The flood of assignment of benefits (AOB) lawsuits in Florida has become so significant that insurance firms have been forced to jack up premium prices just to keep their heads above the figurative water, according to reports.
AOB involves a policyholder signing over their insurance benefits to contractors and lawyers who then sue the insurance company, allegedly charging high attorney fees in the process.
However, abuses abound because of a loophole in state law, which holds the insurer liable to pay for the complainant’s attorney fees if the final payout is at least $1 more than the original damage assessment.
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Florida’s chief financial officer Jeff Atwater said that there were 28,200 AOB suits filed in 2016 compared with 405 cases a decade ago. This is an almost 7,000% increase over the said period.
The Florida Office of Insurance Regulation, led by Commissioner David Altamaier, has also done the math on the effects of this hyper legal activity in relation to AOBs on homeowners’ insurance. The regulator has launched a website outlining the direct financial impact of these lawyers’ fees on premium costs. For instance, the owner of a new $150,000 home in the Miami-Dade County area will have to fork over $2,732.95 in annual premiums this year, and $3,011.71 next year, translating to a 10% increase. This is triple the upper limit estimate of the average US homeowners’ insurance by the Federal Reserve Bureau, which is $1,000.
In a bid to alleviate the situation, the state’s Lower House passed a measure aimed at rationalizing the payment of attorney fees in AOB lawsuits.
Republicans James Grant and Rene Plasencia were able to convince their fellow lawmakers, 91 of them, that the bill is worthwhile. Twenty six congressmen opposed the measure on a vote.
Under the proposed law, insurers will have to pay attorney fees only if a final judgment or settlement is worth 50% or more of the original settlement offer. If the court awards a settlement between 25% and 50% of the original offer, then the parties pay their own fees. If the final payout is less than 25% of the offer, then the plaintiffs shoulder their attorney fees.
It is hoped that assigning accountability for the cost of the lawsuits could keep the more frivolous ones from reaching the courts.
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