When a storm damages your roof or a pipe bursts and floods your basement, the last thing you want to deal with is an extended battle with your insurance company over the scope and cost of repairs. Assignment of benefits — commonly called an AOB — has emerged as a widely used mechanism in property insurance claims that can simplify the process for property owners while allowing contractors to get paid directly. However, AOB arrangements carry significant legal implications that both property owners and contractors in Nebraska need to understand before signing anything.
This guide explains how assignment of benefits works, the legal framework governing these agreements in Nebraska, the risks involved for each party, and what to do when an AOB dispute arises.
What Is an Assignment of Benefits?
An assignment of benefits is a legal agreement in which a property owner transfers their rights under an insurance policy to a third party — typically a contractor or restoration company — in exchange for the contractor agreeing to perform the needed repairs. Once the assignment is executed, the contractor steps into the shoes of the policyholder and has the right to file claims, negotiate with the insurance company, and receive payment directly from the insurer.
From the property owner's perspective, an AOB can seem like a simple solution: sign over your claim, let the contractor handle the insurance company, and get your property fixed without having to navigate the claims process yourself. From the contractor's perspective, an AOB provides a direct right to payment and eliminates the need to chase down the property owner after work is complete. But the simplicity can be deceiving, and both parties should carefully understand what they are agreeing to.
Nebraska's Legal Framework for AOB Agreements
Nebraska generally follows common law principles regarding assignment of contract rights. Under Nebraska law, a party can assign their contractual benefits to a third party unless the contract prohibits assignment, the assignment would materially change the other party's duties or obligations, or applicable law prohibits the assignment. Many standard homeowner and commercial property insurance policies contain anti-assignment clauses that prohibit assignments without the insurer's consent. Whether a post-loss assignment — one made after a covered event has already occurred — is effective despite an anti-assignment clause is a question that Nebraska courts have addressed in varying contexts.
Nebraska has not enacted the type of broad AOB reform legislation that some other states, most notably Florida, have implemented. This means that Nebraska AOB disputes are largely governed by the terms of the individual insurance policy, general contract law principles, and any applicable provisions of the Nebraska Insurance Code. The absence of specific AOB statutes makes it even more important for contractors and property owners to work with experienced legal counsel when these agreements are used.
An assignment of benefits agreement is not a simple form — it is a legal transfer of valuable insurance rights. Both property owners and contractors should understand what they are signing before any work begins.
Risks for Property Owners
Property owners who sign AOB agreements can face several significant risks. First, once you assign your benefits, you lose control over how the claim is handled. The contractor can negotiate a settlement with the insurer, and you may have limited ability to challenge an outcome you disagree with. Second, if the contractor and insurer disagree about the scope of covered repairs, you may find yourself in the middle of a dispute that delays the completion of your repairs.
Third, some AOB agreements contain provisions that obligate the property owner to pay any amounts not covered by insurance, including deductibles, portions of the claim denied by the insurer, or amounts that exceed policy limits. Reading these provisions carefully before signing is essential. Fourth, there have been situations nationally where contractors using AOB agreements have inflated claim amounts, leading insurers to deny claims or reduce future coverage for the property owner. Nebraska property owners should work only with reputable, licensed contractors and consult with an attorney before executing any AOB agreement for a significant claim.
Risks for Contractors
Contractors who rely on AOB agreements to secure payment take on their own set of risks. The most significant risk is that the insurer disputes the assignment's validity and refuses to pay the contractor directly, forcing the contractor to pursue litigation to recover payment. Nebraska contractors should ensure that any AOB agreement complies with the terms of the property owner's policy and that the assignment is executed properly.
Contractors also need to understand that taking an assignment of insurance benefits does not guarantee payment in the full amount of the contractor's invoice. The insurer retains the right to determine what losses are covered under the policy and at what value, subject to the policy terms and any applicable dispute resolution mechanisms. A contractor who completes work based on a projected insurance payment may find that the actual payment is significantly less.
What to Do When an AOB Dispute Arises
When a contractor and an insurer disagree over the scope of covered repairs or the amount of payment, the dispute resolution options depend on the terms of the policy and the AOB agreement. Most property insurance policies include an appraisal clause that allows either party to demand an appraisal when there is a disagreement about the amount of a loss. The appraisal process involves each party selecting an independent appraiser and the two appraisers selecting an umpire, with the decision of any two of the three being binding.
If the insurer denies the claim or asserts that the assignment is invalid, litigation may be necessary. Nebraska courts will analyze the terms of the insurance policy, the language of the AOB agreement, and the circumstances of the loss to determine each party's rights. Having an attorney involved from the outset of a significant AOB claim can help prevent disputes from arising and position both contractors and property owners for the best possible outcome if a dispute does develop.
At Horgan Law Firm, our business law attorneys have experience advising contractors, restoration companies, and property owners on insurance claim disputes and assignment of benefits issues in Nebraska. If you have questions about an AOB agreement or are involved in an insurance coverage dispute, contact us to discuss your situation.
