After trying and failing for seven years, the Florida Legislature this year passed sweeping legislation to reform the insurance industry practice known as assignment of benefits, or AOB.

The legislation, which has been signed into law by Gov. Ron DeSantis and took effect July 1, will bring dramatic changes to the Florida laws governing assignments of post-loss benefits under property insurance claims to those providing services to repair, restore, protect or replace the property.

The AOB process, which has been in place for decades, has become controversial in recent years because of an increase in residential water-damage claims, primarily for broken water pipes and leaks. Property owners sign over their claim benefits to contractors, which are then able to pursue payments directly from the insurers.

The proponents of AOBs say they help to ensure claims are properly paid, but the legislators supporting the bill have said it is aimed at curbing abuses of the AOB process. Insurance carriers have contended for many years that AOB fraud and the excessive litigation it generates have led to higher property-insurance rates.

The new law limits attorney fees in AOB lawsuits filed by contractors against insurers. The legal fees will be calculated using a set formula, but the caps would not apply to lawsuits filed by policyholders.

The law also enables insurance companies to offer lower-cost policies that restrict or do not allow for assignments of benefits.

For property owners, the law will allow them to rescind their assignment agreements with contractors without penalty by submitting a written notice within 14 days of the execution of the agreement. They will also be able to rescind agreements at least 30 days after the date work on the property is scheduled to commence if the contractor has not substantially performed, or at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the contractor has not begun substantial work on the property.

Contractors receiving an assignment from a policyholder will be required to promptly notify the insurer and provide it with detailed estimates in advance of performing the work. This will help to enable insurers to monitor costs as they are incurred and ensure contractors are not performing unnecessary repairs.

If litigation ensues after an assignment agreement, the contractor assignee has the burden to demonstrate that the insurer is not prejudiced by the assignee's failure to maintain records of all services provided, cooperate with the insurer in the claim investigation, provide it with requested records and documents related to the services provided, and permit it to make copies of such records and documents.

Contractors will also be required to serve insurers with written notices at least 10 business days prior to filing suit. These notices must include the amount of damages in dispute, the amount claimed, and a pre-suit settlement demand. The assignee must also provide a detailed written invoice or estimate of services, the number of labor hours and proof that its work has been performed in accordance with “accepted industry standards.”

Insurers must respond to pre-suit notices within 10 business days by making a written settlement offer or requiring the assignee to participate in an appraisal or other method of alternative dispute resolution.

Commercial and residential property owners in Florida should consult closely with highly experienced insurance attorneys and public adjusters when considering an assignment of benefits to a contractor after the filing of a claim. The new law is bringing significant changes to the process, and they should rely on the guidance of qualified professionals to make the best decisions about their specific claim.

Susan C. Odess is a shareholder with Siegfried Rivera in Coral Gables office. She focuses on insurance coverage disputes and claims.