Late last year, the Florida Supreme Court took up a case that will have major ramifications for the construction industry. It involves disagreement over a common practice known as "assignment of benefits."
Assignment of benefits, better known as AOB, occurs when a homeowner who needs repairs to their home signs over insurance benefits to a contractor, who is then to be paid from the insurer.
The case headed to the Florida Supreme Court revolves around water damage to a St. Lucie County home.
Insurance companies have for years argued that the AOB process has become clogged with fraud and litigation that spikes insurance coverage rates. Contractors argue that AOB helps homeowners get repairs to water damage and storm damage quickly and forces insurers pay legitimate claims.
The St. Lucie case pits a contractor against an insurance company. The married policyholders sustained home water damage. The wife then hired the contractor to repair the damage and assigned benefits to the company.
The insurer refused to pay the full amount of the contractor's bill, however, claiming that the insurance contract required approval from not only the wife, but also the husband and the couple's mortgage company before benefits could be assigned to the contractor.
The contractor sued the insurer for breach of contract, but its arguments were rejected in both the circuit court and the 4th District Court of Appeal. The appeals court's decision was in conflict with a previous ruling by the 5th District Court of Appeal in a similar case.
No one yet knows if the state Supreme Court will require homeowners to get their mortgage companies to agree to AOB. No matter what the court's decision, it likely will shape AOB for years.