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A Florida law grants license to STEAL


n Florida, already about twice the national average, will continue to rise thanks to plaintiffs’ attorneys who work with contractors to exploit loopholes in laws that allows them to cash in on claims, the state Once of Insurance Regulation has found. Meanwhile, lawmakers in Tallahassee who have been aware of the problem for several years have so far failed to pass legislation to stop it. “The unscrupulous guys are turning a small water leak under a kitchen cabinet into a $30,000 kitchen for people,” said Robert Norberg, vice president of Lantana-based Arden Insurance Associates and president of Independent Insurance Agents of Palm Beach County. “It’s a huge problem. It’s not good for the (insurance) industry and in a majority of cases it’s not good for the consumer either.”

Here’s a Cliffs Notes version of how the scheme typically works: a homeowner has non-weather related water damage. He calls a contractor to clean up the mess and make repairs. The contractor advises him to sign an “assignment of benefits” or AOB document, in which the homeowner transfers many of his rights as the insured to the contractor, who works with a lawyer on the homeowner’s behalf to collect a claim. Then the lawyer sues or threatens to sue the insurance company to pay out far more than the damage is worth, using a 1959 Florida statute known as one-way attorney fees. It states that if an insurance company

Ultimately, the costs incurred by a massive wave of AOB-related water and property damage claims, the Oüce of Insurance Regulation says, has been falling on the backs of homeowners in the form of higher insurance premiums. It estimates those premiums will continue to rise statewide at the rate of about 10 percent per year or more where AOB abuse is most common. Insurance industry professionals said that AOB and one-way attorney fees can beneüt consumers, to protect and aid them in dealing with insurance companies, but that they were not intended to be used by third-party businesses to squeeze out inüated claims. The AOB/one-way attorney fees scheme is estimated to have started around 2010 or 2011 and exploded virally since then. In 2006 there were 405 AOB-related lawsuits across Florida, the Oüce of Insurance Regulation says. In 2011 there were 1,000. In 2016, there were 28,200 AOB-related lawsuits.

Orlando-area ürm Cohen Grossman has üled among the most AOB suits in Florida, is “known throughout the state of Florida and nationwide as the goto attorney for assignment of beneüt contract cases as it pertains to the restoration industry,” his website reads. Mr. Cohen contends that the rapid growth is not due to lawyers and contractors abusing the rules to cash in on inüated claims, but instead due to legitimate use of AOB to help homeowners get the work they need done right away and get fair compensation for themselves and for contractors. “I think more and more people are understanding the beneüts as a business and homeowners are understanding the beneüts of using AOB,” he said. The Florida Oüce of Insurance Regulation and Commissioner David Altmaier have been “misled by the insurance industry,” Mr. Cohen said, into believing that AOB lawsuits are forcing wealthy private insurance companies to raise their rates.

“Honestly, all of this is completely made up just so they have a scapegoat,” he said. “They want to collect premiums and not pay claims.” He insists that none of the suits he has brought against insurance companies have been in⊌ated. “One hundred percent not in⊌ated,” he said. Does he believe there is any AOB fraud and abuse in the system at all? “I don’t know,” Mr. Cohen said. “I’m sure there are abuses in any ↸eld whether you’re a reporter, a plumber, an attorney or a doctor, that some people will abuse the system, but I don’t have any evidence of that.” Attorneys and contractors who may be abusing the rules are off the hook because what they’re doing is legal, which is why the Once of Insurance Regulation and others are pushing lawmakers to reform the rules.

“We remain hopeful that lawmakers are going to address the fraud and abuse that is rampant with this particular issue,” said Edie Ousley, vice president of public affairs for the Florida Chamber of Commerce, which is spearheading the Consumer Protection Coalition, a group that pushes for legislative reform to stop AOB abuse. Although they’ve been aware of the problem for several years now, legislators have failed to pass bills that could stop the surging prices for home insurance premiums. “This is not going to go away,” said Sen. Dorothy Hukill, R-District 14, who introduced a bill in February along with Sen. Kathleen Passidomo, R-District 28, designed to stop AOB and one-way attorney fee abuse. “This is not going to get better. You can turn a blind eye for only so long.”

But Sen. Anitere Flores, R-District 39, as chair of the Senate Banking and Insurance Committee, refused to allow the bill to be heard. A Wall Street Journal opinion piece on April 1 took her to task for blocking the legislation while placing “two bills on her committee’s agenda sponsored by Democrat Gary Farmer, who used to run Florida’s trial-bar lobby. Mr. Farmer’s bills would keep the attorney fee game going…”

Sen. Flores said she blocked the Hukill- Passidomo SB 1038 because insurance companies refused to guarantee that rates would go down if it passed. “Rates should come down and there should be something in the law that states that and up until now the insurance companies have been very, well, hesitant is a small word,” she said. “They have said ‘absolutely not.’ They’re saying they can’t guarantee that this will make rates go down or at least stabilize rates even though they’re saying this is why rates are going up.” She added in a prepared statement that the Hukill-Passidomo legislation “hinders consumers’ ability to protect themselves when insurance companies take advantage of them.

If the Hukill-Passidomo bill would be amended to ensure that insurance rates will go down for some time as a result of passing that bill, this Committee will be happy to hear it.” The latest proposed legislation, House bill 1421 sponsored by Rep. James Grant, R-District 64, is also written to curb AOB abuse. It was heard favorably by the House Insurance and Banking Subcommittee, and the Commerce Committee, but as of press time still needed to pass the House ⊌oor and then the Senate. The session ends May 5. “We think this bill goes a long way towards mitigating a cost driver for Florida consumers,” said David Altmaier, Florida’s insurance commissioner, to House lawmakers on April 17. Florida’s state-backed nonpro↸t insurer of last resort, Citizens Property Insurance, also supports the bill. Sen. Hukill doubted that there was time to pass a bill, but said she will try again in 2018, and that meanwhile, AOB misuse may continue to spread. “If there are unscrupulous contractors and attorneys out there who have hit upon a scheme that works, it’s not going to be limited to one area. That may be the area where it’s most prevalent (in southeast Florida)

Citizens points out other problems with AOB that it says should be addressed by legislation. For instance, policyholders are normally supposed to notify an insurance company promptly after a loss, and keep records, said Michael Peltier, a spokesperson for Citizens, but contractors and lawyers acting as a third-party on behalf of homeowners may not have those same responsibilities under an AOB. “We’re seeing increasingly when we get the first notice of loss we are already getting a notice that we are being sued,” before they even make an offer, Mr. Peltier said. He says that contractors and attorneys should be subject to the same responsibilities as homeowners if they use an AOB. There are other ways homeowners can be left in the lurch, he added. If the contractor is unable to collect the claim from the insurance agency, they may be able to legally hold the homeowner responsible for paying out the balance themselves, and even place a lien on their home. AOB abuse is also ퟓfinanancially damaging Citizens.

It attributes AOB abuse as the driving factor behind what it estimates will be an $86 million loss in 2018. And if there happens to be a catastrophic hurricane, combined with AOB fraud and abuse, the losses could be astronomical, leaving taxpayers on the hook. “When we have a storm, God forbid we do, we’re particularly vulnerable,” Sen. Hukill said. The misuse of AOB and one-way attorney fee rules may also drive private insurers from doing business, especially in areas where AOB-related claims are most common, in Miami-Dade, Broward and Palm Beach counties, although AOB claims have also been on the rise in Central and Southwest Florida, and other parts of the state. “The insurance carriers can close off areas and zip codes or not write at all,” said Mr. Norberg of Arden Insurance. “I have several who will not write a policy in Miami-Dade and Broward County because the problems are so extensive, and they’re starting now to limit more in Palm Beach County. Especially older homes that are subject to water type losses.” According to Citizens, its average amount of a claim from 2010 to 2016 nearly doubled in tri-county southeast Florida, from $10,301 to $19,966. And the frequency of water claims in the tricounty area is up more than 50 percent, even though its number of policies in the region has shrunk by two-thirds since 2012. Law firms, contractors often use AOB Citizens says that a handful of law firms and contractors have been responsible for the majority of AOBrelated claims. Cohen Grossman has had the most AOB-related lawsuits on its books since 2014, Citizens found, followed by Trujillo Vargas Gonzalez & Hevia.

Trujillo Vargas did not respond to a request for comment. And contractors that have most often been involved in AOB suit submissions as of last July include a franchise company, Restoration 1, as well as National Water Restoration. National Water Restoration did not respond to a request for comment. Micah Findley, vice president of operations for Restoration 1, said the company is making improvements that will eliminate the need for AOBs. He wrote: “Restoration 1, as a network, is moving away from AOBs across the country and focusing on providing accurate and fair invoices to insurance carriers, and policy holders, through more in-depth franchise owner training and ongoing support. This shift is the latest of several changes since new management took over the organization in 2016 and began making improvements to services and systems across the franchise network.” Mr. Findley said Restoration 1 has partnered with National Water, a company that will vet the accuracy of their franchise owners’ job estimates. “By providing our franchise owners with the best training and vendor support for estimates and invoices, we eliminate the need for AOBs,” he wrote.

He added that Citizens Insurance shows “skewed data that represents all 11 Restoration 1 locations as one entity and compares it to single-unit locations… “Despite this clarification, we will maintain our commitment to continued improvement.” Joe Taylor of Joe Taylor Restoration, a contractor that does work in South Florida including Palm Beach, Lee, Charlotte and Collier counties, doesn’t use AOBs. “The past three to five years it’s really become like a plague,” he said. “We work with 50-plus (insurance) carriers and rates are going up across the board and the number one reason is AOB.” Mr. Taylor said his business is increasingly in demand to do not just restoration work, but as an expert witness in AOB lawsuits, peer-reviews and comparative estimates by insurance companies who feel a claim. “We used to do one a quarter, and then it was one a month, and then one a week, and then one a day. We probably get five a day now.” Mr. Taylor said, “The reality is AOB is a license to steal and they know it and they’ll do it until the day it becomes illegal,” adding that he believes even that won’t stop the process. He also gets solicitations from attorneys to attend workshops teaching contractors how to use AOBs. AOBs and one-way attorney fees are not in and of themselves bad laws, Mr. Peltier with Citizens believes. “We don’t have a problem with the policyholder’s right to sign an AOB,” he said, which could afford them the convenience of not dealing with an insurance company among other benefits. “What we do have an issue with is the way this process has been manipulated for something that it wasn’t intended to be.” He also says that one-way attorney fees was “a good law” intended to protect consumers. If a homeowner is not satisfied with an insurance company or the amount its paying, he can go to court and if the insurance company agrees to pay even a penny more than the original claim, they are required to cover all the attorney fees.

“This was a David and Goliath kind of thing,” he said, “So that homeowners would have the ability to go up against deep-pocket insurance companies when they had a claim. It also worked as a way to tell the insurance industry, ‘you folks better respond to claims in good faith because if you go to court and lose it’s going to cost you even more money.’ What we saw in 2011 was that increasingly folks were using AOB and sort of signing their rights and the policy benefits over to a third-party contractor say, and the contractor through law terms started to use the one-way attorney fee statute in cases … A business-to-business lawsuit for which that law was never intended.” AOB cases in South Florida.

There are payoffs for others involved in AOB and one-way attorney fee schemes as well, even if they don’t realize fully what they’re involved in, Mr. Norberg said. In some cases the initial contractor, say a plumber, will be paid a referral fee of $200 to $1,000 or more to refer another subcontractor for further repairs, who then gets the homeowner to sign an AOB and sue an insurance company. “In a lot of cases, the insured doesn’t even know they’re party to this lawsuit,” Mr. Norberg said. Some homeowners also get a payoff. And word spreads: one homeowner tells a friend about it. “It’s a snowball effect,” Mr. Norberg said. “And I have calls from my clients, ‘Hey, I’ve heard I can le a claim for this water leak that’s been dripping now for the last 10 years and never xed it and I can get all my cabinets replaced.’ There’s a lot of people taking advantage of the situation but it drives rates up for you and me.” But he adds when a large AOB claim is led on behalf of a homeowner, it could cause an insurance company to drop that homeowner. That happened to one of Mr. Norberg’s clients.

“The insurance we were able to nd her was probably double her last premium because nobody’s going to take her because she’s got a past water claim,” he said. Insurance agent Brian Samberg, president of Boca Raton-based Southeast Insurance, has at least a few clients who have run into nightmare scenarios by signing AOBs. In one developing case, a Boca Raton couple in their mid 60s tells him that their signature was forged on an AOB form during the rst week in April. For them, it worked like this: they had water damage in their condo from a unit above them and contacted Southeast Insurance to report the loss. “We were very careful in expressing, do not sign an AOB form,” Mr. Samberg said. The couple called a contractor who provided an AOB form the couple says they refused to sign.

A few weeks later he found out the couple discovered that the insurance company had an AOB signed in their name. The insurance company had estimated the damages to the unit for water removal and mold remediation cost $6,000, but the contractor who claims to have their signature on an AOB form is saying it cost more than four times that amount, at least $24,000, Mr. Samberg said.

There is a separate claim for $17,000 for additional damages to the unit. It’s unclear how the issue will be resolved. “Bottom line is the client has no money at this point. They don’t know when they get the money, if this restoration company is going to come after them. It’s a mess.” In another case, a Boca Raton senior living in a single-family home had water damage, he said. The insurance company told him it would take a week to 10 days to handle the claim paperwork. A contractor came to his home and advised him to sign an AOB and pay the $15,000 up front instead of waiting the 10 days. He expected to get that $15,000 back minus his normal deductible. Because he signed the AOB form, the insurance company paid the claim directly to the contractor, who legally has no obligation to return the money

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