AOB Reform Bill

Last week, Governor DeSantis signed an assignment of benefits (“AOB”) reform bill. AOB refers to the practice of vendors offering home repair services in exchange for assignment of homeowners’ insurance benefits. The vendor then looks to the insurer, and not the homeowner, for payment for work completed on the home.

Advocates for AOB reform claim that AOB cases are driven by large attorney fee awards available to vendors who obtain assignments of insurance benefits from homeowners, submit inflated bills for work performed, and then litigate with insurance companies over payment. Proponents of AOB reform claim that courts award generous attorney fees to vendors who only obtain judgments for slightly more than the insurance company’s offer for the work. Until now, insurance companies have not been able to obtain attorney fee awards when they successfully defend frivolous claims, absent extraordinary circumstances.

This AOB reform bill replaces the problematic attorney fee system described above with a unique attorney fee provision tying entitlement to prevailing party attorney fees to the reasonableness of a party’s presuit bargaining position. Currently, vendors can obtain attorney fees if they “prevail” in the litigation in the sense that they recover more than the insurance company’s offer, even if the improvement after litigation is only slight.

The revised statute calls for both parties to exchange positions prior to initiating litigation. The vendor must provide a presuit settlement demand at least 10 days before filing suit. The insurer must respond within 10 days with a presuit settlement offer. Any entitlement to attorney fees is then determined by comparing the judgment ultimately obtained with both the vendor’s demand and the insurer’s offer. The difference between the demand and the offer is referred to as the “disputed amount.” If the difference between the judgment obtained by the vendor and the presuit settlement offer is 25 percent or less of the disputed amount, and the vendor has only incrementally improved upon the insurer’s offer after litigating the case to judgment, then the insurer, and not the vendor, is entitled to reasonable attorney fees. If the difference is at least 25 percent but less than 50 percent, then no party is entitled to attorney fees. If the difference is at least 50 percent, that is, the vendor’s demand is at least as close to the judgment as the insurer’s offer, then the vendor may still recover fees under the new statute. Although the attorney fee shift still favors the vendor, it is no longer a one-way provision and the vendor also faces exposure by rejecting a reasonable offer (or issuing an unreasonable demand).

This interesting approach to attorney fees serves to provide parties a strong incentive to issue reasonable demands and offers. (Which will hopefully be accepted.) Normally, an unreasonable litigation demand is met by a lowball offer, with the parties wide apart, feeling that they need “room to negotiate.” However, this leads to protracted negotiations (or litigation). Under the AOB reform statute, parties have an incentive to offer amounts as close as possible to the expected judgment (and presumably the fair value of the repair) so that they protect themselves from attorney fee exposure while ensuring that they may recover their fees from their opponent. Even if an opposing party issues an outrageous demand, the other party should still respond with a reasonable offer to ensure that it does not lose the ability to seek recovery of attorney fees, or even subject itself to a fee award for issuing a more outrageous response.

Although this concept has particular applicability (and the reform statute is limited) to the AOB arena due to modest amounts in controversy and the lack of nonmonetary issues such as injunctive relief at play, it could also be applied to other disputes as well through future legislation or rule changes.

Parties concerned about fee exposure in AOB or other matters are urged to contact an attorney experienced in litigating such matters.

The bill discussed is Florida Senate Bill 122.

Michael P. Beltran is Counsel in our Florida office.