Mortgage holders seek veto power
Insurance industry wants a say in hiring repair contractors
Should you be required to get your mortgage lender’s permission to assign your home insurance claim to a repair contractor of your choice?
Florida’s insurance industry says “yes” in a dispute that’s landed on the steps of the state Supreme Court.
The high court hasn’t yet agreed to hear the case. But the lead attorney for the insurer in the case says a ruling favorable to his client would enable the industry to reduce out-of-control, claims-related costs that
are driving up insurance premiums for all South Florida homeowners.
But his opponent, representing a repair contractor, warns that the court risks opening a can of worms that could drag mortgage companies into untold numbers of insurance disputes.
It’s the latest battle in the industry’s war against “assignment of benefits” — the right of homeowners to assign damage claims to thirdparty repair contractors who can then “stand in their shoes” to invoice insurers and file suit if those insurers fail to pay.
Insurers say claims outlays and litigation costs have skyrocketed in the decade since a handful of plaintiff ’s attorneys started teaching repair contractors how to use claims assignments to their advantage.
Nearly one in four of all South Florida water damage claims submitted to private-market insurers in 2017 were submitted by contractors as assigned claims, according to data collected by the state Office of Insurance Regulation. Among South Florida water damage claims submitted to state-run Citizens Property in 2017, nearly one in three were assigned, Citizens data shows.
Over the past five years, insurers and their allies in the Florida Chamber of Commerce and insurance commissioner’s office have gone to war over the issue but have little to show for their efforts.
Courts have consistently ruled that insurers cannot restrict their customers’
right to assign their claims, and the state Legislature has refused to enact bills that would allow insurers to impose restrictions.
In December 2017, the Fifth District Court of Appeal in north central Florida ruled that Security First Insurance could not require policyholders to seek the insurer’s approval to assign a claim. The court said the requirement sought by Security First was prohibited under a common law rule established by the state Supreme Court in 1917, barring insurers from restricting the post-loss transfer of a benefit.
A ruling on Sept. 5 by the Fourth District Court of Appeal, which decides cases in Palm Beach, Broward, St. Lucie, Martin, Indian River and Okeechobee counties, addressed a slightly different approach by insurer Ark
After a repair company submitted a $20,306 invoice for repairs at a consumer’s home, Ark Royal declined to pay the full amount, saying the assignment was not signed by the customer’s mortgage-holder as required by language in the customer’s policy.
The repair company, Restoration 1 of Port St. Lucie, sued Ark Royal, arguing that requiring a mortgage-holder to approve a claims assignment violated the 1917 ruling.
The circuit court agreed with the restoration company. Ark Royal appealed and found a more sympathetic ear in the Fifth District, which found the 1917 ruling did not apply because the policy language in question did not require consent of the insurance company. It required consent of the mortgage-holder which, the court found, had a “vested interest” in having a reputable contractor repair the home.
Recognizing that the two rulings conflict with each other, both parties in the case have asked the state Supreme Court to review it. A decision could take more than a year, said Scott Millard, lead attorney for Restoration 1.
Insurers hoping the case presents a solution to the assignment of benefits issue are waiting to see how the high court decides.
Barry Gilway, president and CEO of state-run Citizens Property Insurance Corp., told the company’s Board of Directors meeting in late September that a ruling in Ark Royal’s favor could be “a light at the end of the tunnel.”
“We’re watching that (case) very, very closely to determine if policy changes are required with Citizens policies to take advantage of the DCA 4 decision,” Gilway said.
The continued high rate of claims assignments, litigation and legal costs is “depressing the private market” by reducing the num-
ber of private market insurers willing to write policies, Gilway said. Consumers with no private choices, including those in parts of Broward and Miami-Dade counties with high water claims rates, are forced to buy insurance from Citizens, the so-called “insurer of last resort.”
Brenda Thomas, executive director of the Association of Mortgage Bankers of Florida, declined to respond to questions about the issue late last week, saying it would require input from the association’s executive team.
In an interview, Ark Royal lead attorney Kenneth Bell said a favorable ruling would set a precedent that would “solve” the industry’s claims assignment problem by making it more difficult for repair contractors to get them. If claims assignments were more difficult to get, contractors and plaintiff’s attorneys would have fewer opportunities to stand in policyholders’ shoes — and pursue so-called “one-way” legal fees that state law gives policyholders the right to collect if they sue their insurers and win, Bell said.
Those one-way legal fees, Bell and the insurance industry argue, is what actually drives high rates of claims assignments and lawsuits. If insurers are allowed to require mortgageholders to consent to claims assignments, consumers wouldn’t be disadvantaged, Bell said, because they could sign an instrument called a “direct payment authorization” that permits contractors to bill insurers the way they did before claims assignments became widely used a decade ago.
That’s still how most repair companies outside of South Florida bill insurers, Bell said.
However, Restoration 1 attorney Millard said a direct payment authorization would not solve the problem because it does not give repair companies any leverRoyal: age over insurers and leaves them with the sole option of suing the policyholder to get paid. “The only way to enforce someone else’s contract of insurance and right to payment is through an assignment of benefits,” he said.
Requiring a mortgage company to approve a claims assignment is simply not “functional,” Millard said.
While mortgage companies typically require that they be named on homeowner policies and made a party to any insurance payments related to the structure, Millard said their primary interest is in ensuring that payouts are used to repair damages. That’s why mortgage lenders routinely hold insurance payouts in escrow and release the funds as the work is completed.
Millard argues that a mortgage-holder has no more interest in selecting a repair company or determining how much the repair will cost to fix than the bank that holds your car title would be interested in selecting a collision shop and haggling over rates for a new bumper.
But that’s the situation that could result from a Supreme Court ruling favoring Ark Royal, Millard said.
If mortgage-holders are required to sign off on claims assignments, it could add weeks to the amount of time it takes for homeowners to get their homes repaired, Millard said.
The precedent could compel involvement by mortgage companies in claims adjusting and areas not yet foreseen, he said.
For example, if a mortgage company has a primary interest in a property, why shouldn’t the mortgage company be expected to be involved in disputes over insurance coverage, he asked.
“You’re almost asking the mortgage company to be involved in every lawsuit,” he said.