assignment of benefit and burden

Assignment vs Novation: Everything You Need to Know

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. 4 min read updated on February 01, 2023

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. The party transferring their rights and duties is the assignor; the party receiving them is the assignee. Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of the original counterparty.

The transfer of a benefit or interest from one party to another is referred to as an assignment. While the benefits can be transferred, the obligation or burden behind the contract cannot be. A contract assignment occurs when a party assigns their contractual rights to a third party. The benefit that the issuing party would have received from the contract is now assigned to the third party. The party appointing their rights is referred to as the assignor, while the party obtaining the rights is the assignee. 

The assignor continues to carry the burden and can be held liable by the assignee for failing to fulfill their duties under the contract. Purchasing an indemnity clause from the assignee may help protect the assignor from a future liability. Unlike notation, assignment contracts do not annul the initial agreement and do not establish a new agreement. The original or initial contract continues to be enforced. 

Assignment contracts generally do not require the authorization from all parties in the agreement. Based on the terms, the assignor will most likely only need to notify the nonassigning party.

In regards to a contract being assignable, if an agreement seems silent or unclear, courts have decided that the contract is typically assignable. However, this does not apply to personal service contracts where consent is mandatory. The Supreme Court of Canada , or SCC, has determined that a personal service contract must be created for the original parties based on the special characteristics, skills, or confidences that are uniquely displayed between them. Many times, the courts need to intervene to determine whether an agreement is indeed a personal service contract.

Overall, assignment is more convenient for the assignor than novation. The assignor is not required to ask for approval from a third party in order to assign their interest in an agreement to the assignee. The assignor should be aware of the potential liability risk if the assignee doesn't perform their duties as stated in the assigned contract.

Novation has the potential to limit future liabilities to an assignor, but it also is usually more burdensome for the parties involved. Additionally, it's not always achievable if a third party refuses to give consent.

It's essential for the two parties in an agreement to appraise their relationship before transitioning to novation. An assignment is preferential for parties that would like to continue performing their obligations, but also transition some of their rights to another party.

A novation occurs when a party would like to transfer both the benefits and the burden within a contract to another party. Similar to assignment, the benefits are transferred, but unlike assignment, the burden is also transferred. When a novation is completed, the original contract is deleted and is replaced with a new one. In this new contract, a third party is now responsible for the obligations and rights. Generally, novation does not cancel any past obligations or rights under the initial contract, although it is possible to novate these as well.

Novation needs to be approved by both parties of the original contract and the new joining third party. Some amount of consideration must also be provided in the new contract in order for it to be novated, unless the novation is cited in a deed that is signed by all parties to the contract. In this situation, consideration is referring to something of value that is being gained through the contract.

Novation occurs when the purchaser to the original agreement is attempting to replace the seller of an original contract. Once novated, the original seller is released from any obligation under the initial contract. The SCC has established a three-point test to implement novation. The asserting party must prove:

• The purchaser accepts complete liability
• The creditor to the original contract accepts the purchaser as the official debtor, and not simply as a guarantor or agent of the seller
• The creditor to the original contract accepts the new contract as the replacement for the old one

Also, the SSC insisted that if a new agreement doesn't exist, the court would not find novation unless the precedence was unusually compelling.

If you need help determining if assignment vs. novation is best for you, you can  post your job  on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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assignment of contract rights, novation and assignment clauses

Assignment of contract rights .

There is no such thing as an assignment of a contract.

It was held in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd  1993 UKHL 4 (22 July 1993):

It is trite law that it is, in any event, impossible to assign "the contract" as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract in which event such consent will give rise to a novation. Although it is true that the phrase "assign this contract" is not strictly accurate, lawyers frequently use those words inaccurately to describe an assignment of the benefit of a contract since every lawyer knows that the burden of a contract cannot be assigned.

In short, contracts are not assigned:

• ownership of assets is assigned.
• Contractual rights are transferred. They're novated.

So when it comes to “assigning” (ie transferring or novating) contracts, there are 3 possibilities:

• Transfer all or part of the burden of the contract to another person. This is novation
• Assign all or part of the benefit of the contract to another person
• Transfer the whole of the benefit and the burden to another person. This is also novation.

The general law does not require any particular formality to novation.

Where a supplier notifies a contracting partner that they will be replaced by another supplier, and then starts to receive supply from the new supplier without objection or complaint, there's a good chance the contract has been novated.

That's acceptance of a new contract (and termination of the old contract) by conduct.

When businesses enter administration or liquidation, potential purchasers might express an interest in “acquiring the contracts” of the business. That requires novation of each contract, individually.

Novation is a fundamental principle of contract law, and is closely related to privity of contract . It's pretty difficult to understand one without the other.

What do "Assignment Clauses" in Contract do then?

Assignment clauses either:

• confirm the general operation of the law - ie no transfers of contractual rights. It expressly prohibits or enables transfers of the burden or the benefit of the contract.
• displace or override the general rule of law of novation, in favour of one party or both parties.

Do you need one or not?  That depends.

Context of Assignment Clauses

Contracts impose strict liability on the contracting parties to perform their legal obligations. 

It means this: if a seller does not perform what they are required to do under the contract to the standard fixed by the contract, they’re in breach of contract , and liable to make good on a legal remedy for breach.  Likewise, if a buyer does not do what they are legally required to do, they’re in breach of contract, and facing the same consequences .

For example, take a company supplying SaaS related services:

The SaaS supplier hosts its SaaS solution in the cloud for its customers.  The SaaS supplier doesn't own its own infrastructure for the hosting. It subcontracts the hosting to a dedicated hosting company, such as Rackspace. That subcontracting doesn't relieve the SaaS supplier from its obligations to perform the contract: in this example, host the SaaS solution in the cloud to its own customers. Using Rackspace to host the SaaS solution is just a delegation of the contractual duty of the SaaS supplier to provide services to the customer. If the hosting fails, the SaaS supplier is liable to its customers for the breach of contract. Not Rackspace.

Assignment clauses permit transfer of contractual obligations to perform the burden of the contract to third parties. So, where the obligation to perform is assigned to a third party and it's not performed, it will be the party that has taken over the burden of the contract (ie the assignee) that will be liable to the customer. Not the original contracting party (which would be the SaaS supplier in the example above).

The end result is that one of the original contracting parties is no longer a party to the contract: that’s novation. 

Example: Assignment Clause

A boilerplate provision to prevent assignment of the benefit and burden in a contract might be:

Neither party may without the prior written consent of the other party assign a benefit or obligation imposed in this Agreement.

The reference to “obligation” is usually redundant, because it can't be transferred without the consent of the other party in the first place.

Contract Assignments vs Subcontracting

Assignment clauses shouldn't be confused with subcontracting clauses .

The general law provides that a contracting party is entitled to subcontract works to a third person, unless there is a contractual restriction preventing it.

It would be quite a mistake to regard that as an "assignment" of the obligations under the contract.

It isn't a transfer of the contract, or any part of the burden of the contract.

It's a delegation .

Subcontracting performance of contractual obligations:

• is permitted where personal performance is not required to produce the result intended by the contract
• means performance by the subcontractor will discharge the principal contracting party's obligations.
• The principal contracting party remains liable if the subcontractor does not complete performance on behalf of the principal contracting party. 
• Boilerplate Clauses
• Who are you actually contracting with? Separate Legal Entities
• Increasing Liability for Breach of Contract: Indemnities 

Contract Law Solicitors

Contract law can be tricky. Sometimes it's matter of seeing what has happened before when parties have tried to transfer a contract to ascertain what is likely to happen in the case at hand.

Transferring contract rights and obligations can be a serious business. Getting it wrong can mean a party is in breach of contract,  leading to termination and damages claims. 

If you're in business and need legal advice on a contract, call +44 20 7036 9282 to speak for an initial chat with one of our contract law solicitors or email your enquiry to [email protected] .

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Practical Law

Construction blog, assignment of sub-contracts – benefit and burden, risk and reward in the tcc.

• by Marcus Birch

When a project goes so poorly that an employer feels obliged to terminate its main contractor, the employer will often take an assignment of various sub-contracts. But what exactly does it mean to “assign a sub-contract”?

Of course, the employer may also claim against the main contractor for delay damages , additional costs to complete and so on, and the main contractor may wish to pass down its liability to the sub-contractor(s) whom it blames for the problem. But can it do so?

These questions, and more, were addressed by O’Farrell J in the recent TCC case of Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd . 

In 2015, EWHL engaged MW to design and build a fluidised bed gasification plant to produce energy from waste. MW in turn engaged Outotec to supply key equipment for the plant. The main contract had a completion date in April 2018, and provided for delay damages up to a cap at 273 days, at which point EWHL could terminate for default.

The project did not complete by the end of the period of the delay damages cap. EWHL terminated for MW’s default. MW accepted the termination was effective, but disputed the grounds, saying that the delay was due to EWHL’s failing to supply fuel for the plant, and so it took effect as a termination for convenience. EWHL required MW to assign the Outotec sub-contract to it, and MW did.

EWHL claimed damages against MW, estimated at around £133 million for delay damages, the costs of rectifying defects in the plant, and additional costs to complete. MW then sought to join Outotec to the proceedings, and to pass to Outotec any liability it might have to EWHL, by way of a claim for delay damages and an indemnity in respect of liability for defects.

MW’s main case was that the assignment of the sub-contract transferred only the future right to performance, and not any accrued rights under the sub-contract, and so MW could still sue Outotec on the basis of those accrued rights. MW’s back-up case was that if the assignment did transfer all past and future rights to EWHL, then it also transferred all liabilities and obligations and operated as a novation .

Does “assign the sub-contract” mean a transfer of all the rights under the sub-contract, or just some of them?

I blogged before about a dispute over the validity and effectiveness of an assignment (in that case, of a performance bond). The difference with this case is that the parties agreed the assignment was valid, but disputed its scope and effect. Did it transfer all benefits, past and future? And if so, did it also transfer all obligations?

The contract terms, and MW’s notice to Outotec, were in clear, but generic language. The main contract, on standard IChemE Red Book terms, allowed EWHL to require MW to “assign any sub-contract” to EWHL. The Outotec sub-contract, on amended IChemE Yellow Book terms, provided that if required, MW could “assign the sub-contract”. MW’s notice of assignment to Outotec simply said, “we hereby give you notice that we assign the sub-contract … to [EWHL]”.

Such language, referring only to assignment of “the contract”, seems vague and ambiguous. But as O’Farrell J noted, ever since the House of Lords judgment in Linden Gardens Trust v Lenesta Sludge ,  when we speak of assignment of a contract, we are understood (even presumed) to mean an assignment of the whole benefit, including accrued and future rights, unless there is a clearly expressed contrary intention. Here, there was no evidence of the parties having a different understanding of the words, or of seeking to divide the accrued and future rights as between MW and EWHL. As a result, the judge found the assignment was effective to transfer all accrued and future rights to EWHL.

MW argued that such an interpretation was implausible, because it meant that MW could be forced to give up its right to sue the party it saw as responsible for causing the vast losses as might arise from a termination for default. The judge saw this submission as going to the commercial purpose of the assignment. She reasoned that since EWHL had a separate right under the main contract to have another contractor complete the works, the purpose of the assignment was not to enable EWHL to take over the sub-contract works.  Rather, the purpose must have been to allow EWHL to enforce the sub-contract rights against Outotec to mitigate its losses by seeking rectification of the works, specific performance of particular obligations, or compensation. That logically meant that MW had assumed the risk of not being able to do so.

The judge recognised some of the potential practical difficulties that could arise on assignment, including as to responsibility for payment applications, and the power to instruct additional works. But she thought they could be avoided by MW exercising its right to terminate the Outotec sub-contract, and in any case, such matters would not justify re-writing the agreements to change the allocation of risk.

Does “assign the sub-contract” mean a transfer of all the rights and liabilities, or just the rights?

MW’s alternative argument was that if “assign the sub-contract” meant the whole sub-contract, then it should mean a transfer of both benefit and burden, and so in fact a novation. This would mean that EWHL had acquired not only the right to sue Outotec for breaches prior to the assignment, but also the obligation to pay Outotec for equipment supplied and to meet any damages claim.

O’Farrell J dealt with this robustly. She found that the word “assign” was a strong indication that the parties intended an assignment and not a novation, and there were no words elsewhere in the contractual documents indicating an intention to extinguish the sub-contract and replace it with a new sub-contract. While MW sought to rely on Outotec’s advance consent to assignment as being consistent with the need for a novation to have the consent of all parties, this failed to convince for a number of reasons, including that the parties had agreed that any new sub-contract between EWHL and Outotec would be on the same terms but with revisions (that is, not the same at all).  In those circumstances, said the judge, “the Court would be riding roughshod over the freedom of the parties to negotiate their own terms if it imposed on them the original sub-contract conditions by novation”. Here, the parties had agreed to assignment, not novation, and MW had assigned the benefit, but not the burden, of the Outotec sub-contract.

From the point of view of contract drafting and interpretation, therefore, the key lesson is that (whether or not the parties know it) “assignment” of a contract has a recognised and established meaning in law, and once used, it creates a strong presumption as to the effect of the assignment.

So how can the main contractor pass down liability to a sub-contractor?

Where did this leave MW? It had parted with the rights accrued under the sub-contract, so could not make a direct claim against Outotec under the sub-contract for any losses suffered as a result of EWHL suing it for damages under the main contract.

So, the only way MW could pass down any liability to Outotec is by way of a claim for indemnity or contribution under the Civil Liability (Contribution) Act 1978 .  That is more difficult, because it requires MW to establish, in respect of each head of claim, whether the damage for which MW is potentially liable is “the same damage” for which Outotec is potentially liable to MW.

As to this, O’Farrell J held that the “same damage” test was passed in respect of at least part of each of the claims for delay caused by late delivery of or defects in the Outotec plant, and for defects. So for those claims, MW and Outotec would have a common liability to EWHL, and MW’s contribution claim could proceed.

But in respect of the (no doubt very large) claim for damages suffered as a result of termination, including the extra cost to complete, that test was not passed. There was no obvious contractual route by which EWHL could claim such costs from Outotec. Even if (on the assumed facts) Outotec caused all the delay which led to termination, that would establish only culpability and not liability. Accordingly, MW’s contribution claim could not include such losses.

The lesson here is, once again, to be conscious at the contract drafting stage of the many ways in which a project can go wrong, what risks that will create, and which options are going to be available at that point. If EWHL makes out its claim against MW, then even if MW can prove it was all Outotec’s fault, it will still face a considerable shortfall in recovery. To avoid that shortfall would have required some very careful drafting, and even then may not have been commercially achievable at the outset. The risk of a liability which cannot be passed down the line may well just be the price of doing business.

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Assignment and other dealings

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What does it do and why do I need it?

An assignment clause aims to control who performs a contract and who can receive benefits under the contract. It does not, however, mean that a party’s contractual obligations are transferred over, it simply means that the performance of such obligations can be delegated. This means that burdens cannot be assigned as a matter of law, but benefits can. 

Including such a clause is important if you wish to control who receives the benefit of your performance if you are the supplier, or if you are a customer, control who carries out the contract for you. This may be important to you, for instance, if you do not wish to deliver work to your competitors or you do not want a particular person in your supply chain.

If the contract is silent on assignment and other dealings, a party can normally assign, mortgage, charge or declare a trust over its rights under the contract, without the other party’s consent and use a subcontractor to perform (but not transfer) its contractual duties. In some cases, however, a restriction on subcontracting may be implied where personal performance is required for example.

In light of this, if the parties wish to restrict such abilities, they should do this expressly. Please note, however, a prohibition on assignment has no effect on assignment of a right to receive payment, this applies to many contracts for supply of goods, services or intangibles made between UK businesses on or after 31 December 2018. 

What should I look out for?

• Effect of an assignment breach - in most cases, a breach of an assignment restriction in the main contract may trigger termination rights or other remedies, may be valid between the assignor and assignee and it does not bind the original promisor who remains liable to the original promisee (the party receiving the benefit).
• Effect of a restriction of other dealings breach - if the wording specifically carves out restrictions on ‘mortgages, charges or trust of rights’ then it should be effective to stop the contracting party holding its rights in trust for a non-party. However, a restriction on an assignment/transfer alone might not have this effect. On the contrary, in relation to a subcontract, if a restriction was in place and there has been a breach, the subcontract is normally still valid, but the other party to the main contract may not be obliged to accept or pay for the subcontractor’s performance.
• Novation - if a party wants to actually transfer its obligations under the contract, as opposed to delegating their performance, it will need to do so by way of novation.
• Subcontracting of processing personal data - if, as part of subcontracting its obligations generally, the assigning/subcontracting party is subcontracting obligations to process personal data, it should note that the GDPR imposes conditions on sub-processing. The main contractor should check the data processing provisions and subcontracting provisions in the contract for provisions relating to sub-processing.
• Indemnities - in relation to subcontracting duties, the main contractor remains liable to the continuing party for the performance of any part of the contract that is still to be fulfilled. Therefore, a main contractor will therefore generally ask their subcontractor for an indemnity against any breach or failure to perform the contract. The indemnity will not usually cover liabilities incurred before the subcontracting took effect.

If you have any queries, please do not hesitate to contact Ben Taylor .

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UK: Contracts: The Critical Difference Between Assignment and Novation

Introduction.

An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation. The distinction between assignment and novation was addressed recently in the case of Davies v Jones (2009), whereby the court considered whether a deed of assignment of the rights under a contract could also transfer a positive contractual obligation, which in this instance included the obligation to pay.

Mr Jones (the first defendant) contracted to sell Lidl (the second defendant) a freehold property (the "Lidl Contract"). At that time, the freehold was vested in the claimants as trustees of a retired benefit scheme. Mr Jones contracted to buy the land from the claimants (the " Trustee Contract") and assigned his right, title and interest to the Trustee Contract to Lidl by way of a deed of assignment.

Clause 18 of the Trustee Contract permitted Mr Jones, as purchaser, to retain £100,000 from the purchase monies payable to the claimants until the outstanding works (ground clearance and site preparation) had been completed. Following completion of the works Mr Jones was entitled to retain one half of the proper costs from the retention and release the balance to the claimants. There was a similar clause in the Lidl Contract, which allowed Lidl to retain the proper costs from the retention. Importantly, although similar, under the Lidl Contract Lidl was entitled to retain the whole cost of carrying out the works as against only half in the Trustee Contract.

Lidl retained the sum of £100,000 from the money due by Mr Jones to the claimants on completion of the contract. Once the works were completed Mr Jones failed to pay the claimant the retention monies claiming that the proper cost of the works was over £200,000.

The claimants argued that the benefits granted by way of the assignment were conditional on Lidl performing Mr Jones' obligations under the Trustee Contract. Therefore, the question considered by the court was whether Lidl was bound to observe the terms of the Trustee Contract and in particular clause 18, given that benefit of the contract had been assigned to them.

The court held that the benefit which passed to Lidl by way of the deed of assignment did not require Lidl to perform the obligations of Mr Jones under the Trustee Contract. The assignment did not impose any burden on Lidl. The only person who clause 18 of the Trustee Contract was binding on was Mr Jones. The transfer to Lidl could not impose on Lidl the obligation to perform Mr Jones' obligations and these therefore remained with Mr Jones. This reaffirms the principle that when you take an assignment of a contract, you don't take on the burden (except in limited circumstances where enjoyment of the benefit is conditional on complying with some formality). Therefore, if an owner assigns a building contract to a purchaser of land and the building is still under construction, the obligation to pay the contractor remains with the original owner and does not pass to the new owner.

Assignment and novation in the Construction Industry

Both assignment and novation are common within the construction industry and careful consideration is required as to which mechanism is suitable. Assignments are frequently used in relation to collateral warranties, whereby the benefit of a contract is transferred to a third party. Likewise, an assignment of rights to a third party with an interest in a project may be suitable when the Employer still needs to fulfil certain obligations under the contract, for example, where works are still in progress. A novation is appropriate where the original contracting party wants the obligations under the contract to rest with a third party. This is commonly seen in a design and build scenario whereby the Employer novates the consultants' contracts to the Contractor, so that the benefit and burden of the appointments are transferred, and the Employer benefits from a single point of responsibility in the form of the Contractor.

If the intention is that the assignee is to accept both the benefit and burden of a contract, it is not normally sufficient to rely on a deed of assignment, as the burden of the contract remains with the assignor. In these instances a novation would be a preferable method of transferring obligations, and this allows for both the benefit and burden to be transferred to the new party and leaves no residual liability with the transferor.

Reference: Davies v Jones [2009] EWCA Civ 1164 .

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The original publication date for this article was 07/06/2010.

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Assignment of Benefits: What It Is, and How It Can Affect your Property Insurance Claim

Table of Contents

What is an Assignment of Benefits?

In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work .  In exchange, the contractor agrees that it will not seek payment from you for that scope of work, except for the amount of any applicable deductible.  In other words, you give part of your insurance claim to your contractor, and your contractor agrees not to collect from you for part of its work.

The most important thing to know about an assignment of benefits is that it puts your contractor in control your claim , at least for their scope of work.  Losing that control can significantly affect the direction and outcome of your claim, so you should fully understand the implications of an AOB (sometimes called an assignment of claims or AOC) before signing one.

How Does an Assignment of Benefits Work in Practice? 

Let’s say you’re an insured homeowner, and Hurricane Ian significantly damaged your roof.  Let’s also assume your homeowner’s policy covers that damage.  A roofer, after inspecting your roof and reviewing your insurance policy, might conclude that your insurer is probably going to pay for a roof replacement under your insurance policy.  The only problem is that it’s early in the recovery process, and your insurer hasn’t yet stated whether it will pay for the roof replacement proposed by your contractor. So if you want your roof replaced now, you would ordinarily agree to pay your roofer for the replacement, and wait in hopes that your insurer reimburses you for the work.  This means that if your insurance company refuses to pay or drags out payment, you’re on the hook to your roofer for the cost of the replacement.

As an alternative to agreeing to pay your roofer for the full cost of the work, you could sign an assignment of benefits for the roof replacement.  In this scenario, your roofer owns the part of your insurance claim that pertains to the roof replacement.  You might have to pay your roofer for the amount of your deductible, but you probably don’t have to pay them for the rest of the cost of the work.  And if your insurance company refuses to pay or drags out payment for the roof replacement, it’s your roofer, and not you, who would be on the hook for that shortfall.

So should you sign an AOB?  Not necessarily.  Read below to understand the pros and cons of an assignment of benefits.

Are There any Downsides to Signing an Assignment of Benefits?

Yes.  

You lose control of your claim . This is the most important factor to understand when considering whether to sign an AOB.  An AOB is a formal assignment of your legal rights to payment under your insurance contract.  Unless you’re able to cancel the AOB, your contractor will have full control over your claim as it relates to their work. 

To explain why that control could matter, let’s go back to the roof replacement example.  When you signed the AOB, the scope of work you agreed on was to replace the roof.  But you’re not a roofing expert, so you don’t know whether the costs charged or the materials used by the roofer in its statement of work are industry appropriate or not.  In most cases, they probably are appropriate, and there’s no problem.  But if they’re not – if, for instance, the roofer’s prices are unreasonably high – then the insurer may not approve coverage for the replacement.  At that point, the roofer could lower its prices so the insurer approves the work, but it doesn’t have to, because it controls the claim .  Instead it could hold up work and threaten to sue your insurer unless it approves the work at the originally proposed price.  Now the entire project is insnared in litigation, leaving you in a tough spot with your insurer for your other claims and, most importantly, with an old leaky roof.

Misunderstanding the Scope of Work.   Another issue that can arise is that you don’t understand the scope of the assignment of benefits.  Contractor estimates and scopes of work are often highly technical documents that can be long on detail but short on clarity.  Contractors are experts at reading and writing them.  You are not.  That difference matters because the extent of your assignment of benefits is based on that technical, difficult-to-understand scope of work.  This can lead to situations where your understanding of what you’re authorizing the contractor to do is very different from what you’ve actually authorized in the AOB agreement.

In many cases, it’s not necessary .   Many contractors will work with you and your insurer to provide a detailed estimate of their work, and will not begin that work until your insurer has approved coverage for it.  This arrangement significantly reduces the risk of you being on the hook for uninsured repairs, without creating any of the potential problems that can occur when you give away your rights to your claim.

Do I have to sign an Assignment of Benefits?

No.  You are absolutely not required to sign an AOB if you do not want to. 

Are There any Benefits to Signing an Assignment of Benefits?

Potentially, but only if you’ve fully vetted your contractor and your claim involves complicated and technical construction issues that you don’t want to deal with. 

First, you must do your homework to fully vet your contractor!  Do not just take their word for it or be duped by slick ads.  Read reviews, understand their certificate of insurance, know where they’re located, and, if possible, ask for and talk to references.  If you’ve determined that the contractor is highly competent at the work they do, is fully insured, and has a good reputation with customers, then that reduces the risk that they’ll abuse their rights to your claim.

Second, if your claim involves complicated reconstruction issues, a reputable contractor may be well equipped to handle the claim and move it forward.  If you don’t want to deal with the hassle of handling a complicated claim like this, and you know you have a good contractor, one way to get rid of that hassle is an AOB.

Another way to get rid of the hassle is to try Claimly, the all-in-one claims handling tool that get you results but keeps you in control of your claim.  

Can my insurance policy restrict the use of AOBs?

Yes, it’s possible that your Florida insurance policy restricts the use of AOBs, but only if all of the following criteria are met:

• When you selected your coverage, your insurer offered you a different policy with the same coverage, only it did not restrict the right to sign an AOB.
• Your insurer made the restricted policy available at a lower cost than the unrestricted policy.
• If the policy completely prohibits AOBs, then it was made available at a lower cost than any policy partially prohibiting AOBs.
• The policy includes on its face the following notice in 18-point uppercase and boldfaced type:

THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7153 OF THE FLORIDA STATUTES.

627.7153. 

Pro Tip : If you have an electronic copy of your complete insurance policy (not just the declaration page), then search for “policy does not allow the unrestricted assignment” or another phrase from the required language above to see if your policy restricts an AOB.  If your policy doesn’t contain this required language, it probably doesn’t restrict AOBs.

Do I have any rights or protections concerning Assignments of Benefits?

Yes, you do.  Florida recently enacted laws that protect consumers when dealing with an AOB.

Protections in the AOB Contract

To be enforceable, a Assignments of Benefits must meet all of the following requirements:

• Be in writing and executed by and between you and the contractor.
• Contain a provision that allows you to cancel the assignment agreement without a penalty or fee by submitting a written notice of cancellation signed by the you to the assignee:
• at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or
• at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.
• Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier.
• Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee .
• Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
• Contain the following notice in 18-point uppercase and boldfaced type:

YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.

• Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees.

Contractor Duties

Under Florida law, a contractor (or anyone else) receiving rights to a claim under an AOB:

• Must provide you with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required.
• Must perform the work in accordance with accepted industry standards.
• May not seek payment from you exceeding the applicable deductible under the policy unless asked the contractor to perform additional work at the your own expense.
• Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, submit to examinations under oath and recorded statements conducted by the insurer or the insurer’s representative that are reasonably necessary, based on the scope of the work and the complexity of the claim, which examinations and recorded statements must be limited to matters related to the services provided, the cost of the services, and the assignment agreement.
• Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, participate in appraisal or other alternative dispute resolution methods in accordance with the terms of the policy.
• If the contractor is making emergency repairs, the assignment of benefits cannot exceed the greater of $3,000 or 1% of your Coverage A limit.

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• Received a document?

Assignment of Benefits for Contractors: Pros & Cons of Accepting an AOB

22 articles

Insurance , Restoration , Slow Payment

When a property owner files an insurance claim to cover a restoration or roofing project, the owner typically deals directly with the insurance company. They may not have the funds available to pay the contractor out of pocket, so they’re counting on that insurance check to cover the construction costs.

But insurance companies often drag their feet, and payments can take even longer than normal. Contractors often wish they could simply deal with the insurance company directly through an assignment of benefits. In some circumstances, an AOB can be an effective tool that helps contractors collect payment faster — but is it worth it?

In this article, we’ll explain what an assignment of benefits is, and how the process works. More importantly, we’ll look at the pros and cons for restoration and roofing contractors to help you decide if an AOB is worth it . 

What is an assignment of benefits? 

An assignment of benefits , or AOB, is an agreement to transfer insurance claim rights to a third party. It gives the assignee authority to file and negotiate a claim directly with the insurance company, without involvement from the property owner. 

An AOB also allows the insurer to pay the contractor directly instead of funneling funds through the customer. AOBs take the homeowner out of the claims equation.

Here’s an example: A property owner’s roof is damaged in a hurricane. The owner contacts a restoration company to repair the damage, and signs an AOB to transfer their insurance rights to the contractor. The contractor, now the assignee, negotiates the claim directly with the insurance company. The insurer will pay the claim by issuing a check for the repairs directly to the restoration contractor. 

Setting up an AOB

A property owner and contractor can set up an assignment of benefits in two steps: 

• The owner and the contractor sign an AOB agreement
• The contractor sends the AOB to the insurance company

Keep in mind that many states have their own laws about what the agreement can or should include .

For example, Florida’s assignment of benefits law contains relatively strict requirements when it comes to an assignment of benefits: 

• The AOB agreements need to be in writing. The agreement must contain a bolded disclosure notifying the customer that they are relinquishing certain rights under the homeowners policy. You can’t charge administrative fees or penalties if a homeowner decides to cancel the AOB. 
• The AOB must include an itemized, per-unit breakdown of the work you plan to do. The services can only involve how you plan to make repairs or restore the home’s damage or protect the property from any further harm. A copy must be provided to the insurance company. 
• A homeowner can rescind an AOB agreement within 14 days of signing, or within 30 days if no work has begun and no start date was listed for the work. If a start date is listed, the 30-day rule still applies if substantial progress has not been made on the job. 

Before signing an AOB agreement, make sure you understand the property owner’s insurance policy, and whether the project is likely to be covered.

Learn more: Navigating an insurance claim on a restoration project

Pros & cons for contractors

It’s smart to do a cost-benefit analysis on the practice of accepting AOBs. Listing pros and cons can help you make a logical assessment before deciding either way. 

Pro: Hiring a public adjuster

An insurance carrier’s claims adjuster will inspect property damage and arrive at a dollar figure calculated to cover the cost of repairs. Often, you might feel this adjuster may have overlooked some details that should factor into the estimate. 

If you encounter pushback from the insurer under these circumstances, a licensed, public adjuster may be warranted. These appraisers work for the homeowner, whose best interests you now represent as a result of the AOB. A public adjuster could help win the battle to complete the repairs properly. 

Pro: More control over payment

You may sink a considerable amount of time into preparing an estimate for a customer. You may even get green-lighted to order materials and get started. Once the ball starts rolling, you wouldn’t want a customer to back out on the deal. 

Klark Brown , Co-founder of The Alliance of Independent Restorers, concedes this might be one of the very situations in which an AOB construction agreement might help a contractor. “An AOB helps make sure the homeowner doesn’t take the insurance money and run,” says Brown.  

Pro: Build a better relationship with the homeowner

A homeowner suffers a substantial loss and it’s easy to understand why push and pull with an insurance company might be the last thing they want to undertake. They may desire to have another party act on their behalf. 

As an AOB recipient, the claims ball is now in your court. By taking some of the weight off a customer’s shoulders during a difficult period, it could help build good faith and further the relationship you strive to build with that client. 

Learn more : 8 Ways for Contractors to Build Trust With a Homeowner

Con: It confuses payment responsibilities

Even if you accept an AOB, the property owner still generally bears responsibility for making payment. If the insurance company is dragging their feet, a restoration contractor can still likely file a mechanics lien on the property .

A homeowner may think that by signing away their right to an insurance claim, they are also signing away their responsibility to pay for the restoration work. This typically isn’t true, and this expectation could set you up for a more contentious dispute down the line if there is a problem with the insurance claim. 

Con: Tighter margins

Insurance companies will want repairs made at the lowest cost possible. Just like you, carriers run a business and need to cut costs while boosting revenue. 

While some restoration contractors work directly with insurers and could get a steady stream of work from them, Brown emphasizes that you may be sacrificing your own margins. “Expect to accept work for less money than you’d charge independently,” he adds. 

The takeaway here suggests that any contractor accepting an AOB could subject themselves to the same bare-boned profit margins. 

Con: More administrative work

Among others, creating additional administrative busywork is another reason Brown recommends that you steer clear of accepting AOBs. You’re committing additional resources while agreeing to work for less money. 

“Administrative costs are a burden,” Brown states. Insurers may reduce and/or delay payments to help their own bottom lines. “Insurers will play the float with reserves and claims funds,” he added. So, AOBs can be detrimental to your business if you’re spending more while chasing payments. 

Con: Increase in average collection period

Every contractor should use some financial metrics to help gauge the health of the business . The average collection period for receivables measures the average time it takes you to get paid on your open accounts. 

Insurance companies aren’t known for paying claims quickly. If you do restoration work without accepting an AOB, you can often take action with the homeowner to get paid faster. When you’re depending on an insurance company to make your payment, rather than the owner, collection times will likely increase.

The literal and figurative bottom line is: If accepting assignment of benefits agreements increases the time it takes to get paid and costs you more in operational expense, these are both situations you want to avoid. 

Learn more: How to calculate your collection effectiveness 

AOBs and mechanics liens

A mechanics lien is hands down a contractor’s most effective tool to ensure they get paid for their work. Many types of restoration services are protected under lien laws in most states. But what happens to lien rights when a contractor accepts an assignment of benefits? 

An AOB generally won’t affect a contractor’s ability to file a mechanics lien on the property if they don’t receive payment. The homeowner is typically still responsible to pay for the improvements. This is especially true if the contract involves work that wasn’t covered by the insurance policy. 

However, make sure you know the laws in the state where your project is located. For example, Florida’s assignment of benefits law, perhaps the most restrictive in the country, appears to prohibit an AOB assignee from filing a lien. 

Florida AOB agreements are required to include language that waives the contractor’s rights to collect payment from the owner. The required statement takes it even further, stating that neither the contractor or any of their subs can file a mechanics lien on the owner’s property. 

On his website , Florida’s CFO says: “The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.”

That sounds like a contractor assignee can’t file a lien if they aren’t paid . But, according to construction lawyer Alex Benarroche , it’s not so cut-and-dry.

“Florida’s AOB law has yet to be tested in court, and it’s possible that the no-lien provision would be invalid,” says Benarroche. “This is because Florida also prohibits no-lien clauses in a contract. It is not legal for a contractor to waive their right to file a lien via an agreement prior to performance.” 

Learn more about no-lien clauses and their enforceability state-by-state

Remember that every state treats AOBs differently, and conflicting laws can create additional risk. It’s important to consult with a construction lawyer in the project’s state before accepting an assignment of benefits. 

Best practices for contractors 

At the end of the day, there are advantages and disadvantages to accepting an assignment of benefits. While it’s possible in some circumstances that an AOB could help a contractor get paid faster, there are lots of other payment tools that are more effective and require less administrative costs. An AOB should never be the first option on the table . 

If you do decide to become an assignee to the property owner’s claim benefits, make sure you do your homework beforehand and adopt some best practices to effectively manage the assignment of benefits process. You’ll need to keep on top of the administrative details involved in drafting AOBs and schedule work in a timely manner to stay in compliance with the conditions of the agreement. 

Make sure you understand all the nuances of how insurance works when there’s a claim . You need to understand the owner’s policy and what it covers. Home insurance policy forms are basically standardized for easy comparisons in each state, so what you see with one company is what you get with all carriers. 

Since you’re now the point of contact for the insurance company, expect more phone calls and emails from both clients and the insurer . You’ll need to have a strategy to efficiently handle ramped-up communications since the frequency will increase. Keep homeowners and claims reps in the loop so you can build customer relationships and hopefully get paid faster by the insurer for your work.

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• Practical Law

Can we assign the benefit and burden of a contract by an "assignment and assumption" agreement?

Practical law resource id a-131-5408  (approx. 3 pages), can we assign the benefit and burden of a contract by an "assignment and assumption" agreement.

• General Contract and Boilerplate

Home » News & publications » Latest news » Positively liable: benefits and burdens

Positively liable: benefits and burdens

Posted: 24/01/2014

• The burden of a positive covenant cannot bind successors in title to freehold land.
• This rule is alleviated in part by the benefit and burden principle.
• A successor who only acquires part of the burdened land can be required to assume a proportionate burden.

The burden of a positive covenant (such as to repair a fence or contribute to the cost of maintaining shared facilities) will not bind successors in title to freehold land. The original covenantor remains bound under the doctrine of privity of contract. This is an unsatisfactory state of affairs. However, there are certain “workarounds” which, when properly employed, enable the burden of a positive covenant to run: for example, chains of indemnity, rights annexed to freehold rentcharges, the use of leasehold title, and the benefit and burden principle, the latter being the focus of this article.

The benefit and burden principle derives from Halsall v Brizell [1957] Ch 169 in which it was held that a party may not take the benefit of a right granted without accepting the corresponding burden which goes with that right. This case involved a dispute as to whether the beneficiary of a right to use a road could be forced to pay a contribution towards the maintenance costs where the beneficiary of the right of way in question was the successor in title of the original covenantor. Although the High Court was bound to find that the positive covenant was unenforceable, it also held that the successor in title would not be entitled to exercise the right without also undertaking the corresponding obligation.

The benefit and burden principle has been narrowed by subsequent decisions and the position was succinctly summarised in Davies v Jones [2009] EWCA Civ 1164 as follows:

• The benefit and burden must be conferred in the same transaction;
• The benefit must be conditional upon (and relevant to) the burden; and
• The successor in title must have been afforded the opportunity to renounce the benefit (and in doing so be released from the burden).

It is against this background that we come to the Court of Appeal decision in Goodman and others v Elwood [2013] EWCA Civ 110, which illustrates the use of the benefit and burden principle to enable the burden of a positive covenant to run.

The dispute concerned property at the Colwick Industrial Estate near Nottingham (“the Estate”). The Estate comprised a large industrial estate containing several light industrial units, of which the appellants owned several freeholds. The appellants accessed their units over an unadopted road (“Roadway 4”) on the Estate. The appellants (as defendants in the first instance) had been sued by Mr Elwood (E) (the freehold owner of part of the Estate, including Roadway 4) for arrears of maintenance contributions. Following case management directions the claim (and appeal) proceeded against Mr Goodman (G) as a lead action, the decision in which would be binding on the other defendants. 

Prior to 1986 the Estate was owned by Dobson Park Properties Ltd (D). The Estate was substantial in size and, as explained above, included several light industrial units which adjoined Roadway 4. The units were held on long commercial leases which contained a right of way over Roadway 4 (in consideration of a corresponding charge). By June 1985 the lessee appellants had agreed terms with D to purchase the freehold of their individual units. At that time D was also negotiating with E for the sale of a substantial part of the Estate (to include Roadway 4).

E’s purchase of part of the Estate was completed on 29 September 1986 (“the September Transfer”). D reserved for itself and its successors in title a right of way over Roadway 4. E covenanted with D and its successors in title that he and his successors would maintain Roadway 4. D further covenanted with E that it, and its successors in title would pay to E a reasonable proportion of the expenses incurred by E in the maintenance of the portion of Roadway 4 abutting the units. The burden of D’s covenant to contribute to the cost of maintenance was not registered against the title of D’s retained land.

On 10 December 1986 G completed the freehold purchase of his unit by taking a transfer from D (“the December Transfer”). The unit was transferred to G together with “the right for the Purchaser [G] and his successors in title … to use for all reasonable purposes the road on the [Estate] …” G further covenanted “that he and his successors in title will pay to the Vendor [D] … a fair and reasonable proportion of the expenses incurred by the Vendor [D] and its successors in the maintenance of Roadway 4 …” D subsequently assigned the benefit of G’s covenant to E (the assignment was not challenged).

The dispute as to G’s contractual liability to contribute to the cost of maintaining Roadway 4 thus stemmed from the fact that D was not the freehold owner of Roadway 4 at the time of the December Transfer, and centred around whether the words “expenses incurred by the Vendor and its successors in the maintenance of Roadway 4” included E despite the fact that he had acquired the freehold of Roadway 4 prior to the December Transfer. G sought to argue that “successor” should be interpreted narrowly and did not include E.

At first instance it was held that G was liable to contribute to the cost of maintaining Roadway 4 as a matter of contract under the December Transfer and also pursuant to the September Transfer (under the benefit and burden principle) because he had elected to use the right of way over Roadway 4. G was also found to be liable to contribute to the cost of maintaining the short extension to the Roadway.

Appeal decision

The Court of Appeal allowed the appeal in part, deciding that the judge at first instance had been correct to find that G was liable to contribute to the cost of maintenance of Roadway 4 both under both the September and December Transfers, but had been wrong to find G liable to contribute to the maintenance of the extension to Roadway 4.

The Court of Appeal disliked G’s arguments as to the definition of “successor” in the December Transfer. The December Transfer was to be interpreted against the relevant factual matrix applying the test of what meaning the words would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time ( Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896). The purpose of the covenant as drafted was clear and G was well aware of the transfer to E (indeed it was a matter of public record having been registered at the Land Registry). G’s interpretation would defy commercial common sense. E was a successor and G was contractually liable accordingly.

The Court of Appeal agreed with the first instance judge that the burden of the positive covenant (to contribute to the maintenance) did run in equity under the benefit and burden principle. This was despite the fact that the December Transfer did not contain provisions which made the benefit conveyed (right of way) conditional upon payment in respect of maintenance. In this respect the circumstances failed the second test in Davies v Jones (reciprocity/conditionality). Nonetheless, these elements were found to be present in the September Transfer which was the basis of the obligation by D to contribute to the cost of maintaining Roadway 4 and the corresponding reservation of rights of way.

It was noted that the September Transfer did not contain provisions to deal with the subdivision of the retained land (which of course subsequently arose upon the transfer of the units). This did not defeat the application of the benefit and burden principle and now provides authority for the argument that a successor who only acquires part of the burdened land will be required to assume the proportionate burden, there being no reason why that reduced obligation should not be enforced.

The Court of Appeal also considered the argument that the burden in equity of a positive covenant must be registered in order to bind successors in title of the servient land. G argued that pursuant to section 20(1) of the Land Registration Act 1925, he did not acquire the freehold subject to the burden of the covenant as the burden had not been registered as an incumbrance as it should have been (given that it did not constitute an overriding interest under section 70(1) of the Act). The Court of Appeal held that to be registrable the incumbrance in question must be capable of creating a legal interest in the land. The burden in equity of a positive covenant is not capable of creating a legal interest and need not therefore be registered to bind successors.

Finally, G was not bound to contribute to the maintenance of the 1 metre extension to Roadway 4 as he had no right of way over it, only a terminable licence to use that new part of the roadway. As there was no correlation between the right granted and the obligation imposed, the reciprocity/conditionality test was not met. 

The case for reform?

Although the courts have found a way to enable the burden of positive covenants to bind successors, and although other means exist to enable parties to structure transactions to achieve this, the position remains unclear and potentially troublesome. In 2011 the Law Commission published recommendations (following consultation) to reform this area of law to enable the burden of positive covenants to bind successors in title. The recommendations were generally well received, highlighting an appetite for reform across the industry. To address concerns about the effect of reform the proposals were tempered by safeguards including:

• A requirement that the benefit of the obligation touches and concerns the dominant land (i.e. is not a personal benefit);
• A requirement that the obligation is either an obligation not to do something on the servient land, an obligation to do something on the servient land or the boundary between the dominant and servient land, or an obligation to make payment in return for the performance of an obligation as described;
• The obligation is not made in a lease of demised premises (i.e. it relates to freehold covenants only); and
• Covenants that satisfy these requirements will take effect as (registrable) interests in the servient land.

Two years on, it appears that these reforms are steadily gathering dust on the Government’s legislative bookshelf. In the meantime practitioners continue to rely on less than ideal “workarounds” to achieve their clients’ aims.

This article was published in New Law Journal in January 2014.

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Assignment of benefits

Assignment of benefits is a legal agreement where a patient authorizes their healthcare provider to receive direct payment from the insurance company for services rendered.

Boost patient experience and your bottom line by automating patient cost estimates, payer underpayment detection, and contract optimization in one place.

What is Assignment of Benefits?

Assignment of benefits (AOB) is a crucial concept in the healthcare revenue cycle management (RCM) process. It refers to the legal transfer of the patient's rights to receive insurance benefits directly to the healthcare provider. In simpler terms, it allows healthcare providers to receive payment directly from the insurance company, rather than the patient being responsible for paying the provider and then seeking reimbursement from their insurance company.

Understanding Assignment of Benefits

When a patient seeks medical services, they typically have health insurance coverage that helps them pay for the cost of their healthcare. In most cases, the patient is responsible for paying a portion of the bill, known as the copayment or deductible, while the insurance company covers the remaining amount. However, in situations where the patient has assigned their benefits to the healthcare provider, the provider can directly bill the insurance company for the services rendered.

The assignment of benefits is a legal agreement between the patient and the healthcare provider. By signing this agreement, the patient authorizes the healthcare provider to receive payment directly from the insurance company on their behalf. This ensures that the provider receives timely payment for the services provided, reducing the financial burden on the patient.

Difference between Assignment of Benefits and Power of Attorney

While the assignment of benefits may seem similar to a power of attorney (POA) in some respects, they are distinct legal concepts. A power of attorney grants someone the authority to make decisions and act on behalf of another person, including financial matters. On the other hand, an assignment of benefits only transfers the right to receive insurance benefits directly to the healthcare provider.

In healthcare, a power of attorney is typically used in situations where a patient is unable to make decisions about their medical care. It allows a designated individual, known as the healthcare proxy, to make decisions on behalf of the patient. In contrast, an assignment of benefits is used to streamline the payment process between the healthcare provider and the insurance company.

Examples of Assignment of Benefits

To better understand how assignment of benefits works, let's consider a few examples:

Sarah visits her primary care physician for a routine check-up. She has health insurance coverage through her employer. Before the appointment, Sarah signs an assignment of benefits form, authorizing her physician to receive payment directly from her insurance company. After the visit, the physician submits the claim to the insurance company, and they reimburse the physician directly for the covered services.

John undergoes a surgical procedure at a hospital. He has health insurance coverage through a private insurer. Prior to the surgery, John signs an assignment of benefits form, allowing the hospital to receive payment directly from his insurance company. The hospital submits the claim to the insurance company, and they reimburse the hospital for the covered services. John is responsible for paying any copayments or deductibles directly to the hospital.

Mary visits a specialist for a specific medical condition. She has health insurance coverage through a government program. Mary signs an assignment of benefits form, granting the specialist the right to receive payment directly from the government program. The specialist submits the claim to the program, and they reimburse the specialist for the covered services. Mary is responsible for any applicable copayments or deductibles.

In each of these examples, the assignment of benefits allows the healthcare provider to receive payment directly from the insurance company, simplifying the billing and reimbursement process for both the provider and the patient.

Assignment of benefits is a fundamental concept in healthcare revenue cycle management. It enables healthcare providers to receive payment directly from the insurance company, reducing the financial burden on patients and streamlining the billing process. By understanding the assignment of benefits, patients can make informed decisions about their healthcare and ensure that their providers receive timely payment for the services rendered.

Improve your financial performance while providing a more transparent patient experience

Related terms, integrated revenue cycle (irc).

Integrated revenue cycle (IRC) is a comprehensive approach that seamlessly connects all stages of healthcare revenue management, from patient registration to claim reimbursement, ensuring efficient and streamlined financial processes.

Third-party payer

Third-party payer is an entity, such as an insurance company or government program, that reimburses healthcare providers for services rendered to patients.

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What is Assignment of Benefits in Medical Billing?

An assignment of benefits is the act of signing documentation authorizing a health insurance company to pay a physician directly. In other words, the insurance company can pay claims without the direct involvement of the patient in the process. There are other situations where AOBs can be helpful, but we’ll focus on their use in relation to medical benefits.

If there isn’t an assignment of benefits agreement in place, the patient would be responsible for paying the other party directly from their own pocket, then filing a claim with their insurance provider to receive reimbursement. This could be time-consuming and costly, especially if the patient has no idea how to file a claim.

The document is typically signed by patients when they undergo medical procedures. The purpose of this form is to assign the responsibility of payment for any future medical bills that may arise after the procedure. It’s important to note that not all procedures require an AOB.

An assignment of benefits agreement might be utilized to pay a medical practitioner the patient didn’t choose, like an anesthesiologist. The patient may have picked a surgeon, but an anesthesiologist assigned on the day of the procedure might issue a separate bill. They’re, in essence, signing that anyone involved in their treatment can receive direct payment from the insurance carrier. It doesn’t have to go through the patient.

This document can also eliminate service fees surrounding processing. As a result, the patient can focus on medical treatment and recovery without being bogged down with the complexities of paying medical bills. The overall intent of an assignment of benefits agreement is to make the process more manageable for the patient, as they don’t need to haggle directly with their insurer.

List of Providers and Services

When the patient signs an AOB agreement, they give a third party right to obtain payment for services the provider performed, and medical billing services are a prime example of where they may sign an AOB agreement.

• Ambulance services
• Medical insurance claims
• Drugs and pharmaceuticals
• Diagnostic and clinical lab services
• Emergency surgical center services
• Dialysis supplies and equipment used in the home
• Physician services for Medicare and Medicaid patients

Services of professionals other than a primary care physician, which includes:

• Physician assistants
• Clinical nurse specialists
• Clinical social workers
• Clinical psychologists
• Certified registered nurse anesthetists

Information Commonly Requested on Assignment of Benefits Form:

• Signature of patient or person legally responsible
• Signature of parent or legal guardian

How AOBs Affect the Medical Practitioner

A medical provider or their administrative staff may feel overwhelmed by the sheer number of forms patients must fill out prior to treatment. Demanding more paperwork from patients may be seen as an added burden on the managerial staff, as well as the patient. However, getting a signed AOB is vital in preserving the interests of everyone involved.

In addition to receiving direct payment from the insurance company without needing to go through the patient, a signed assignment of benefits form will help medical providers appeal denied and underpaid claims. They can ask that payments be made directly to them rather than through the patient. This makes the process more manageable for both the doctors and the patient.

Things to Bear in Mind

The patient gives their rights and benefits to third parties under their current health plan. Depending on the wording in the AOB, their insurer may not be allowed to contact them directly about their claims. In addition, the patient may be unable to negotiate settlements or approve payments on their behalf and enable third parties to endorse checks on behalf of the patient. Finally, when the patient signs an AOB, the insurer may sue the third parties involved in the dispute.

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Social Security Matters

Social security eliminates overpayment burden for social security beneficiaries – automatic overpayment recovery rate reduced to 10 percent.

March 29, 2024 • By Jeffrey Buckner, Acting Deputy Commissioner for Communications

Last Updated: March 29, 2024

“Social Security is taking a critically important step towards our goal of ensuring our overpayment policies are fair, equitable, and do not unduly harm anyone,” said Martin O’Malley, Commissioner of Social Security.  “It’s unconscionable that someone would find themselves facing homelessness or unable to pay bills, because Social Security withheld their entire payment for recovery of an overpayment.”

The agency works to pay the right people the right amounts at the right time, and Social Security issues correct payments in most cases.  However, there is room to improve, as people count on the agency to prevent overpayments from happening and make it easier to navigate the recovery and waiver processes when they occur.

When a person has been overpaid, the law requires the agency to seek repayment, which can create financial difficulties for beneficiaries.  As of March 25, 2024, the agency will collect ten percent (or $10, whichever is greater) of the total monthly Social Security benefit to recover an overpayment, rather than collecting 100 percent as was previous procedure.  There will be limited exceptions to this change, such as when an overpayment resulted from fraud.

There will be a short transition period where people will continue to experience the older policy.  People placed in 100 percent withholding during this transition period should call Social Security’s National 800 Number at 1-800-772-1213 to lower their withholding rate.

The change applies to new overpayments.  If beneficiaries already have an overpayment with a withholding rate greater than ten percent and would like a lower recovery rate, they too should call Social Security at 1-800-772-1213 or their local Social Security office to speak with a representative.  If a beneficiary requests a rate lower than ten percent, a representative will approve the request if it allows recovery of the overpayment within 60 months – a recent increase to improve how the agency serves its customers from the previous policy of only 36 months.  If the beneficiary’s proposed rate would extend recovery of the overpayment beyond 60 months, the Social Security representative will gather income, resource, and expense information from the beneficiary to make a determination.

Social Security launched a comprehensive review in October 2023 of agency overpayment policies and procedures to address payment accuracy systematically. Learn about Overpayments and Our Process and read our Press Release .  This procedure change is a direct result of the ongoing review.  This change and the adjustment to 60-month repayment are part of four recently announced key updates to address improper payments .  The agency also is working to reduce wage-related improper payments by establishing information exchanges with payroll data providers that will significantly reduce the number of improper payments, once implemented .  The agency will continue examining programmatic policy and making regulatory and sub-regulatory changes to improve the overpayment process.

Additionally, people have the right to appeal the overpayment decision or the amount.  They can ask Social Security to waive collection of the overpayment, if they believe it was not their fault and can’t afford to pay it back.  The agency does not pursue recoveries while an initial appeal or waiver is pending.  Even if people do not want to appeal or request a waiver, they should contact the agency if the planned withholding would cause hardship.   Social Security has flexible repayment options, including repayment of as low as $10 per month.  Each person’s situation is unique, and the agency handles overpayments on a case-by-case basis.

Did you find this Information helpful?

Tags: overpayment , Payments

About the Author

Jeffrey Buckner, Acting Deputy Commissioner for Communications

Related articles, social security announces four key updates to address improper payments, social security publishes proposed rule for payroll information exchange to reduce improper payments, martin j. o’malley sworn in as commissioner of social security administration, learn about overpayments and our process.

April 5, 2024 8:24AM

So they stop taking the whole check March 25 so for people that get checks the fourth Wednesday of the month why did they keep that check.No one have said anything about that payment.

April 4, 2024 11:48AM

This is a disaster! SS keep taking money from my Social Security! No one helped or looked over this disaster! They take lots of money for overpayment I don’t know what it is for! not any of that! people who work at the office I’m sure they have good pay every week. What a disaster!!!!!! Phone call long waiting time hours and hours then hanp up! Assiciate very rude all of them!!

April 3, 2024 8:53AM

I went to the ss office and filled out all the paperwork they wanted to start receiving my ssd checks it’s been two months and nothing I am about to be in the streets soon cause my family can only help so much they close my case cause of over payment I try to go back to work but I am too sick they said they were going to send me my check until a decision was made but still nothing

April 3, 2024 8:11AM

I am glad for the information provided on this blog about social security. Thanks alot. Best regards. https://fooddoz.com

April 2, 2024 1:40PM

Iam disabled and ssidi checks are being withheld every month.this was a court ordered overpayment. This has caused serious financial hardship for me.i need to find out why ssidi won’t take out 10%of my check. Ssi told me that I could not have the waiver for the 10%. I did go back to ssi the first lady told me that I could get my check on May 1st.and 10% would be taken out. And then talked to another lady she said I couldn’t get 10% taken out of check. I don’t no what to do.

April 2, 2024 9:38AM

I am seeking in helping my brother reduce his overpayment. I am not his boater but his sister trying to get him money to live on . Right now he is in the cusp of homelessness and does not have enough money to pay any rent. How does one live in $300 a month?

April 3, 2024 12:25AM

I am so sorry to hear that. I applied for benefits in New Orleans and was eligible. Katrina hit the stone. I haven’t seen nothing at all. Applied again in San Antonio Texas was refused six time, but I was eligible for benefits in New Orleans, but I never received it in New Orleans I miss San Antonio, I’ve been working ever cents struggling, pushing myself to this date and I still fell in hard trying my best to pay for being homeless. I was already homeless once in year 2022 been working constantly it is hard and I’m still hanging on. I try to find my benefits from when I was eligible in New Orleans. I don’t know what else to do. I’m so sorry for you just now I don’t have nobody to help me, but I pray, everything

April 1, 2024 2:00PM

Crooks and cheats playing games with our money always coming up with lies and excuses to prevent our benefits

April 1, 2024 11:01AM

Please reduce my overpayment, to 10%. You are currently withholding my entire retirement benefits, My family has been helping with my bills.

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Mental health care is hard to find, especially for people with Medicare or Medicaid

Rhitu Chatterjee

With rates of suicide and opioid deaths rising in the past decade and children's mental health declared a national emergency , the United States faces an unprecedented mental health crisis. But access to mental health care for a significant portion of Americans — including some of the most vulnerable populations — is extremely limited, according to a new government report released Wednesday.

The report, from the Department of Health and Human Services' Office of Inspector General, finds that Medicare and Medicaid have a dire shortage of mental health care providers.

The report looked at 20 counties with people on Medicaid, traditional Medicare and Medicare Advantage plans, which together serve more than 130 million enrollees — more than 40% of the U.S. population, says Meridith Seife , the deputy regional inspector general and the lead author of the report.

Medicaid serves people on low incomes, and Medicare is mainly for people 65 years or older and those who are younger with chronic disabilities.

The report found fewer than five active mental health care providers for every 1,000 enrollees. On average, Medicare Advantage has 4.7 providers per 1,000 enrollees, whereas traditional Medicare has 2.9 providers and Medicaid has 3.1 providers for the same number of enrollees. Some counties fare even worse, with not even a single provider for every 1,000 enrollees.

"When you have so few providers available to see this many enrollees, patients start running into significant problems finding care," says Seife.

The findings are especially troubling given the level of need for mental health care in this population, she says.

"On Medicare, you have 1 in 4 Medicare enrollees who are living with a mental illness," she says. "Yet less than half of those people are receiving treatment."

Among people on Medicaid, 1 in 3 have a mental illness, and 1 in 5 have a substance use disorder. "So the need is tremendous."

The results are "scary" but "not very surprising," says Deborah Steinberg , senior health policy attorney at the nonprofit Legal Action Center. "We know that people in Medicare and Medicaid are often underserved populations, and this is especially true for mental health and substance use disorder care."

Among those individuals able to find and connect with a provider, many see their provider several times a year, according to the report. And many have to drive a long way for their appointments.

"We have roughly 1 in 4 patients that had to travel more than an hour to their appointments, and 1 in 10 had to travel more than an hour and a half each way," notes Seife. Some patients traveled two hours each way for mental health care, she says.

Mental illnesses and substance use disorders are chronic conditions that people need ongoing care for, says Steinberg. "And when they have to travel an hour, more than an hour, for an appointment throughout the year, that becomes unreasonable. It becomes untenable."

"We know that behavioral health workforce shortages are widespread," says Heather Saunders , a senior research manager on the Medicaid team at KFF, the health policy research organization. "This is across all payers, all populations, with about half of the U.S. population living in a workforce shortage."

But as the report found, that's not the whole story for Medicare and Medicaid. Only about a third of mental health care providers in the counties studied see Medicare and Medicaid patients. That means a majority of the workforce doesn't participate in these programs.

This has been well documented in Medicaid, notes Saunders. "Only a fraction" of providers in provider directories see Medicaid patients, she says. "And when they do see Medicaid patients, they often only see a few."

Lower reimbursement rates and a high administrative burden prevent more providers from participating in Medicaid and Medicare, the report notes.

"In the Medicare program, they set a physician fee rate," explains Steinberg. "Then for certain providers, which includes clinical social workers, mental health counselors and marriage and family therapists, they get reimbursed at 75% of that rate."

Medicaid reimbursements for psychiatric services are even lower when compared with Medicare , says Ellen Weber , senior vice president for health initiatives at the Legal Action Center.

"They're baking in those discriminatory standards when they are setting those rates," says Steinberg.

The new report recommends that the Centers for Medicare & Medicaid Services (CMS) take steps to increase payments to providers and lower administrative requirements. In a statement, CMS said it has responded to those recommendations within the report.

According to research by Saunders and her colleagues at KFF, many states have already started to take action on these fronts to improve participation in Medicaid.

Several have upped their payments to mental health providers. "But the scale of those increases ranged widely across states," says Saunders, "with some states limiting the increase to one provider type or one type of service, but other states having rate increases that were more across the board."

Some states have also tried to simplify and streamline paperwork, she adds. "Making it less complex, making it easier to understand," says Saunders.

But it's too soon to know whether those efforts have made a significant impact on improving access to providers.

CMS has also taken steps to address provider shortages, says Steinberg.

"CMS has tried to increase some of the reimbursement rates without actually fixing that structural problem," says Steinberg. "Trying to add a little bit here and there, but it's not enough, especially when they're only adding a percent to the total rate. It's a really small increase."

The agency has also started covering treatments and providers it didn't use to cover before.

"In 2020, Medicare started covering opioid treatment programs, which is where a lot of folks can go to get medications for their substance use disorder," says Steinberg.

And starting this year, Medicare also covers "mental health counselors, which includes addiction counselors, as well as marriage and family therapists," she adds.

While noteworthy and important, a lot more needs to be done, says Steinberg. "For example, in the substance use disorder space, a lot of addiction counselors do not have a master's degree. And that's one of their requirements to be a counselor in the Medicare program right now."

Removing those stringent requirements and adding other kinds of providers, like peer support specialists, is key to improving access. And the cost of not accessing care is high, she adds.

"Over the past two decades, [in] the older adult population, the number of overdose deaths has increased fourfold — quadrupled," says Steinberg. "So this is affecting people. It is causing deaths. It is causing people to go to the hospital. It increases [health care] costs."

• Centers for Medicare & Medicaid Services
• mental health

Lifelines for South African pensioners in 2024

T he reality for many South African pensioners in 2024 is that the nest egg they’ve built for themselves over the years is insufficient to survive on today. The  ever-rising cost of living in Mzansi  means that even sizeable retirement funds are simply not enough for South African pensioners in 2024.

Electricity tariffs have just been hiked by  12.8%  and municipal services will be increased to above-inflation rates in July 2024. All this makes day-to-day living more expensive, which is difficult when you have no extra income. But never fear, because there are ways and means of easing the burden for South African pensioners in 2024.

SOUTH AFRICAN PENSIONERS IN 2024

Below are five most effective ways you can bolster your finances and lessen your monthly expenses if you’re an old-age pensioner (OAP):

1. SECURE A SASSA GRANT

The first and most appropriate way is to apply for a  South African Social Security Agency  old-age pension grant. You must be over  60 years of age  and meet the qualifying criteria to be eligible. This includes proving to the agency that you don’t have sufficient means and assets in your twilight years.

Through all means of income you cannot earn more than  R7 190  per month ( R86 280  per year). If you’re still married, your combined household income may not exceed  R13 740  per month ( R164 880  per year). In terms of assets (house, property, etc) the threshold is  R1 227 600  if single and  R2 349 600  if married for combined assets.

You can click HERE for more on securing a SASSA Older Persons grant. If and when you do qualify, you can add  R2 180  (over 60) or  R2 200  (over 75) to your monthly income.

2. INDIGENT BENEFITS

With the ever-rising cost of living in Mzansi, most local municipalities over indigent benefits to South African pensioners in 2024. Just like SASSA grants, there are a few qualifying factors. And these differ from province to province. But rebates on electricity, water, sewage, refuse removal and other municipal services can be secured.

The reason for this indigent benefit to South African pensioners in 2024 is to assist elderly homeowners – with an income of less than  R7 500  per month – to help maintain their property. If you think you qualify you can click  HERE  for more detail on how to secure indigent benefits for yourself or a loved one.

3. REDUCE MEDCAL AID COSTS

One of the best ways for South African pensioners in 2024 to ease their financial burden is through finding the right medical aid. All the major medical aid providers offer pensioner-specific packages. Some are more affordable, while others are more comprehensive. We compared the top five  HERE . These can help save money and ensure you’re never without the chronic medication you require.

4. CONTINUE TO WORK

As difficult as it may be, many South African pensioners in 2024 are continuing to work to earn money in their chosen profession well after they reach retirement age. If you’re an expert in a particular field, why should your knowledge go to waste? Depending on what you do, remote working opportunities are more prevalent than ever since the COVID-19 pandemic.

Trained professionals like engineers, lawyers, accountants, etc, are working and teaching well into their 60s. And if you have a keen interest in cooking, baking, needlework, carpentry and jewellery making, you can turn that into a money-generating venture, too. Click  HERE  to find out more about the OAP organisations that can assist you with support.

Similarly, if you own a house or property, you should consider renting out part of it to earn some extra income on the side. Just don’t exceed the monthly income threshold ( R7 190  per month) if you’re on a SASSA pension or indigent support.

5. JOIN A STOKVEL

Finally, a great outlet for South African pensioners in 2024 is contributing to a community stokvel. Best of all, stokvels are a proudly South African phenomenon and started for the very reason to help sustain elders (usually women) in informal communities.

To keep the industry accountable there is a National Stokvel Association of South Africa (NASASA). At last count there are more than  1-million  active stokvels with  12-million  members and an estimated  R50 billion  in accrued savings each year. Click  HERE  to learn more about stokvels.

ALSO READ: Western Cape storm: NSRI issues warning about Black South Easter

The post Lifelines for South African pensioners in 2024 appeared first on SAPeople - Worldwide South African News .