There has been a development with HO claims in Florida, a location that often affects national trends. The development has been the use of assignment of benefits on a post-loss basis. The typical situation involves water losses. Initially, a homeowner may suffer a loss involving a failure of part of a home’s plumbing system. A plumber is called in to address the failure; however there will also be significant damage to the property and contents that will need cleaning and restoration service. This is the point of concern.
Increasingly, the vendor handling the clean-up process may require the homeowner to sign a service agreement. Included in the agreement is a provision where the homeowner assigns the payment benefit for the clean-up and restoration to the vendor. Once the vendor completes its service, it presents a bill to the insurance company. It is, typically, at that point where the insurer first becomes aware of the completed work and the benefit assignment. This is an unwanted development since, not being aware of nor having granted approval of the agreement, the insurer has lost its chance to investigate a claim as well as to have any control over the costs associated with handling the claim.
It is unclear whether an insurer can claim a distinct right that it has a chance to approve such assignments. Standard policy wording includes a provision that a policy may not be assigned without the insurer’s approval, but there’s no specific mention of benefits. There is a difference since assigning a policy means that the total interests and policy rights have been transferred to a different party. The benefits assignment involves rights of payment for a given loss being transferred. So far, courts have not been consistent in interpreting and resolving the issue.
Homeowners suffering losses who are presented with service contracts should review them carefully and immediately contact their carrier before agreeing to any form of assignment. The action will allow the insurer to evaluate the loss situation in a manner that preserves its options and rights. It will also mitigate the chances of a denial or of a coverage dispute between the insurance company and a policyholder.