Since Hurricane Irma hit Florida, I have seen countless articles warning homeowners not to sign “Assignment of Benefits.” But, what exactly is an Assignment of Benefits and why are homeowners told to beware?
Assignment of Benefits
An Assignment of Benefits is a formal transfer of rights to another person or company. For a homeowner with damages from Hurricane Irma, this is usually takes the form of a contract with a roofer, water extraction company or other contractor that permits the contractor to submit an insurance claim on the homeowner’s behalf and seek direct payment (for repairs) from the insurance company. An Assignment of Benefits even permits the contractor to file suit against the policy holder’s insurance company if they feel the claim was improperly denied or underpaid.
Why homeowners are warned about Assignments of Benefits
There are various factors contributing to the warnings. First and foremost, homeowners sometimes unknowingly execute Assignments of Benefits. The situation I hear about the most is when a contractor comes to a homeowner after a storm and promises to repair damage so long as the homeowner “just signs here.” The pitch is often that the contractor will handle all of the paperwork and will bill the insurance company directly. In crisis mode and glad to have the burden of dealing with the insurance company off their plate, homeowners often sign these documents that turn out to be an Assignment of Benefits.
In some situations, the contractor performs the repairs, gets paid directly by the insurance company and the homeowner’s ignorance of the Assignment of Benefits is bliss. Other times, the homeowner learns the existence of the Assignment when a contractor sues the insurance company for monies they claim are unpaid and the homeowner is dragged into the middle of litigation they did not expect or want.
Another reason homeowners are told to beware of Assignments of Benefits is abuse by contractors that can ultimately drive up costs of insurance premiums. Insurance companies argue that without homeowner involvement, the scope of the contractor’s work often expands, improperly inflating the value of the claim. If the insurer does not pay (or pay in full), the contractors then file suit and incur attorneys’ fees, which the insurer is then responsible for, in addition to the original claim. The cost of this cycle (inflated claim, lawsuit, attorney’s fees, etc), insurers argue, will ultimately cause insurance companies to hike premiums.
If not abused, however, Assignments of Benefits can be beneficial. For the homeowner, the contractor does all of the paperwork associated with filing an insurance claim., meaning the policy owner does not have to spend time opening the claim, submit bids or even talk to the adjuster. This can make the busy homeowner’s life easier, but it also can expedite the claims process when the contractor deals directly with the insurance company. As for the contractor, Assignments of Benefits helps guarantee payment for work performed. This is because the insurance company issues payment directly to the contractor (versus the insurance company paying the homeowner and the homeowner cashing the check and paying the contractor in good faith).
Assignment of Benefits tips for homeowners
- If you have hired a contractor in the wake of Hurricane Irma, read over the details of the contract and see if you unknowingly executed an Assignment of Benefits. If so, and you are unsatisfied with the details, ask the contractor to release you from the Assignment of Benefits in writing.
- If you are considering signing an Assignment of Benefits, make sure to read the proposed contract is limited in scope. For example, if your roofer wants an Assignment of Benefits, make sure that you are only assigning the right to receive insurance money for the roof, rather than any and all benefits.
- If you assign benefits to your contractor, request copies of any and all documents or invoices, they submit to the insurance company. Also ask for copies of any correspondence or estimates the insurance company sends to your contractor.
- Only sign an Assignment of Benefits with a reputable and insured contractor.
- If you have questions or concerns about an Assignment of Benefits issue, consult an attorney.