mitigation companies create, or are part
of, very sophisticated fraud networks. It’s
no longer a case of just dealing with occasional problematic “mom and pop” businesses, so the old way of combatting this
fraud no longer is an effective solution.
Complicating matters, it’s often difficult
to determine fair payment for each water
damage claim. There is no scientific model
in use to calculate water mitigation costs, as
there is for wind storm damage estimates.
Many in the insurance industry view
the Assignment of Benefits (AOB) as the
primary culprit in the escalation of water
mitigation fraud. The provision enables
an insured to enter into a contract that
directly transfers all rights to the insurance benefits regarding water damage to
the water mitigation company, including
the filing of a lawsuit against the insurer
to collect those benefits.
Over the course of several years, the industry has sought to reduce the problem
by restricting the right to assign post-loss
benefits. Legislative relief is not a viable
option as it is both a lengthy and uncertain process. Beyond that, rarely, if ever,
does government regulation stop a bad
person from committing insurance fraud.
Additionally, courts have ruled against
Some home insurance executives say
rates across South Florida are expected to
rise by six percent or more this year, large-
ly because of a significant hike in non-
catastrophe claims — a majority of them
water loss claims that are inflated by un-
scrupulous water mitigation companies.
This is not to imply that all water mitigation companies are engaging in fraudulent activity. A majority of them act fairly
and honestly. However, the old-school
approach taken by many insurers toward
fighting fraudulent enterprises, coupled
with their reliance on government being
able and willing to fix the problem, allows
unscrupulous companies to charge excessive fees, bill for services that were not
rendered, and charge for equipment that
was never used.
In fact, many of these companies pay
“finder’s fees” to plumbers, contractors
— even insurance agents — generating
false or inflated claims through an entire
By Brian S. Tenzer, Esq.