Having an insurance claim on your home is bad enough. Can you imagine this process with the added stress of the contractor you hired to remove water or repair damage getting your insurance check and not doing the repair properly or leaving after only completing part of the work? It makes a bad situation worse. Much worse.
How can this happen? It’s called Assignment of Benefits (AOB). Here’s what happens.
You have water in your living room and kitchen from a broken pipe. You don’t know who to call for help, so you look on the internet and find lots of names. You call the first one and they agree to come right out. When they arrive, they take a quick look and say they can get started right away and ask you to sign “here, here and here”.
Disaster has just struck twice!
When you signed “here” disaster just struck again because you signed an Assignment of Benefits. That means you gave all the rights in “your policy” to the contractor. Your rights include the insurance check for the claim itself. When you sign the AOB, the check for your claim will be made payable to the contractor and it will be sent to them! Why? Because you told your insurance company to do so, when you signed the AOB.
Another danger of the AOB is that often the amounts charged are inflated. The contractor may also charge for things that are not covered by your policy (or any policy). Your insurance company will pay for reasonable costs for covered repairs. When your insurance company pays the reasonable amount and your contractor says that their price is $5,000, the contractor will often file a lien on your home for the shortfall. In Florida, contractors’ liens can be enforced by foreclosure.
What can you do?
First, think like it’s your money you are spending. If a contractor came out and said “I need $5,000 to get started moving this water out of your home” would you give them $5,000 up front and let them go? Probably not. You might pay a smaller amount up front and more at the end, when the job is complete and you are satisfied with the work. When you sign the AOB, it’s like you paying them up front, in full. How concerned do you think they are about whether you think the job is done right?
Second, read what you sign. A reputable company may ask you to sign a work order to get going. A work order is okay, but make sure it is just a work order, not a work order and a contract. When you see words like assign, assignment or assignment of benefits, just stop. Do not sign without advice from your insurance agent or company. This may be hard to do when your feet are wet, but I’ll share more compelling information later.
Third (this could have been first), check with your insurance agent or insurance company. Most insurance companies have vendors that they have already checked out for reliability and they will have no AOB wording.
Having this knowledge before the contractor shows up may help keep you out of trouble. Take a look at this tragic story and see why I want you to know this. Homeowner Horror Story