Extreme Weather and Insurance Fraud – What Consumers Should Know

With hurricane season fully underway, Mark Wilson, president and CEO of the Florida Chamber of Commerce, issued a warning for Florida residents to watch out for Assignment of Benefits (AOB) abuse. According to the Florida Office of Insurance Regulation, AOB is “a document signed by a policyholder that allows a third party, such as a water extraction company, a roofer, or a plumber, to act as the policyholder and seek direct payment from the insurance company.”

This practice is particularly troublesome during the hurricane season because flood damage and roof damage is common and can be costly. Repair companies can have a policyholder sign the AOB and then file a lawsuit against insurance companies that deny claims made on the policyholder’s behalf, without their knowledge. According to Florida’s Department of Financial Services, “the insurance company can only communicate directly with the third party.” This means that the third party can only determine the costs of the repairs and how much will be covered. In turn, insurance rates and premiums rise.

Florida’s Department of Financial Services reports that, in 2006, 405 AOB lawsuits were filed. Since then, the department reported that AOB lawsuits increased to around 28,200 annually.

So why do AOBs exist? AOBs are signed whenever a patient with insurance first visits a doctor. The AOB, just like when used for non-medical circumstances, allows the doctor’s office to send the bill to the patient’s insurance provider. The purpose is to make the payment process easier for policyholders since the doctor’s office will likely end up with the insurance payment.

Florida is not the only state facing this type of fraud. Texas has had an increasing number of insurance fraud claims. Similar to the situation in Florida, contractors in Texas will take advantage of damaging weather events such as hailstorms, to get customers to give the contractor the rights to negotiate with the customers insurance company. Typically, these contractors will go door-to-door and tell policyholders that they could be entitled to more compensation for damages from their insurance company.

A specific case in Texas in August, involved a public insurance adjuster, Elvira Chandler, who “submitted 14 false hail damage claims.” Another case Lon Smith & Assocs., Inc. v. Key, Lon Smith Roofing and Construction (LSRC) had a provision in their contract which “authorizes LSRC to pursue homeowners’ best interest for all repairs…the final price agreed between the insurance company and LSRC shall be the final contract price.”

Texas has made this sort of action illegal, while it is still legal in Florida. The law in Texas calls this “barratry” – when lawyers seek out clients in need of a lawyer, usually soon after an accident or natural disaster. While this does not necessarily hold the repair company accountable, their lawyers are.

What can consumers do? The Florida Department of Financial Services has a few tips to help consumers avoid being harmed by fraud from damages covered by insurance:

  • Make temporary fixes, if possible, to prevent further damage.
  • Do not make permanent repairs prior to contact with an insurance company.
  • Read and understand any contracts signed with repair companies.
  • Make certain that the repair company holds a license and legal ability to operate.
  • Contact an insurance company as soon as possible to report damages and schedule an inspection.
  • Take pictures of the damage.
  • Save receipts for repairs.

Copyright for Image: Photographer, Stock Photo, License Summary.

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