FAQ: Assignment of Benefits (AOB) in the Restoration Trade

Disclaimer: The RIA does not take a position either endorsing or opposing the use of Assignment of Benefits (AOBs). It is up to each individual contractor to determine if the use of AOBs is right for their business in accordance with the legal requirements of their state or authority having jurisdiction.

This document serves as an informational tool for policymakers to better understand Assignment of Benefits (AOB) agreements, their role in the restoration industry, and how they impact homeowners, contractors, and insurers. By fostering transparency and accountability, AOBs can be an effective tool in facilitating timely property restoration following insured losses.

1. What is an Assignment of Benefits (AOB)?

An Assignment of Benefits (AOB) is a contractual agreement that allows a policyholder to transfer their insurance claim rights to a third party, typically a service provider, so that the provider can negotiate directly with the insurance company for payment. This practice is commonly used in industries such as healthcare, auto repair, and property restoration, ensuring that necessary services are provided promptly without requiring the policyholder to act as an intermediary in complex claims negotiations. Once signed, the restoration contractor steps into the shoes of the insured for billing purposes, which may include the right to sue the insurer directly if payments are denied or delayed.

2. How do AOBs Work in the Restoration Industry?

In the aftermath of disasters such as fires, floods, and storms, homeowners and businesses often need immediate restoration services to mitigate further damage. Through an AOB agreement, a restoration contractor can:

• Begin urgent repairs immediately without waiting for policyholders to secure upfront payments.
• Work directly with the insurance company to document damages, submit claims, and negotiate fair settlements.
• Ensure compliance with policy terms and streamline communication, reducing the burden on the insured party.

This process helps homeowners avoid financial hardship by preventing delays in repairs and ensuring a faster return to normalcy. Regulations regarding the limits or allowance of AOBs can vary state by state, please make sure to research your state-specific information.

Note: While an AOB enables a contractor to begin work promptly, the adjusting team and insurance carrier must still evaluate and approve the scope of work to reduce friction and ensure the timely release of funds.

3. Do other industries use AOBs?

AOBs are a long-established and widely accepted practice across multiple industries:

• Healthcare: Patients sign AOB agreements with hospitals and medical providers, allowing them to bill insurance companies directly.
• Auto Repair: After accidents, policyholders often sign an AOB with repair shops, enabling them to work with insurers for payment rather than requiring the customer to pay out-of-pocket
• Dental Care: Many dental offices use AOBs to file claims and receive direct payments from insurance providers for covered procedures.
• Legal Services: While not technically AOBs, personal injury attorneys often use Letters of Protection (LOPs), allowing service providers to be paid from settlements rather than upfront by clients.

4. How does an AOB benefit consumers?

AOB agreements simplify the claims process for homeowners by allowing restoration professionals to handle insurance negotiations on their behalf. This reduces the burden on the homeowner, ensuring that necessary repairs begin quickly without requiring upfront payments. Additionally, homeowners can avoid the stress of navigating complex insurance claims, as the contractor works directly with the insurer to secure compensation for covered services.

AOBs also provide financial relief to homeowners who may not have the funds to cover emergency repairs out of pocket while waiting for insurance reimbursement. Since the contractor is paid directly by the insurer, homeowners don’t have to front costs or risk delays in necessary restoration work. Furthermore, having an experienced restoration contractor manage the process on their behalf helps ensure that homeowners receive the full benefits of their insurance policy, as contractors can advocate for the proper scope of repairs. This results in a smoother recovery process after property damage.

5. What are the advantages of using an AOB for contractors?

• Faster Payment Processing: Eliminates delays caused by waiting for homeowners to pay out-of-pocket and can help improve cash flow.
• Direct Insurance Negotiation: Allows you to advocate for proper compensation for services rendered and allows for potential legal standing to pursue claim disputes.
• More Efficient Workflow: Reduces administrative burden on homeowners, leading to quicker approval and job completion.

6. What are the potential risks of AOB agreements?

While AOBs offer many benefits, there are some risks to consider:

• Increased Scrutiny: Due to past fraudulent claims, insurers may closely review AOB-related claims, leading to potential disputes and in some cases litigation and legal fees for contractors.
• State Regulations: Some states/jurisdictions have enacted laws limiting, prohibiting and/or modifying AOB agreements, so it’s crucial to stay informed on legal requirements.
• Customer Hesitation: Homeowners may be wary of signing over claim rights, so educating them on the benefits is essential.
• Reputational Risk: For contractors, if the AOB is perceived as unethical, it could hurt consumer trust.

7. What are the best practices for AOBs that benefit all parties?

To ensure AOBs serve the best interests of homeowners, restoration professionals, and insurers, the following best practices should be followed:

• Transparency in Contracts: AOB agreements should be clear, concise, and compliant with state laws, ensuring that homeowners understand their rights and obligations. Use standardized templates reviewed by legal counsel to avoid ambiguity and ensure enforceability.
• Ethical Business Practices: Restoration professionals should adhere to accurate price estimates and avoid unnecessary or inflated claims, fostering trust with both consumers and insurers.
• Consumer Education: Homeowners should be fully informed about the benefits and implications of signing an AOB, including their rights regarding cancellation and oversight of the restoration work.
• Accountability and Documentation: Restoration contractors should maintain detailed records of work performed, costs incurred, and communications with insurance providers to ensure fair and accurate claims processing.
• Collaboration with Insurers: Open communication between restoration professionals and insurance adjusters can lead to more efficient claims processing, reducing disputes and delays.
• Stay up to date with state laws and regulations governing AOBs.

By implementing these best practices, AOB agreements can remain a valuable tool that protects consumers, expedites compensation for contractors for services rendered, and promotes efficiency within the insurance claims process.

8. Is an AOB required for restoration services?

No, an AOB is not mandatory. Some contractors choose to work without AOB agreements and instead require homeowners to handle the claims process and payment directly. Additionally, AOB regulations vary by state and locality. Please consider that some TPAs and insurers may discourage or reject AOBs, and some won’t work with contractors who require them.

9. Can an AOB be revoked?

Depending on state laws and contract terms, a homeowner may have the right to revoke an AOB agreement. Ensure that your contracts comply with the law, are clear about cancellation policies, and ensure that all parties understand their obligations. Revocation rights vary significantly by jurisdiction, and some states have strict timelines or notice requirements.

10. How do insurance companies view AOBs?

Insurance companies may or may not support the use of AOBs. While they streamline the claims process for legitimate work, past abuses have led to increased regulations. Some insurers may push back on AOB claims, making it essential to maintain thorough documentation and ethical billing practices. It is worth noting that some carriers have created anti-AOB policy endorsements or require pre-approval of vendors to mitigate risk.

11. How can I look up AOB laws in my state or county?

AOB regulations vary by state and locality. To ensure compliance:

• Check your state’s Department of Insurance website for official guidelines and updates.
• Consult state legislative websites for statutes and regulations regarding AOBs.
• Speak with a legal professional who specializes in insurance law to clarify any uncertainties.

12. What can I do if AOBs are under legislative consideration to be prohibited in my state?

If your state is considering prohibiting the use of AOBs, you can take the following steps to advocate for their continued use:

• Stay Informed: Monitor legislative updates through state government websites and industry associations.
• Join Industry Groups: Work with local and national restoration trade organizations to support lobbying efforts, use position papers, connect with other local companies in your region/state, and use their advocacy tools to help guide you.
• Educate Lawmakers: Research who the sponsors of the bill are and the committee that will be hearing that bill, reach out as their constituent to have a conversation and see if they are open to feedback and amendments on the bill in question. Collect and share real-world examples of how AOBs help homeowners and restoration professionals alike.
• Consult Legal Experts: Work with attorneys specializing in insurance law to understand potential alternatives and compliance strategies.

Download RIA's Myth or Facts document on AOBs to learn more.