Mort­gage hold­ers seek veto power

In­sur­ance in­dus­try wants a say in hir­ing re­pair con­trac­tors

South Florida Sun-Sentinel (Sunday) - - Money - By Ron Hurt­ibise South Florida Sun Sen­tinel

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.

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