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Florida AOB crisis worsens as reform efforts struggle

Ted Bunker - 20 February 2018

Florida's assignment-of-benefits (AOB) crisis shows no sign of abating, and the one-way attorney fee rule often leaves insurers with little choice but to settle inflated claims without a fight, according to a study released today by a group advocating a reform of AOB laws.

The group, the Florida Justice Reform Institute, said in the report that lawsuits tied to an AOB, in which an insured hands a vendor the right to represent them before an insurer, rose for a third straight year and reached 129,781 in 2017.

Meanwhile, legislation to restrain the growth in AOB actions and to put new limits on attorney fees remain mired in the state Senate, where opponents have asked insurers to guarantee lower rates in exchange for the reforms. Rates on homeowner policies are projected to soar partly because of AOB lawsuits.

The institute's president, William Large, blamed one-way attorney fees for driving growth in AOB claims, particularly those that are relatively small.

Under Florida law, a lawyer can collect an hourly fee from working on an assigned claim that must be paid by the insurer when the claimant is successful, and that has created a powerful motivation for insurers to settle even questionable claims to avoid paying excessive legal costs, Large told The Insurance Insider.

Large provided as an example a property damage claim that a third-party vendor, armed with an AOB from the insured, submits for $14,000 when a claims database shows similar repairs should cost $5,000. If the insurer rejects what it sees as a grossly inflated claim, a lawsuit typically follows.

But Florida law also requires an insurer to pay the claimant's legal costs if it loses the case. As a result, even if the claimants only win a few hundred dollars more, the insurer can owe thousands of dollars to the plaintiff's lawyer, Large said.

"So no insurer is going to take the risk," he added, noting that in cases like the hypothetical one above, most carriers will settle without a fight.

"Unquestionably, the cause of the AOB explosion is the no-risk proposition of attorney's fees, enabled by Florida's one-way attorney fee law and court cases that have extended it past its pro-policyholder intent," the institute said in its report.

As it has in previous reports, the advocacy group found that a small number of law firms and lawyers are responsible for a disproportionate share of AOB claims: "About a dozen attorneys contribute to a quarter of all AOB litigation statewide."

"As long as the one-way attorney fee exists, attorneys will find ways to flood courts with litigation to access easy money and will be able to lure vendors into this scheme by promising 'no-risk' lawsuits," the institute said in the report.

"This is clearly evident from the many 'coaching materials' that are circulating on the internet and elsewhere encouraging vendors to sign up with law firms."

A 26-fold increase in AOB lawsuits over the past 10 years documented in the report, coupled with one-way attorney fees, amounts to a tax on everyone in Florida that is paid through higher insurance rates, Large said.

Indeed, the average price of a homeowner policy will surge 29 percent statewide by the start of 2022 unless AOB abuse is limited by reforms, the Florida Office of Insurance Regulation has estimated. In the Miami area alone, where AOB claims have been concentrated, the regulator has projected a 63 percent jump in rates. 

State officials have joined business leaders and insurers in pressing for reforms of rules on AOB and one-way lawyer fees, and legislation has passed in the state House of Representatives. But reform efforts have repeatedly stalled in the Senate.

Last month, the House passed HB 7015, which would impose restrictions on assignees - contractors and others who represent the insured under an AOB contract - and require those covered to be told about the legal implications they may face. It would also give insureds the chance to rescind an AOB within seven days of signing at no cost.

The bill also would get rid of one-way legal fees by imposing certain new rules on how attorney fees are determined in the event of a lawsuit.

The state Senate has not indicated whether it will take up HB 7015. But in considering a different bill that also seeks to address the AOB crisis, lawmakers on the chamber's Judiciary Committee earlier this month stripped out provisions that dealt with attorney fees.