In an opinion filed on June 22, 2015, the 1st DCA ruled in the case of Security First Insurance Company vs. State of Florida, Office of Insurance Regulation that the OIR was correct in not allowing Security First Insurance Company to change language in its policies which would restrict the ability of policyholders to assign policy rights without the insurer's approval.
This is the second ruling in little more than a month (the first ruling was issued by the 4th DCA) which has supported a policyholder practice known as an "assignment of benefits". This practice often occurs when a homeowner or an association hires a contractor to make necessary repairs in the aftermath of a hurricane, other storm or other casualty event such as a water leak. Once those policy benefits have been assigned, the contractor then pursues payment directly from the insurance company. Insurance companies have argued that the practice of assigning benefits can encourage inflated costs and fraud. Policyholders and contractors argue that the practice allows cash-strapped communities to recover more quickly from emergencies.
Security First attempted to change its policy language to the following:
“Assignment of this policy or any benefit or post-loss right will not be valid unless we give our written consent.”
On July 22, 2013, the Office of Insurance Regulation (OIR) denied Security First's request claiming that the change in language would “violate the intent and meaning of Sections 627.411(1)(a), 627.411(1)(b), and 627.411(1)(e), Florida Statutes[, and] contain[ed] language prohibiting the assignment of a post loss claim under the policy, which is contrary to Florida law.”
A three-judge panel of the appeals court said state law has long allowed assignments of insurance benefits. "On this point we find an unbroken string of Florida cases over the past century holding that policyholders have the right to assign such claims without insurer consent." The 1st DCA Panel held that the matter of whether or not the practice of assignment of benefits should continue would be more properly addressed by the Florida Legislature. In fact, Florida legislators considered a pair of bills (HB 669 and SB 1064) in the 2015 Session that would have substantially restricted assignments of benefits but both bills failed.
Not discussed in these cases was the more practical question of whether or not an assignment of benefits to a contractor is a wise decision for an association. Fortunately, we have not had a hurricane impact Florida significantly for more than a decade but in the aftermath of the tumultuous 2004-2005 storm seasons, we saw many out of state, unlicensed and unknown contractors arrive in communities at a time when they were most vulnerable. A Board's priority in the immediate aftermath of a disaster is to mitigate further damage. Negotiation on overall repairs requires deliberation, thoughtful negotiation and careful review of the contract.
The moral of this blog post is just because you can do something does not necessarily mean you should.