Contractors: Is An Insurer Refusing to Pay You Pursuant to an Assignment of Benefits Contract?
In Florida, a growing number of contractors, including those who provide emergency mitigation services, use an Assignment of Benefits (AOB) contract.
Here’s how an AOB works:
The AOB allows for the insured (assignor) to transfer their rights to collect the benefits for the contractor’s services over to the contractor (assignee). Under normal circumstances, the contractor will agree to provide the services upfront in exchange for the insured’s rights to collect on the benefits owed.
Once the AOB is signed, the contractor will provide the services, submit the AOB, their invoice for services, and any accompanying documentation to the carrier.
If there is coverage, the carrier will issue a check made solely payable to the contractor and send that check directly to the contractor. The contractor is then able cash the check without seeking the endorsement of any other parties.
Everyone is happy.
Unfortunately, insurers may play hard ball.
Sometimes, after the receiving notice of the contractor’s AOB, the carrier will issue a check listing other parties on the check including the insured, their mortgage company, and/or their public adjuster—sometimes even leaving the contractor off the check entirely. In other instances, the Carrier will not even send the check to the contractor but instead to the insured.
Often times, under these types of circumstances, the contractor is unable to jump through the necessary hoops and will go unpaid for their services.
In our practice, we encounter numerous clients who explain to us that when they contact the carrier about the nature of these improperly issued payments, the carrier will tell the contractor to take it up with the insured and never re-issue the check properly pursuant to the AOB. Don’t believe the hype!
Don’t let the insurance company bully you into chasing down your hard earned money!
Under the laws of contracts, it is a common principle that, “When an assignment [AOB] has been made and the insurer is aware, or should have been aware of it, the insurer by definition cannot deal with any other persons to the prejudice of the assignee [person who received the right] (1).
In Florida, the Second District Court of Appeals has held that, once there is a valid assignment, “[i]t is well established under Florida law that a debtor [person or institution that owes a sum of money] who receives actual notice of the assignment…may be held liable to the assignee [person who received the right] if the debtor later pays the assigned debt to the assignor [person who transferred the right] rather than the assignee” (2).
Because the person who transferred their right has no right to the insurance proceeds once it has executed an assignment, the only way for an insurance carrier to discharge the debt is by paying the person who received the right (3).
Okay…now in plain English.
What the above legal jargon means is that an insurance carrier may be liable to a contractor for money not paid solely and directly to the contractor (for the services they provided to the insured) if the contractor:
- Receives a valid AOB contract from the insured; and
- The carrier is on notice of the AOB contract.
Did you know?
Even if the insurance carrier issues the check directly to the insured and the insured keeps the money, the carrier can still be liable to the contractor for the entire amount.
In the case of Aldana v. Colonial Palms Plaza, Ltd., this exact issue was visited when two parties entered into a lease that included a provision in which the landlord (debtor) agreed to pay the tenant (assignor) a construction allowance after tenant satisfactorily completed certain improvements to the rented premises (4).
Prior to the completion of the improvements, the tenant assigned its right to receive the first payment of the allowance to Aldana (assignee) (5). Although the landlord had received notice of the assignment prior to issuing payment, the landlord nevertheless violated the assignment and issued payment directly to the tenant rather than to Aldana (6).
Florida’s Third District Court of Appeal affirmed that once the landlord received notice of the assignment, accountability affixed to issue payment in accordance with its terms (7). The Court went on to hold that because the landlord had violated the express terms of the assignment of benefits agreement, it was liable to the assignee for the funds it improperly tendered to the assignor (8).
It is important to know your rights.
Do NOT let the insurance companies and their adjusters make you pay for their mistakes. We have recovered judgements for our clients after carriers have issued payments in violation of AOB contracts.
If you are having issues collecting post-loss insurance benefits from an insurance carrier or want to know more about using assignments in your business, please contact us for more information.
COHEN LAW GROUP
References:
(1) 2 Couch on Insurance 3d § 37:4 (rev. 2009) citing Morticians’ Acceptance Co. v. Metro. Life Ins. Co., 321 III. App. 277, 53 N.E.2d 30 (1944); Strudwick Funeral Home, Inc. v. Nat’l Life & Accident Ins. Co., 176 So. 891 (La. Ct. App. 1937).
(2) Bld’g Materials Corp. of Am. v. Pres. Fin. Corp, 972 So. 2d 1090 (Fla. 2d DCA 2008)
(3) Id. at 1093.
(4) 591 So. 2d at 954.
(5) Id.
(6) Id.
(7) Id.
(8) Id.
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