What is an assignment of benefits, and should I sign it?

Homeowners buy insurance policies to protect themselves from unforeseen events such as storms, fires, or floods. When your home is damaged, you typically file an insurance claim and hire a company to repair the damage. However, when you sign an AOB, you sign away your insurance policy rights to a third party, such as a contractor. Your contractor will then file a claim directly with your insurance provider, repair your home, and collect insurance payments, all without your involvement.

AOBs can be convenient for homeowners. For example, your contractor may make emergency repairs quickly and unbureaucratically before filing a claim with the insurance. Moreover, you may not have to deal with the claims process, which can be time-consuming and frustrating.

Consider the Potential Drawbacks Before Signing an AOB

However, AOBs can present significant challenges for homeowners. When you are not sure what an assignment of benefits is and whether you should sign it, consider the following consequences of signing:

• An AOB transfers the rights and benefits of your insurance policy to your contractor.
• Depending on the details of the AOB, you may lose the right to make certain decisions, including details regarding repairs.
• Your insurer may only be allowed to communicate directly with your contractor and not with you.
• Depending on the details in the AOB, your contractor may be able to endorse checks on your behalf.
• With an AOB, the third party (your contractor) could file suit against your insurance provider.

Before signing an AOB, carefully consider whether doing so is in your best interests, as you may be signing vital rights away.

The AOB should cover the property’s repair, restoration, or replacement details. The contract should contain, among other provisions:

• A written per-unit estimate of the work
• A statement releasing you from all liabilities, losses, and damages (including lawyer’s fees)
• Details on how you can cancel the AOB
• Advice regarding the rights you give up when signing the AOB

Importantly, under an AOB contract, third-party companies may not attempt to collect money from you, file a lien against your home, or report you to a credit reporting agency. The only exception is if you ask the contractor to perform additional work at your own expense. Moreover, policyholders must not be charged a processing, administrative, or cancellation fee for the AOB.

AOBs can be highly complex documents full of legalese. If you are not sure about the terms of the contract, seek legal advice before you sign. Once the AOB is executed, you may face significant difficulties in extricating yourself from the contract and might have to file a lawsuit to get released.

Some circumstances allow you to cancel an AOB. The contract itself must state the options for canceling. Commonly, you can cancel an AOB as follows:

• Submitting a written notice of cancellation to the third party within 14 days of signing the AOB.
• If repairs have not started, you can normally cancel within 30 days after signing the contract.  
• A contractor must allow you to cancel the AOB if they have not performed substantial work at least 30 days after the start date mentioned in the contract.

Not all AOBs are the same. If you need to cancel the agreement, observe the terms of the contract to ensure your cancellation is legally valid. If you are canceling an AOB, inform your insurance company and the contractor immediately.

If you are unsure what an assignment of benefits is and whether you should sign it, our attorneys can help. Moreover, while a contractor can file a claim directly with your insurance provider, you could also file a separate claim for home damage. However, insurance providers sometimes refuse to compensate or underpay policyholders and third parties for an insurance claim.

Depending on state laws, both the contractor and policyholder may have the right to sue the insurance provider for non-payment. Since such disputes can be complex, you should seek legal advice as soon as you discover that your insurance provider is dragging its heels. Morgan & Morgan’s insurance dispute lawyers can handle your claim every step of the way, file a lawsuit on your behalf, and fight for the settlement you deserve to repair your home.

You do not have to struggle with a legal dispute with your contractor or insurer on your own. If you find it impossible to get your insurance claim paid or are implicated in a third-party lawsuit against an insurance provider, you need to know your rights. Morgan & Morgan is here to help. Contact us today to determine your best next steps in a free case review.