I once had a restoration contractor tell me (after a presentation in which I addressed assignment of rights) “we like to play nice,” suggesting adding such rights to your contract (s) was something other than that.
It’s not being unkind, it’s using common sense. Just because you have a Stihl MS 881 chainsaw in your garage (Google it), does not mean a perfectly small pair of pruning shears won’t get the job done just as effectively. However, the pruning shears are not going to take out the 50-foot, 100-year-old white oak precariously dangling over your home. Sometimes you may need more. And just because America has nuclear weapons does not mean we will use them. Peace through strength, you get the idea.
I realize some TPAs and insurers may discourage or reject assignments, and some won’t work with contractors who require them. But unless a clear business reason exists for not having these rights in your contracts (or your state prohibits or limits the use of them), just about every contractor who does mitigation or restoration work should strongly consider having them.
Assignment of benefits (AOBs) is simply the idea that whatever contractual rights an insured has under the casualty policy, they are being assigned to a third party. The Restoration Industry Association has excellent resources describing what an AOB is and how they are used. The RIA notes, “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.”
AOBs deal with contractual rights so the “right,” has to be listed in the restoration contract itself. The contractual “right” being assigned is the policyholder’s right to payment after a casualty loss – payment for repair or restoration of the damaged structure. The act of assigning this right is not inherent or a given, but rather, must be in the actual contract with the policyholder itself. If not, there is no inherent right, legal or otherwise, for the contractor against the insurer covering the damaged structure. Instead, the contractor’s remedies would be limited to the owner, likely the insured.
Why are AOBs so important? Why is it important to have them in your contract(s)?
At the most basic level, AOBs can streamline the claims process, the reconstruction work, and the payment to the contractor (from the insurer) without complicating the process through over-involvement with the policyholder on the administrative aspects of the claim.
Picture this (it’s an all-too-common tale): There’s a major fire loss; the restoration contractor has a work order signed for mitigation and restoration work. The adjuster approves all the estimates, the contractor does $100,000 in work, the insurance company remits to the insured. The insured, however, does not pay the contractor. The contractor sues the owner, the owner files for bankruptcy protection, and the contractor winds up getting miniscule payments under a long-term court-ordered bankruptcy re-payment plan, or worse yet, gets nothing for their work.
How could the contractor protect themselves in these situations? Joint checks from the insured? Sure, this helps if the insurer is willing to do this. If not? What remedies might the contractor have now that the insured is insolvent, or absconded? If the contractor has an AOB in their contract, it may have a claim against a much more solvent insurer.
The requirements and enforceability of AOBs vary by state so it is important to check with your local jurisdiction and its laws. The laws can be complex, and issues related to when the assignment occurs could be relevant. For example, “post-loss” versus “pre-loss” assignments could impact enforceability. Most restoration contractors deal with “post-loss” assignments. Also, the terms of the policy itself may impact enforceability. Some policies have a requirement for an insurer to consent to AOBs which some states enforce. Some states enforce these consent requirements generally; others limit such consents to only “pre-loss” purported assignments; others may prohibit them outright. See e.g., California Insurance Code, §520 (agreement not to transfer claim of insured void if made before loss); Keller Founds., Inc. v. Wausau Underwriters Ins. Co., 626 F.3d 871, 874 (5th Cir. 2010) (noting Texas enforces non-assignment clauses even for assignments made post-loss).
Some states have specific statutes which may impact the use of assignments by restoration contractors. See e.g. Fla. Stat. §627.422 (reversing decades of case law and placing onerous conditions on the use of AOBs) Some Third Party Administrators may also restrict the use of AOBs by restoration contractors, which might prevent use of them for “program” jobs. So, the laws on AOBs vary by state with some enforcing consent requirements and others not, and some having detailed conditions for the manner they can be used. When used, care should be given not to cross over the line of being a public adjuster – since most jurisdictions require separate licensure for public adjusters.
What about situations where an insured is paid by the insurer but does not pay the contractor? Does the contractor still have a claim under the AOB? As with a lot in the law, it depends. In Cat 5 Glob., LLC v. State Farm Fire & Cas. Co., No. 23-2124, 2025 U.S. Dist. LEXIS 73054, (E.D. La. Apr. 16, 2025), a Federal Court in Louisiana dismissed a direct claim against State Farm (under such circumstances) because the contractor did not give formal notice to State Farm of the existing AOB in its contract. The court ruled this way and noted that even the conduct of State Farm’s adjuster – working directly with the contractor to determine the scope of work – was not sufficient to create a representation on the part of State Farm; that it knew that the insured had assigned his rights.
Moral of the story? Give some formal notice to the insurer of the AOB in your contract. This can, and should, be done in writing and in a professional manner during the initial phases of the estimating for the project. For an excellent example of a notice, see The Book on the Assignment of Benefits, A Restoration Contractor’s Guide with Forms & Instructions, Cross, Ed. (2nd Ed. 2021).
AOBs can be an important part of a restoration contractor’s contract and overall risk mitigation program. Most patients don’t think any less of their doctors when they check in for medical attention and sign all sort of assignments of rights under their healthcare policy. Nor do you think twice about assigning your collision insurance proceeds to your local auto body shop. If you leave the AOB out of your contract, you are guaranteed to be left with whatever practical recourse you have against the insured, which could very well be nothing.
If you include the AOB in your contract, you leave yourself the option for other avenues of recovery should that eventually become necessary. I would rather have something and not need it, then not have it and need it.
Brian Edlin, Esq.
Brian Edlin, Esq. is a partner in the Firm of Jordan Price Wall Gray Jones & Carlton, PLLC in Raleigh, North Carolina. Brian has a broad-based real estate and construction law practice representing restoration companies, contractors and others in the real estate and construction industries. Brian is a Fellow in the College of Community Association Lawyers and American College of Real Estate Lawyers. Brian is a Member of the Restoration Industry Association and an Adjunct Professor at both Campbell University and Texas A&M University. He may be reached at 919-828-2501 or [email protected]
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