July 22, 2024
OLYMPIA, Wash. — Washington state Insurance Commissioner Mike Kreidler urges homeowners to make sure they have all the necessary information before signing a post-claim assignment of benefits agreement.
An assignment of benefits (AOB) is a contract between a homeowner and a third party that transfers the insurance claim rights and/or benefits in an insurance policy to the third party. This allows the third party — typically a contractor, plumber, roofer or other construction professional — to file the claim, make decisions about home repairs and collect insurance payments without involving the homeowner.
You are not required to enter an AOB with a third party to have repairs done; you can file a claim directly with your insurance company.
“An assignment of benefits, in the right hands, can be an advantage to homeowners recovering from a devastating loss,” Kreidler said. “Unfortunately, it can also result in people losing their rights and their ability to make decisions in the claims process, and their ability to determine how they’re made whole after a loss.”
What happens when you sign an AOB
When a homeowner signs an AOB, they pay the deductible to the third party, who then makes repair decisions, does the work, and receives payment directly from the insurance company. In ideal circumstances, this saves the homeowner the time involved in documenting the claim and tracking their correspondence with the insurance company.
AOBs, however, can present problems for Washington homeowners.
- Once it’s signed, the insurance company only communicates with the third party. The third party can sue your insurance company and you can lose your right to mediation.
- The legally binding contracts usually don’t include a right of recession or a cooling-off period — a brief window after signing during which the homeowner can change their mind and cancel the agreement. This means that an AOB may be very difficult to cancel, even if there are conflicts between you and the third party.
- If the third party’s initial estimate of damage doesn’t match up with the insurance company’s valuation of the claim, the third party must repair the home within the budget allotted by the insurance company or negotiate with the company. Repairs may be delayed while the third party negotiates the claim payment.
- The third party may demand a higher claim payment than your insurance company offers and then sue the insurance company when it denies your claim. A lawsuit could cause a years-long delay in repairs and the homeowner could have no say in the proceedings.
- In some worst-case consumer experiences with AOBs, out-of-state contractors, roofers or water-extraction specialists have arrived in regions recovering from natural disasters, entered AOBs with multiple homeowners, received the initial actual cash value checks from insurance companies and left without completing any repairs. These unscrupulous professionals may also cut corners in repairs to obtain a profit or artificially inflate their estimates to improperly increase the insurance claim payments.
- If a contractor with an AOB unreasonably delays repairs, the insurance company could cut off temporary housing payments if it had reason to expect the home should have been repaired by that time. Homeowners who have suffered a property loss should be cautious and understand what an AOB agreement is before entering into one.
More information
The National Association of Insurance Commissioners (NAIC) offers additional information to help you better understand insurance, your risk and what to do in the event you need repairs after a claim.