Contracts for assignment of benefits, or post-loss assignment of a claim, are becoming a hot topic in many states. Homeowners should be aware of the possible issues associated with these agreements.

What is an assignment of benefits?

A storm comes through your neighborhood and causes damage to your home. The damage is covered by your homeowners policy. A contractor visits your property and assesses the damage. He/she offers to simplify the process by working with your insurance company directly for payment. This is similar to the assigning of benefits in health care claims, where your doctor’s office is paid directly by your health insurance.

To do this, you are asked to sign a document assigning the benefits of your insurance policy to the contractor - a post-loss assignment of your claim. This document is a contract that grants the contractor all rights and duties of the claim under the insurance policy.

What are the potential issues with these contracts?

After signing a post-loss assignment contract, you may lose some control in managing the claims process. The Kansas Insurance Department lists several potential ramifications for the policyholder after signing such a contract:

If you and the contractor have a disagreement, the contractor may file a suit against your insurance company in your name. You as the policyholder have no rights in the suit, and the suit could impact future rates and insurability.
You could be financially responsible to the contractor for the difference in the contractor’s price and your insurance company’s payment.
You could lose any ability to seek further action against your insurance company because your rights have been assigned to the contractor.
If you signed the agreement and then wish to fire the contractor, that contractor still has claim to the insurance payment.

Remember - you are not required to sign a post-loss assignment agreement. If you are considering one, get a legal opinion before signing. Also, research any potential contractors before pursuing them, and reach out to your agent or insurance company representative for help. Some insurance companies have a network of trusted contractors they can recommend.

Resources

http://www.ksinsurance.org/documents/department/consumer-alerts/Consumer-alert-post-loss-4-16-18.pdf

This blog entry is created for informational purposes only. Any viewpoint or sponsorship of outside parties involved in the blog entry does not necessarily represent Goodville's stance as a company. The blog should not be used as a substitute for professional advice.