Many construction companies, especially those involved in disaster recovery or mitigation use assignments of benefits (AOB) to ensure payment by the homeowner’s insurance company. While there are many court decisions interpreting AOBs, and a new AOB statute to evaluate, two recent court decisions recognize that AOBs do not violate certain provisions of the Florida Constitution.
In Speed Dry, Inc. v. Anchor Property and Casualty Insurance Company, a homeowner hired a disaster recovery contractor to repair damage to his homestead by Hurricane Irma. As part of this, the homeowner signed a work authorization and AOB with the recovery contractor. The AOB allowed the recovery contractor to receive payment directly from the insurance company under the terms of the insurance policy.
The contractor assessed the damage to the home, performed necessary repairs, and sought payment from the insurance company. When the insurance company refused to pay, the contractor filed a lawsuit, claiming a breach of the insurance policy. In response, the insurance carrier asserted as a defense that the AOB violated Article X, Section 4(c) of the Florida Constitution.
Article X, Section 4(c) states as follows:
The homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner's spouse if there be no minor child. The owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage, sale or gift and, if married, may by deed transfer the title to an estate by the entirety with the spouse. If the owner or spouse is incompetent, the method of alienation or encumbrance shall be as provided by law.
The insurance carrier argued that the insurance proceeds were a part of the homeowner’s homestead and therefore could only be transferred to another person through a mortgage, sale, or gift; not the AOB. Obviously, the contractor disagreed with this position.
While in certain contexts insurance proceeds have been considered part of the homestead to prevent attachment from creditors, the appellate court concluded that Article X, Section 4(c) “does not prohibit the assignment of post-loss insurance benefits due as a result of damage to a homestead property.” In reaching this conclusion, the appellate court reversed summary judgment on this issue that had been granted in favor of the insurance carrier.
This decision is clearly good for any contractor that uses an AOB as part of its work in an attempt to ensure payment from an insurance carrier, because it confirms that AOBs do not violate the specific constitutional provision referenced above. But there are several other takeaways for contractors, especially those in the disaster recovery or mitigation industry.
First, it is important to note that the appellate court recognized that the contractor in this case had not recorded a lien against the property. It is unclear whether this would have changed the outcome, but it is reasonable to assume the existence of a lien has some bearing on the enforceability of an AOB, given that Florida’s new AOB statute prohibits construction liens once an AOB is signed.
Second, given the date of the loss at issue, it is likely the AOB interpreted by the court was executed before Florida’s new AOB statute became law. It is unclear whether the court’s decision would be the same for AOBs that comply with the new statute.
Finally, both the Speed Dry decision discussed above, published last month, and Landmark Construction Inc. of Central Florida v. Anchor Property and Casualty Insurance Company, decided by the same court last week, certify the issue of the constitutionality of AOBs to the Florida Supreme Court. Thus, the Florida Supreme Court could agree with those two cases, or reach a different conclusion.