TALLAHASSEE, Fla. – In the latest ruling on a controversial issue in the insurance industry, the 1st District Court of Appeal on Wednesday said a repair company can pursue a lawsuit against State Farm Florida Insurance Co. to seek payment for work on a home that sustained water damage.
The Duval County case deals with a practice known as "assignment of benefits," which often occurs when homeowners need repairs for problems such as water damage. In such cases, policyholders sign over benefits to contractors, who pursue payments from insurance companies.
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United Water Restoration Group Inc. filed the lawsuit after doing water-repair work on the home of State Farm customer Oran Walker.
United Water Restoration Group submitted a $2,744 bill to State Farm, according to Wednesday's appeals-court ruling. But the insurer refused to pay, saying it denied coverage because the damage was caused by problems such as repeated leakage, rot and decay that were excluded from the insurance policy.
A county judge dismissed the United Water Restoration lawsuit, ruling that such a case involving a coverage question would have to be brought by the policyholder. After the dismissal was upheld in circuit court, United Water Restoration took the issue to the 1st District Court of Appeal.
A three-judge panel of the appeals court overturned the dismissal, clearing the way for the lawsuit to move forward.
"Clearly established law permits United Water to bring suit to seek recovery under the State Farm policy, and if necessary, seek a coverage determination,'' said the ruling, written by Judge Scott Makar and joined by judges James Wolf and Timothy Osterhaus. "The dismissal order had the harsh effect of barring United Water's enforcement of its bargained-for right to pursue assigned benefits, which amounts to a miscarriage of justice."
The ruling was the third recent appellate decision to go against insurers on assignment-of-benefits issues.
The insurance industry argues that assignment of benefits can lead to inflated costs and fraud, while contractors argue that the practice helps homeowners quickly hire contractors for emergency repairs. Lawmakers this spring considered a pair of bills (HB 669 and SB 1064) that would have substantially restricted assignments of benefits in such cases, but the bills did not pass.