been a part of Florida’s marketplace for more than 100 years,” according to the office. “Loopholes in the way it is being used in the marketplace are driving up costs for homeowners across the state due to unnecessary litigation associated with certain AOB claims. You may be party in a lawsuit against the insurance company if the third party and company are in dispute on the payment amount of the claim. You may be responsible for payment of additional costs if the insurance company does not pay the third party the full amount requested and a lien may be placed on your home if you fail to pay.”
Sadly, more victims of Assignment of Benefits forms are sure to result in the aftermath of the catastrophic storm. Residents whose homes suffered damages or who lost their homes altogether should not be taken advantage of, but that probably will occur one too many times.
“You are most likely to be offered an AOB when requesting emergency repairs or when companies go door-to-door soliciting business,” Citizens Property Insurance Corporation warns. “After a covered loss, your policy requires that you take reasonable emergency measures to protect your property from further damage. Emergency measures include only what is reasonable and necessary to secure your home and prevent further damage.”
Here are steps to avoid getting caught in the trap.
- Policyholders should be the first and only ones to contact their insurance companies when filing a claim.
- Even though a third-party vendor might say otherwise, policyholders do not have to sign an Assignment of Benefits form no matter how bad the damage.
- It is a best practice to photograph and / or take videos of damaged property for evidence and to not allow a vendor to start repairs until after an insurance adjustor has inspected the home as that could place coverage in jeopardy.
- The insured always should maintain control of the policies they purchased and paid for and continue to invest in for peace of mind. Criminals can take away that peace of mind with a single signature.
And, if all this is not enough, your policy of insurance contains various requirements you are to follow and with which you must comply. Failing to comply with those requirements can affect coverage under the policy. The person to whom you gave over control through an AOB only cares about getting paid and may negate your coverage by failing to comply with those policy requirements.