Imagine receiving an unexpected $7,500 invoice telling you that your payment is more than 30 days past due and that you’re responsible for it if your homeowner’s insurance doesn’t cover it.
That’s the scare that Carla Axelrod experienced after her water heater sprang a leak in September. Insurance experts in Florida are warning that it’s the result of the latest billing strategy by repair contractors that leaves homeowners vulnerable to surprisingly high invoices, liens against their homes and lawsuits if insurers fail to pay.
The strategy involves requiring homeowners to sign what’s called a “Direction to Pay,” and it gives contractors the right to bill insurance companies directly for their repair services. It sounds convenient, but what customers might not know is that by signing the document, they agree to pay whatever portion of the contractor’s invoice is not paid by the insurer — even if the contractor assured them that the work would be covered by their policy.
The trend is the latest salvo in an ongoing battle between contractors and home insurance companies in Florida.
Prior to 2019, many contractors specializing in water dry-out services and roofing required homeowners to sign what’s called an Assignment of Benefits, which enabled contractors to assume the policyholder’s right to sue an insurer over claims. Insurers say this promoted abuse.
Lawsuits against insurers exploded, and so did insurance costs for all Florida homeowners.
As a result, the state enacted restrictions and consumer protections in 2019 that were intended to curb abuses and runaway costs.
Insurers now contend that contractors are using a document called a Direction to Pay, also known as a Direct Payment Authorization, and work authorization contracts to avoid complying with the reforms.
Insurers are calling on the state Legislature to extend those Assignment of Benefits restrictions to all contracts authorizing repairs of damage covered by property insurance.
Axelrod, a Boca Raton retiree, learned the hard way that she was ultimately responsible for paying a $7,476 invoice to a company that obtained her signature to perform extensive dry-out services after her aging water heater sprang a leak in September.
Axelrod said she called Roto-Rooter because she wanted a cost estimate for a new water heater.
But a Roto-Rooter field supervisor who came to her house showed her moisture test readings that he said proved that the leak had seeped into her walls and could lead to mold infestation, a serious health risk, she said.
“The first thing the field supervisor asked was, ‘Do you have homeowner insurance?’ I said, ‘yes,’ and he said, ‘They’ll pay for everything except the water heater and installation.’”
He handed her an electronic tablet and told her to sign her name in a box. Then, she said, he told her not to bother calling her insurance company. “He said, ‘I’ll call them.’”
Later that night, Roto-Rooter workers arrived and tore out tile baseboards from the bottoms of walls in areas surrounding the water heater. They installed plastic sheeting and seven machines to remove moisture from the air and her walls. They did not replace the water heater.
Six weeks later, Axelrod received an invoice from Roto-Rooter for $7,476 along with an ominously worded letter saying her invoice was more than 30 days past due and that she would have to pay it if her insurer did not pay within 30 days.
Axelrod said she was shocked at the bill amount and requested an itemized invoice. Services listed on the invoice left her shaking her head: Most of the charges were related to set-up and use of the dry-out machines. But there were also $193.44 for “content manipulation,” $18.02 for cleaning her kitchen sink, and $182.63 for hauling away the half-dozen or so sections of torn-out baseboard.
She was surprised to see charges totaling $304 for removal, resetting and cleaning her refrigerator and dishwasher, which she does not remember occurring.
Roto-Rooter spokesmen interviewed for this story said the appliances must have been removed, reset and cleaned when Axelrod was not present in the kitchen. “We do not bill for services we do not provide,” said Jason Trace, general manager of the company’s Fort Lauderdale office.
Axelrod won’t have to pay Roto-Rooter’s invoice. After the South Florida Sun Sentinel contacted Roto-Rooter and her insurer, Universal Property & Casualty, about her situation, a Universal representative called Axelrod and assured her that the invoice would be covered.
And she’ll be able to use a $6,200 check that Universal gave her in September to cover repairs to her home, including replacing the baseboards that Roto-Rooter tore out. Axelrod said she was afraid she’d be forced to give that check to Roto-Rooter, leaving her unable to afford the fixes.
‘Assignment’ reforms increase policyholder risk
Until the Assignment of Benefits reforms were enacted in 2019, Axelrod might have never seen the itemized invoice that Roto-Rooter submitted to her insurer, just as policyholders were often not notified when contractors filed lawsuits in their names.
In state legislative hearings over the reforms enacted in 2019, contractors and insurers blamed one another for increases in litigation and costs. Contractors complained that insurers over-scrutinized their invoices and typically offered to pay just a fraction of what was owed.
Insurers said many contractors and attorneys routinely submitted fraudulent claims to obtain as much money as possible.
And while the reforms have succeeded in reducing assignments, contractors have turned to the Direction to Pay as a way to avoid the 2019 restrictions while retaining the ability to invoice insurers directly, insurers say.
Consumers left with fewer protections
As a result, consumers who sign Direction to Pay contracts lose the protections built into the 2019 reforms, including immunity from being sued by contractors and the right to receive a detailed estimate.
Axelrod said she would not have authorized Roto-Rooter to provide such extensive dry-out services if she had known beforehand what the company planned to do.
Under Direction to Pay contracts, customers only have three days to cancel work agreements. The Assignment of Benefits reforms allow 14 days to cancel.
Axelrod’s contract with Roto-Rooter includes a clause waiving any right of cancellation.
In addition, the Assignment of Benefits reforms forbid contractors from trying to collect from customers any money not paid by insurers, including by filing liens against their homes or suing them in court. No such restrictions exist under a Direction to Pay agreement.
Other loopholes not addressed in the 2019 reforms put policyholders at risk, insurers say.
Locke Burt, president and CEO of the Ormond Beach-based firm Security First Insurance, says consumers who sign Direction to Pay contracts are in effect “signing a blank check” to contractors, he said.
Contractors “can assign work to someone else without permission. They can keep the (payment) difference if they assign the work to someone else,” Burt said.
The biggest problem, according to Paul Handerhan, president of the consumer-focused Federal Association for Insurance Reform, is “nondisclosure of the scope of work” and what it will cost.
In an email, Tasha Carter, the state’s Insurance Consumer Advocate, said she has spoken with numerous consumers who were left unprotected after signing Direction to Pay agreements. Some allow contractors to assess fees to consumers who terminate their contracts, she said.
Although the contracts state that the consumers are not signing over benefits of their insurance policies, they function in much the same way, by allowing “a contractor to exercise control over a consumer’s insurance claim, often to the detriment of the consumer,” she said.
Carter is calling for the Legislature to extend consumer protections enacted for Assignments of Benefits to Direction to Pay agreements and related contracts during the upcoming session that begins in January. Her proposal includes a requirement that insurers send payments directly to the policyholder rather than the contractor.
“Policyholders may not be aware that payments have been issued, the amount of those payments and the assignee/contractor can take the money and never complete the work,” she wrote.
Jeff Johnston, a lobbyist for Restoration Association of Florida, a trade association, said contractors who don’t get paid need the legal right to pursue policyholders.
Some consumers — not a majority — will keep their insurance checks after they receive them and laugh when contractors threaten to file a lien, he said. “I can’t collect on that lien unless they sell the house, and sometimes there’s 18 liens above mine,” he said. “At the very least, insurers should be required to put contractors’ names on the checks.”
Detailed cost estimates, he said, aren’t always feasible when homeowners are facing serious flooding and leaks that must be addressed immediately.
While some reforms might be necessary, ultimately it’s insurance companies’ responsibilities to evaluate contractors’ invoices, he said.
“Instead, the insurance industry’s first answer is always, ‘Let’s enact more laws,’’’ he said.
It remains to be seen whether the Legislature will address the issue next year. Insurance industry officials say they sense a reluctance among lawmakers to take on new issues after enacting major reforms two of the past three years.