Rep. John Tobia says all he wants his bill to do is protect consumers like his 67-year-old dad from unscrupulous vendors and lawyers.
But CS/HB 669 -- alive and well after a 90-minute, standing-room-only hearing in the House Insurance and Banking Subcommittee -- is revealing what many believe is the follow-up to PIP and sinkholes as the next Great Florida Consumer Scam.
The Melbourne Beach Republican's bill attacks insurance-claims abuses in something called "assignment of benefits" (AOB). AOB is a legal process within insurance policies intended to make sure a vendor, or repairman, gets paid quickly after work is done -- for example, a contractor repairing home damage without requiring the policyholder to be involved in the payment process.
But in recent years, "unscrupulous" trial lawyers and contractors -- generally water remediation firms, roofing contractors and plumbers -- have come up with a new scheme involving AOBs and milking the system -- and it's perfectly legal. Hence, the need for legislation to stop it.
In this scheme, AOBs are being used to inflate claims and file costly lawsuits against insurers. For example, a homeowner has a small kitchen fire and calls the fire department. The department puts out the fire, but in the process sends hundreds of gallons of damaging water into two or three rooms of the house. A water remediation firm comes in, has the homeowner sign over -- or "assign" -- his rights to first insurance claim money.
"When policyholders, often unknowingly, 'assign' the benefits of their insurance policies to a shady trial attorney or contractor," says Michael Carlson, executive director of the Personal Insurance Federation of Florida, "they lose control of their claim and any litigation associated with it."
Carlson, who testified at Wednesday's hearing, told Sunshine State News later, "In the vast majority of these AOB lawsuits, the policyholder has already been made whole and had their home repaired and paid for by their insurer. Instead, their policy benefits wind up being used by trial lawyers and contractors to extract more money from insurers.
"This behavior is unnecessarily driving up the cost of insurance for all Florida consumers," Carlson said.
Every year since 2005 -- the last year a major hurricane struck Florida -- AOB lawsuits have been increasing in number.
Scott Johnson, former executive director of the Florida Association of Insurance Agents, posted a blog on his website under the headline "AOB ... an ugly iceberg." Here's what he said:
"Well, guess how many AOB lawsuits (for all lines) have been filed against insurers in just the last two years -- go ahead, guess! Would you believe 92,521. And get this. Back in 2005 and 2006 there were only 9,424 AOB lawsuits -- an explosion of nearly 1,000 percent!"
Johnson testified at a March 16 House workshop on AOBs.
During the workshop -- not so much at Wednesday's committee meeting -- trial lawyers and water remediators questioned whether AOBs were even a crisis. "Little was said about finding the root cause," Johnson explained. "They blamed a few bad apples; water extraction companies and roofers. And, of course, they blamed insurers, alleging they don't pay their bills."
How AOB abuse started and developed remains something of a mystery. Most observers speculate that a cottage industry of AOB fraud grew out of the glut of roofing contractors, water remediators, plumbers and similar contractors who set up shop immediately after Florida's worst hurricane year, 2004. Then, when the big storms stopped coming, they had to find another way to prosper. Many did so honestly.
One trial-lawyer firm, Cohen Battisti of Orlando, even launched a very attractive mentoring campaign -- advertising for contractors and vendors -- in effect recruiting them -- even putting out flyers and conducting a seminar. (See the attachment below for a presentation from the seminar.)
Rep. Tobia said another problem is that water remediators don't need a contractor's license. They are usually vendors, often charging contractors' fees.
Lisa Miller, CEO of Lisa Miller & Associates and representing Ohio-based financial analysts and actuarists Demotech, Inc., testified Wednesday that Florida's AOB practices are undermining the financial stability of insurance carries. She said no other state among 50 allows AOBs to be used "as a litigation for a profit scheme whereby service providers, contractors and public adjusters can usurp the insured's right to sue insurers and thereby exact payment for what appear to be inflated invoices for services and disproportionate legal fees."
Three bills have been filed this session to address the AOB abuse schemes. Besides Tobia's CS/HB 669, they are Senate Bill 1064 filed by Dorothy Hukill; and Senate Bill 1210 filed by Alan Hays. Sponsors say these bill would --
- Give insurers the option of selling home and auto insurance policies that prevent unscrupulous trial lawyers or contractors from obtaining a consumers policy benefits after an insured loss had occurred.
- Prevent trial lawyers from using one-way attorney fees in cases in which they are representing vendors -- not the policyholders themselves -- in AOB lawsuits.
These bills are all works in progress and should be studied individually. The Senate bills get a look next week.
Reach Nancy Smith at nsmith@sunshinestatenews.com or at 228-282-2423. Twitter: @NancyLBSmith
