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Insurance claim assignment of benefits

Should I sign an “assignment of benefits” contract with my storm damage or roofing contractor?

As some of you may know, I run a roofing company in addition to my law practice (www.JohnsonRoofers.com). Our roofing company routinely has our customers sign assignment of benefits contracts when we perform storm damage remediation work. Recently I got a call from the son of an elderly couple who signed such a contract with us. He was initially appalled to discover that his parents had signed a contract that contained an assignment clause and he was not pleased with me or our company. After all, he has heard news reports and even a notice on the Nebraska Department of Insurance’s website alerting customers that they should avoid signing any document that contains an assignment clause. After his initial concern had subsided, I was able to explain what such a clause means and why we have our customers sign them. While I was able to talk him “off the ledge,” I realized that these clauses and what they mean needed some explanation.

First, I want to make it clear that any contract, whether it contains an assignment clause or not, can be bad for the consumer if the other party to the contract (i.e. the business) seeks to make it so. And perhaps this fact is even more present when we are discussing home improvement construction contracts. Moreover, an assignment clause can open the door to additional trouble for the consumer if the company taking the assignment is not reputable or otherwise doesn’t treat its customers fairly. After all, signing a gym membership contract can be a bad idea and many consumers have dealt with late fees, difficult cancellation policies, early termination fees, and a host of other problems if they have dealt with a gym that has poor customer service.

What is an Assignment of Benefits Clause and What Does it Mean for the Consumer?

Under Nebraska law, the courts have ruled that an assignment of benefits clause is enforceable for “post loss” assignments only. This means that once a loss has occurred, the insured can assign the right for the payment of the loss to a third party. All other types of assignments of insurance contract benefits are not enforceable. Essentially, this means that a contractor who takes an assignment of a property claim after a loss has occurred now has all the rights pertaining to the payment of that claim. If there is a dispute over how much the insurer should pay, the right to enforce the policy or bring an action against the insurer has been transferred to the contractor, not the homeowner. That is about all that is granted to the contractor when it takes an assignment of the claim – the right to sue the insurer if there is a dispute over the payment related to the claim.

Why Does the Contractor Want to Take an Assignment of the Claim?

Immediately following a large hail or wind storm, contractors and their sales people beat the streets to sign up customers. Many of these contracts are signed before the customers’ insurance adjusters have been out. We call these “contingent” contracts. The contractor is basically agreeing to do all the work that the insurer eventually covers. If the insurer doesn’t cover the loss, the contract is voided. Even after the claim has been adjusted contractors routinely sign contracts for the “scope of the insurance claim,” wherein the contractor is simply agreeing to do all the work covered by the insurer for the insurance proceeds that are paid for that work. This way the customer gets its property restored and doesn’t have to worry about being stuck with a bill at the end of the project.

From the contractor’s perspective, signing contracts like this almost necessitates that it be allowed to fight with the insurer over proper payment of the claim. After all, if the contractor agrees to only take the insurance proceeds and the insurer isn’t paying the claim properly, what recourse does the contractor have to recoup its cost and make the project profitable? That is precisely why an assignment clause is desirable – so that the contractor can ensure that it will be paid properly.

Examples and Case Studies of When and How These Assignments Actually Benefited the Homeowner

While most claims are actually underpaid, many contractors are either not savvy enough to do anything about it or they simply accept a reduction in the amount received from the insurance proceeds. But we have had, on more than a handful of occasions, situations that would have cost the homeowner hundreds or thousands of dollars if we had not had an assignment clause and fought for proper payment.

One such case was just last year. We were handling a property claim in Fremont, Nebraska, and when our roofing crew began to tear off the old roof we quickly discovered that there were multiple layers of old shingles, followed by an old, rotted layer of wood shake. Under the shakes were an older style of decking that no longer complied with the current building code. Moreover, the old style decking would not physically work with putting on a new roof. After informing the customer that it would require all new decking at a cost of more than a thousand dollars, we informed the customer that we would attempt to get the insurer to pay for the added cost. Since this was a building code requirement, most policies would pay for it. However, this insurer refused and claimed that the items were not covered under the policy, so we demanded to see the policy and read its provisions.

Not surprisingly, we discovered that the policy contained a “code upgrade” coverage provision – which meant that they were required to pay for the added increase. The insurer still refused and we threatened litigation over the matter after we informed them that we had taken an assignment of benefits on the claim and would pursue litigation if necessary. The insurer continued to deny payment and even claimed that assignment clauses were not enforceable in Nebraska. Only after sending case law supporting our assertion that assignment clauses are enforceable did the insurer relent and pay for the added costs.

Without us, the contractor, having taken an assignment clause and fighting with the insurer, that particular homeowner would have had to come up with thousands of dollars to cover the increase in cost. I suspect that most contractors, even those that take assignment clauses, would have given up and forced the homeowner to pay out of its own pocket. However, in this case, the assignment clause allowed us the leverage needed to get paid without pushing the burden on the the insured.

So, Should I Sign a Contract that has an Assignment Clause?

As stated above, many contract provisions can be detrimental to the homeowner if a problem arises or they are dealing with a disreputable contractor. I would caution any homeowner to research the company before signing any contract whether the contract contains an assignment clause or not. But if the company checks out (i.e. has favorable reviews, a list of honest referrals, and the principals of the company are upstanding individuals), then I don’t see anything inherently wrong or bad about signing a contract with an assignment clause. Ultimately, the homeowner needs to determine if an assignment clause is right for them.

Adam P. Johnson

Adam Johnson is an attorney licensed in Nebraska who currently practices employment, personal injury & construction law with Johnson + Associates Law in Omaha, Nebraska. Johnson is also a founding member and current President of Johnson Roofing & Construction - a small, family-owned roofing contractor in Omaha. Mr. Johnson is a second generation Omaha native and is proud to serve its community with honest and ethical legal services. Johnson's wife, Ande, is an active volunteer in the community and currently serves on the board of the Boys & Girls Clubs of the Midlands, the Rose Theater Family Guild, and in leadership positions with the Junior League.