You come home after a hard day’s work to find a small river flowing through your kitchen – the result of a plumbing leak. Which of the following is the ideal way to handle this problem?
A. Wait for Mr. Clean to show up and make everything all better
B. Use your smartphone to search for water extraction contractors, and ask the first contractor who answers your call to come clean up the mess pronto!
C. Call the water extraction contractor that your plumber recommends.
D. Contact your insurance company to report the loss so they can refer a licensed, experienced and reputable water extraction contractor to dry out your home.
Unless you have a fairy godmother or magic wand, option A probably isn’t a viable solution for you to consider in this situation. Option D is actually the best first step to take if you have water damage in your home. Unfortunately, many Florida home insurance customers choose options B or C – a decision that can have costly consequences.
Haste could make waste
It’s natural to want to expedite the recovery process – which is why a water extraction contractor is often the first person a homeowner calls after experiencing water damage in their home. Recognizing the stress and urgency of the situation, some water extraction contractors require customers to sign an “Assignment of Benefits” (AOB) clause or form before agreeing to begin work. Other contractors may recommend that customers sign the AOB form so the customer can avoid the “hassle” of dealing with their insurance company.
What is Assignment of Benefits?
An AOB is a clause that, once signed, transfers control of the claim from the customer to the contractor - allowing the contractor to collect any payments directly from the customer's insurance company. By assigning your benefits (claims proceeds) to your contractor, you’ve just signed over all rights to your claim. The contractor is now in total control of reporting the amount of loss to your insurance company and negotiating the payment. You, the homeowner, are no longer in control of your insurance claim.
The Issue
Now that your contractor is in control, he can bill your insurance company for work he hasn’t done, overcharge your insurer, or simply take your proceeds and never even begin working on your home. Either way, you can on the hook to pay for your contractor’s scams.
The Consequences
If the inflated bill exceeds what is covered by your homeowners insurance policy, you’re on the hook to pay the difference. The contractor could place a lien on the home, and contractor liens in Florida can be enforced by foreclosure. This type of fraud, while extremely costly to individual homeowners who’ve fallen victim to the scam, affects all Florida homeowners. Fraud is currently one of the primary drivers in home insurance premium costs. AOB fraud is far from a victimless crime!
Keep calm and stay in control of your claim
First things first: contact your insurance company FIRST in the event of a loss. Not only will this help you avoid dealing with an AOB issue, but thanks to partnerships most insurance companies have in place with reputable water restoration companies, your insurer can probably get a technician to show up at your home quicker than you can if you make the call!
Consider the following suggestions to help you avoid AOB scams:
- Use your insurance company’s recommended vendor.
- Do not hire a contractor that requires you to sign an assignment of benefits. The contractor should only require you to sign a work authorization form.
- Do not sign contracts or forms that you do not fully understand. When in doubt, call your insurance company or agent for an explanation and advice.
Once your home is dry and you're ready to make repairs, what should you do?
- Continue to be on the lookout for AOB scams - consider the suggestions listed above.
- Always get written estimates for repair jobs.
- Research the background of any contractor you're thinking of hiring. Call your local Better Business Bureau to see whether any complaints have been filed against the contractor.
- Ask your contractor for local references and testimonials, as well as proof of general liability insurance and workers' compensation insurance.