In December of last year, my colleague Ashley Harris discussed Security First Insurance Co. v. Florida Office of Insurance Regulation,1 where the Florida Fifth District Court of Appeal (Fifth DCA) upheld the Office of Insurance Regulation (“OIR”) prohibition of proposed language in an insurance policy that would require “all insureds, all additional insureds and all mortgagees” named on a policy to consent to any post-loss assignment of benefits (“AOBs”) to a third party.

In upholding the prohibition on such language, the Fifth DCA cited to a decision from the Fourth DCA, One Call Property Services. Inc. v. Security First Insurance Company,2 that discussed the competing public policy concerns regarding AOBs:

Turning to the practical implications of this case [which involved an assignment of a claim in the face of a provision barring the assignment of a policy], we note that this issue boils down to two competing policy considerations. One the one side, the insurance industry argues that assignments of benefits allow contractors to unilaterally set the value of a claim and demand payment for fraudulent or inflated invoices. On the other side, contractors argue that assignments of benefits allow homeowners to hire contractors for emergency repairs immediately after a loss, particularly in situations where the homeowners cannot afford to pay the contractors up front.

For more on the One Call case, see our blog post, “Assignment of Benefits,” from July 1, 2015.

Ultimately, the Fifth DCA deferred such public policy arguments to the legislature,3 but upheld the Hearing Officer’s Order (adopted by the OIR Commissioner) that upheld the OIR’s decision to disapprove of the provision finding he had correctly interpreted the law on the subject. For instance, the Hearing Officer explained that “a restriction on the right of a policyholder to freely assign his or her post-loss benefits is prohibited under Florida law” and “the incorporation of such a restriction [requiring all insureds and mortgagees to consent] on an assignment of post loss rights in an insurance policy would be misleading for policyholders.” [which would contravene Fla. Stat. 627.411 (e)].

However, just this past week in Restoration 1 of Port St. Lucie a/a/o John and Liza Squitieri v. Ark Royal Insurance Company, Case No. 4D17-1113 (Fla. 4th DCA Sept. 5, 2018), the Fourth DCA changed lanes on this issue and affirmed dismissal of an assignee’s case where there was an identical assignment provision involved, “no assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all insureds, all additional insureds and all mortgagee(s) named in this policy.”

The underlying facts in this case were that policyholders John and Liza Squitieri (the insureds) took out a policy with Ark Royal. The policy contained the above-referenced assignment provision. The insureds suffered a water loss and had Restoration 1 of Port St. Lucie to perform clean-up services. Ms. Squiteiri signed an assignment of benefits to Restoration 1, but neither the mortgagee or her husband ever executed the assignment.

Ark Royal would not pay the full $20,305.74 that Restoration 1 claimed was due and owing for the work, which ultimately resulted in Restoration 1 suing Ark Royal for the remaining damages in a Count for Breach of Contract, and in a Count for Declaratory Judgment alleging that the provision in the policy limiting the AOB was illegal. Ark Royal then moved to dismiss the complaint alleging that the assignment was invalid under Ark Royal’s insurance contract with its insureds. Although Restoration 1 filed a response and a cross-motion for summary judgment, the trial court dismissed the case and Restoration 1 appealed the dismissal.

In affirming the dismissal, the Fourth DCA disagreed with the Fifth District’s opinion in Security First, finding that its reliance on West Florida Grocery, v. Teutonia Fire Insurance Company, 77 So.209 (Fla. 1917) is overbroad, and that really, West Florida Grocery only stands for the proposition there need not be “insurer consent” when there is a post loss AOB.4

In disagreeing with its sister Court, the Fourth DCA ultimately held:

“We affirm the trial court’s dismissal of the complaint and declaratory judgment action and hold that the language of the assignment of benefits provision in the instant insurance contract is enforceable. The central reasoning and holding of West Florida Grocery does not extend to the facts of this case. To the extent that the Fifth District in Security First has expanded upon West Florida Grocery, we certify conflict. Finally, with respect to the public policy concerns of both parties, they are best addressed by the legislature, not the Courts.”

This is a relatively narrow ruling that does not invalidate assignments. If upheld however, it may limit insureds’ assignment rights, particularly regarding having to obtain a mortgagee’s signature.

Let’s use Mrs. Squitieri as an example of the foreseeable issues associated with needing to obtain the mortgagee’s signature on an assignment:

Mrs. Squitieri has water intrusion at her home. She, not the mortgagee, has her “boots on the ground” dealing with the loss first-hand. She must act quickly so the water intrusion does not get worse, cause mold issues, and do even more serious damage to her home. She calls Restoration 1, but does not have an extra $20,000.00+ sitting on her dining room table to pay Restoration 1 right when they come out and perform their dry-out services. She is also not sure what the insurance company will cover at this point. As such, Mrs. Squitieri enters into an AOB with Restoration 1 as a practical solution. This way, Restoration 1 can go back and get reimbursed from Ark Royal, the Squitieris’ home is dried out and they have mitigated their damages (preventing them from getting worse) as required under their policy. Now imagine adding the step of obtaining the mortgagee’s signature into the mix? At minimum, the insureds will generally be required to submit several pieces of paperwork regarding the claim, such as the claim determination letter and the claim adjuster’s summary. In a scenario like the Squitieris, the mortgage company will also want to review Restoration 1’s estimate and/or bid and then may have to go up the chain to approve it. Then they would have to figure out who actually has the authority to sign it on behalf of the mortgagee. The point is, it’s hardly ever a process that can be performed overnight, and when emergency repairs are needed, that’s a serious concern for insureds and their families.

In addition to Florida case law in favor of AOBs, perhaps many of these practical considerations were behind the OIR and the Fifth DCA’s decision to bar such language from Security First’s policies.

We will keep you posted on the status of this case as it is not final until the time for rehearing has expired. If that happens, we may then see the issue come before the Florida Supreme Court due to what will then be conflicting opinions from the Fourth and Fifth DCAs on this issue.
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1 Security First Ins. Co. v. Florida Office of Ins. Regulation, 232 So.3d 1157 (Fla. 5th DCA 2017).
2 One Call Property Services v. Security First Ins. Co., 165 So.3d 749, 753 (Fla. 4th DCA 2015).
3 Although there was legislation proposed on the AOB issue in 2017 and 2018 (Senate Bill 62), it apparently died while before the banking and insurance committee.
4 The Fourth DCA also makes a distinction between the West Florida Grocery case –where the point was made that once the AOB is post loss, “insurer consent” becomes “superfluous” as the insurer will still have to cover the loss at that point, while in this case, mortgagees and other insureds do have a vested interest in what happens to the property post loss. On the other hand, there is also an indication the West Florida Grocery court believed that partial payment by the insurance company gave “tacit consent” to the assignment. Could this mean that if an insurer makes a partial payment even in the face of an otherwise invalid assignment there could be a waiver argument? In addition, in West Florida Grocery, the assignment containing “insurer consent” was a standard blank form attached to the policy that the assignor had filled out, rather than a separate AOB document or a provision in the policy itself.

  • Jim Johnson

    From the few AOB’s that I have reviewed, it appears that the contractor’s who use them tend to greatly over charge for what it actually takes to do the mitigation or repairs!