The Empowered Insured

Dear Valued Client,

I want to thank you for choosing my company and entrusting us to help you through this unscheduled, unexpected and frustrating time. While you may yet be feeling apprehensive, I want you to know you have already taken the first step towards making this unfortunate event a distant memory. That step was choosing our company, and we will not let you down. I want to make you a promise right from the start: We will spare no effort and will do everything necessary to protect your health and your home. We will use our extensive knowledge and expertise to bring your home back to its pre-loss glory and better. I will consider it a personal success if, by our professionalism and knowledge, we remove some of the anxiety you are most likely experiencing right now. While there may yet still be some bumps in the road ahead to full recovery, I want you to know that we will help and guide you every step of the way. While I can’t promise you everything will go absolutely perfect, I can promise you that we will ALWAYS do the right thing.

I often tell my clients that “50 percent of my job is the actual hands-on work we do (ie. restoring your home), the other 50 percent is helping insureds navigate the insurance claims process”. There is no college or educational course for contractors (that I am aware of), that teaches them how to navigate the complex and often tedious experience of the claims process. The truth is that most contractors do not deal much with insurance companies at all, and will usually leave this aspect to the homeowner to figure out. However, while it is typically not the job of the contractor to know how to navigate the insurance claims process, I believe that (as a professional restoration contractor) it is incumbent on us to, at minimum, set our clients up for success. The information that I provide below has been garnered and attained through the winding learning curve of years performing Damage Restoration, researching, and reading a whole lot of books on the topics discussed below. The purpose of providing my clients with this information is to empower them and help them avoid the pitfalls of the insurance claim process. Most homeowners will (hopefully) only experience a significant property loss once in a lifetime. That is once too much, but the heartache of the loss can many times be compounded by ignorance of the claims process. It is my hope that by the time you finish reading this guide, you will be in a much better position to protect your interests and secure the proper/just reimbursement for your loss.

I have had many conversations every day with clients in a similar situation to yours. And there are many important topics to cover and discuss. Inevitably, I end up missing something important since there is a lot to talk about. So I have taken the liberty of writing the most important aspects down to make sure that I empower my clients with the critical/important information they will need.

Please feel free to reach out to me directly with any questions or concerns you might have.

Disclaimer: We are not by any means giving legal advice. The information below is a collection of our experiences coupled with credible information sources that are widely available to the public. Certain questions may be better suited for our peers who are licensed in their respective fields.

Insurance: A History

Insurance is the great protector of the standard of living of the American middle class. It is a pillar of our society. Insurance secures our most treasured items (Home, Auto, and Life) against the uncertainties of life. Houses will burn, but homeowners insurance furnishes funds to rebuild. Cars will crash, but auto insurance pays medical bills and repair costs, and guards against potentially massive liabilities to other people who are injured.

Insurance has come a long way in five thousand years, from the time when Babylonian merchants found investors who agreed to accept the risk of cargo lost at sea in return for a payment. In the 1750’s the oldest insurance company in the united states was founded, the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. The Contributionship was founded by a group of volunteer firefighters led by Benjamin Franklin. The risk of destruction by fire in colonial America was immense, so Franklin and his colleagues adopted the model of the Contributionship. The model basically works in which subscribing homeowners contributed specified amounts to be paid to those unfortunate ones whose houses burned. The risk of fire loss was transferred from the individual homeowner to the Contributionship and shared among its members by their financial contributions. Insurance was a personal and communal concept. Today insurance in the United States is a trillion dollar industry dominated by massive corporations with a strong emphasis on stock price and shareholder values.

What changed?

Historically, within the vast bureaucracy of insurance companies, the ‘claims department’ only job is to pay what is owed, no more but no less. The essential function of a claim department is to fulfill the insurance companies promise as set forth in the insurance policy… which is to insure the prompt, fair, and efficient handling of this promise (of indemnifying the insured from a covered peril as defined in the insured’s policy).

Beginning in the 1990s, many major insurance companies reconsidered this understanding of the claims process. The focus of the claim process was no longer on paying a fair amount promptly, but on paying—or not paying—in amounts, at times, and under conditions that increase the company’s profits. The insight was simple. An insurance company’s greatest expense is what it pays out in claims. If it pays out less in claims, it keeps more in profits.

Therefore, the claims department became a profit center rather than the place that kept the company’s promise.

A major step in this shift occurred when major insurance carriers hired the mega consulting firm Mckinsey & Company to develop new strategies for handling claims. McKinsey saw claims as a “zero-sum game”, with the policyholder and the insurance company competing for the same dollars. No longer would each claim be treated on its merits. Instead, computer systems would be put in place to set the amounts policyholders would be offered, claimants would be deterred from hiring lawyers to help with their claims, and settlements would be offered on a take-it-or-litigate basis. If (x) insurance company moved from “Good Hands” to “boxing Gloves” as McKinsey described it, policyholders would either take a lowball offer from the good hands people or face the boxing gloves of extended litigation.

The Effect

Homeowners and others who depend on insurance care about how well claims are handled but not much about the internal workings of the claims department. Claims are handled well when insurance companies pay what they owe, promptly and without much muss or fuss. When claim departments are transformed into profit centers and the job of claims adjuster (see definition below) is redesigned to be a contributor to corporate profits, ultimately, how claims departments works affect how well they (the adjuster) work. With this new, systematic approach to the claims process, claims departments work well for the companies but sometimes not so well for those who rely on them.

Historically, the key to the claims process was the front-line claims adjuster (or the industry’s friendly and preferred pronoun ‘claims representative’). The claims adjuster would investigate a claim, evaluate coverage under the policy, and make determinations based on the uniqueness and facts of each claim. The adjuster’s job is to honor the company’s promise to pay what is owed, no more but no less. Claims adjusters once exercised considerable discretion in determining how much a claimant was fairly owed. Increasingly, however; they have become agents of a system of claim processing that aims to increase company profits rather than serve policyholders. Adjusters have become less independent and more efficient from the insurance companies’ point of view, with efficiency being defined in terms of following the dictates of the claims system.

The insurance adjuster whose job demands brains, integrity, and guts is now much less in evidence, because most adjusters are more closely bound to office and computer, and are subject to elaborate systems that direct their work. Today’s adjuster is less often an advocate for fair treatment of the consumer because adjusters are often required to conform to the demands of the claim processing system and are evaluated on their conformity to the system including the amount paid out, or not paid out, in claims. Today the key to the claim process is the system, not the adjuster. A highly organized, industrialized system for processing claims is the key to modern insurance adjusting. The model is the shift from individual craftsman to assembly line production in which each factory worker produces a single product, over and over.

The adjuster’s new role, therefore, is less to be an experienced professional making an individual evaluation of each claim and more a clerk executing the demands of the system. From the company’s and the adjuster’s perspective, this makes each claim much like every other claim, which generates efficient and predictable results. From the policyholder’s or claimant’s perspective, that is not the point of the insurance policy; the point is prompt and fair processing of a unique loss.

Claims Adjuster

A Property claims adjuster is someone who investigates insurance claims to determine the extent of the insuring company’s liability. Claims adjusters may handle property claims involving damage to structures, and/or liability claims involving third-person property damage. A claims adjuster reviews each case by speaking with the claimant, interviewing any witnesses, researching records and inspecting any involved property. Claims adjusters also review insurance policies to verify coverage and determine a ‘fair’ amount for settlement. For example, if an insured homeowner makes an insurance claim due to a tree falling on the house, a claims adjuster would interview the claimant (homeowner) and any witnesses and inspect the property to determine the extent of the damage, and the costs of repairing the property. The claims adjuster then submits to the insurance company documentation describing the incident and their recommendations for the claim amount (how much money the insured will receive from the insurance company to repair the property).

Right To Know

Code of Regs. § 2695.9: Preferred Vendors: (c) No insurer shall suggest or recommend that the insured have the property repaired by a specific individual or entity unless: (1) the referral is expressly requested by the claimant; or (2) the claimant has been informed in writing of the right to select a repair individual or entity

You have the right by LAW to choose the contractor with whom you would like to work with to restore your home. This is an important right to understand and the basis for much of what will be discussed in this document. Let me explain. First, I’m going to make a few assumptions. I’m am going to assume that, most likely, you are not one to simply open the phone book and call the first company that catches your eye to come work in your home (we would probably would not be here if that were the case). You most likely research, ask a trusted referral source, check reviews, and get references before you hire someone. Which means you probably are not going to just accept whatever referral for a contractor the insurance insists you use. Second, when you purchased your insurance policy, you most likely did not choose the cheapest, cut-throat policy available. No. I’m sure the agent you purchased your policy from assured you that you have a premium policy with good coverages. And you most likely payed a little extra for that premium coverage. And I’m sure you payed that extra for the peace of mind knowing that if/when god forbid you need to use your insurance, you have good coverage and won’t need to settle on hiring mediocrity. You will be able to choose a contractor of your choosing who will meet your expectations, and of course he/she may not be the cheapest. But then again, isn’t that why you purchased quality insurance?!

Now, let’s say you were to call five different contractors to give you an estimate. What are the odds that all five will be priced exactly the same? Exactly. Zero chance. Why? For one: capitalism (free market). But also because each contractor, based on his/her business model, has its own unique approach and therefore has different overhead, price points, expenses, and profit margins. Now lets say between the five contractors you are vetting, there is a $1500 difference between the highest priced one and the lowest priced one. Is your decision on who you choose to do the work based solely on who is the cheapest? Of course not. You are going to choose the person who you think is best qualified to meet your expectations. And of course, again, he/she may not be the cheapest option.

While it is clearly illegal for an insurance company to pressure, steer, or give you misleading information for the purposes of intimidating you into using their “Preferred Contractor”, this does not stop many of them from doing just that. I’m sure you already understand the motive: how can we save the most money. On the surface, this alone (controlling cost) would seem reasonable and what we would refer to as ‘smart business practices’. However, it’s important to understand the context and true motivating force behind this.

The Preferred Contractor is a Damage Restoration Company that has been assigned by the Insurance Carrier to perform Restoration services for the customer on their behalf. Preferred Vendors are Independent Companies or Franchises who have agreed to follow the rules and limitations the insurance Carrier imposes on them, in exchange for work. Limitations/concessions typically include: what items or tasks they can bill for (example: will they apply two coats of paint to your walls (standard) or just one coat of paint? Well, that depends on whether or not the carrier allows them to), discounting the bill to the Insurance Carrier, following the instructions or orders that are given by an Insurance Representative (usually a Insurance Adjuster). Insurance Carriers prefer this as a method for ‘controlling costs’. While this practice has the desired effect of saving the insurance company hundreds or thousands of dollars per claim, it also puts property owners at risk. The fact that a preferred contractor will do a job at a lower price that an established local builder would find insufficient does not mean that the work is of lower standard, but of course it does not prevent that result either.

The Game

The most common form of ‘intimidation’ Carriers use to influence an insured’s decision about whom they hire to perform repairs is the insinuation that the insured (you) might possibly be responsible for expenses you incur with your contractor, for which the insurance may disagree with or refuse to pay for. The language used to this effect usually sounds something like this: “we only pay for what is customary and reasonable”. Of course this statement is completely arbitrary and means nothing at all. What they are really saying is, we will only pay what WE (the insurance) think is “reasonable and customary”. Anything above what we want to pay will be your responsibility. They want to dictate the job price. Of course this doesn’t make sense. If, by law you have the right to pick the contractor of your choosing, and this is a free market, how then can you do so if the insurance carrier is dictating price by saying they will only pay what THEY THINK is reasonable and customary (also known as Price Fixing)? Answer: It’s a pressure tactic. They want you to believe that by choosing your own independent contractor, if his pricing does not meet what they consider “customary and reasonable” (customary/reasonable = the discounted rates they get from their “preferred vendor”), you will get stuck with the difference. And as a result of this belief you will choose to work with whom they suggest.

(Note: Insurance carriers will often bring in one of their “preferred vendors” to write what they call a comp or ‘comparative’ estimate. These estimates are of course low-balled and dictated by the carriers internal guidelines, but give the insurance adjuster the amo he needs to influence the insured by saying: “See! My guy can do it for this price, so your contractor is ripping you/us off!” We often find that even the “preferred vendor” can not work for the low-balled quotes they are giving. What is really happening is the insurance, deceptively, is using this tactic to get their vendors foot in the door. Once on the job the “vendor” will typically submit “supplemental payments” to make up for the low quote they initially put forth. This still works in the Carriers favor since they are in control of the price and the final amount will still typically be lower than your average contractor).

The good news is, the law is on your side and the carrier DOES NOT get to dictate price or leave you on the hook with unpaid expenses. The free market dictates price and the LAW is clear that, aside from any pertinent exclusions in your policy, the carrier is responsible for expenses you incur as a result of a covered loss. And there are mechanisms in place (Department Of Insurance) to enforce indemnity and protect consumers from these unscrupulous tactics.

We don’t pay for that: We commonly hear insurance carriers claim “we don’t pay for that” or, “this item is the insured’s responsibility.” For example: We only pay for one coat of paint on the wall (even though any reputable contractor would apply two), or, we don’t pay for supervisory or superintendent hours (even though any reputable contractor will have supervision on his/her job site). This is of course a cost cutting measure as far as they are concerned. The math is pretty simple. Let’s assume your Insurance Company insures one million people in the state. Let’s say that on 30% of claims they are successful in wiggling out of paying for a legitimate expense equaling $100, and leave you on the hook to absorb with your contractor. Can you imagine how much money they end up saving? Imagine if its $2/3/400 or even thousands of dollars? I’m sure you’re wondering “well how in the heck do they get away with that”? The simplest answer to this question is that most consumers will only experience a loss once in a lifetime and simply don’t know better. If the carrier says they don’t pay for something they simply take them at face value. Others, however, know they are being treated unfairly but are intimidated by the “big” insurance carrier and are unwilling to stand their ground. Even more, there are those who simply do not want to stand up for themselves and protect their interests. They prefer to avoid the headache and would rather leave their fate in big corporates hands. The end result is the same for the insurance company. They save money, and the insured gets shafted and shorted on a fair settlement to repair their home. Once again, there are consumer protections in place to protect the insured against these bad faith tactics. And if necessary we will show you how to use these protections.

We Work For You

We are hired and tasked by you to protect your home, and the health of its occupants. We carry all the responsibility and liability on the job and are entrusted by you to perform the work correctly. Your adjuster or carrier will, more likely than not, disagree with some of the charges or methods we used in order to successfully return your home to a pre loss condition. Please remember, you hired and entrusted us because we are licensed, insured and certified, we do this every day for a living and we know and perform the steps that are necessary based on your unique loss. Your adjuster or carrier is not a licensed mitigation or reconstruction company, does not do this work for a living, has zero liability, offers you no warranty, and often has no idea what procedures or methods are necessary. Most of their billing disputes will be made solely in an effort to cut costs. Adjusters “adjust” … we are “restorers”. As a professional, reputable and ethical company, we will never cut corners or short the homeowner from a needed service in order to receive job assignments from an insurance company, or to stay on their vendor program. All contractors that work on your loss “should” work for you and NOT the insurance company. It’s your home, you should be calling the shots. Not someone whom you have never met making decisions about YOUR HOME from behind a desk somewhere in kentucky.

Billing Practices

Xactimate is a estimating software maintained by a third party and is used by insurance carriers and some contractors as a guide to determine the estimated cost of a project. Xactimate was developed for the insurance industry so that, with little training, your ‘average-non-contractor-guy’ (aka adjuster) can walk into a damaged home and assess the estimated value of the loss. This allows Insurance carrier to know what kind of reserves they will need to set aside to cover the loss. Many Restoration Contractors have adopted xactimate as a estimating/billing platform as well so that they can better communicate and speak the ‘same language’ as the insurance carrier. Our company uses Xactimate for invoicing as a courtesy to you in order to expedite the review and approval process.

Xactimate (per the software’s guidelines) is to be used as a guide (which means that pricing within the software is not a rule or necessarily accurate, but merely a baseline or starting point) and contractors have the right to determine their own price list, change retail labor rates, material rates, equipment rates, labor efficiencies, and add items that don’t exist. Contractors may need to adjust different line items in order to cover their costs. Many of the line items used within the software encourage contractors to adjust the price when necessary based on, but not limited to, geographical location, time, and/or fees that may change over time.

Xactimate, as with any estimating software, does not come without its own set of issues and is routinely abused by insurance carriers (and some contractors). Insurance generated repair estimates are routinely low-balled. It is not uncommon for a repair estimate we write to be thousands of dollars apart from what a insurance adjuster wrote. We have found that this generally can be attributed to three reasons: 1) A lack of understanding of the true nature of the cost of repairs (after all, they are not contractors), 2) a deliberate attempt to low-ball the claim, and 3) internal cost-cutting guidelines (“we don’t pay for that”) adjusters are given about what particular line item the insurance Carriers has decided to stop paying for.

It is important to remember that the software’s use is not mandatory, and does not always accurately cover all aspects of the claim. As a company we try to use it as often as possible, however, contrary to insurance carriers religious application of the software, we will/do not accept it as the holy grail or one-stop-shop for all things claims related, and will not abide by the software when it is used to cheat our client out of a fair settlement.

While we are generally able to work with the insurance adjuster to rectify the billing differences and bring the repair estimate to where it needs to be in order to perform quality work, it is possible we will need you to step in if we think they are being unfair, and unjustly shorting you from a fair settlement.

Overhead & Profit (O&P): (Fair warning – This standard cost (Contractor’s Overhead & Profit) has become the insurance industries most recent target item to dispute!)

Overhead and Profit are two different types of costs, but they’re almost always paired under the label “O & P”, and stated as two separate numbers; for example “10 and 10”. Overhead are expenses a contractor or company incurs running a company, and cover things like vehicle and insurance payments, phones, employee training, office rent and so on. Profit is the money that allows contractors to stay in business and invest in things like the latest restoration equipment.

As is standard practice for a Licensed General Contractor, our company charges O&P on each and every invoice.The invoicing software (xactimate) we use specifically excludes O&P from the individual line item used within the software and leaves a separate place for it to be added after. The software company has also released a bulletin called the ‘White Paper’ explaining that O&P is not factored into the individual line items, and goes into detail about what overhead and profit is and how ALL contractors have the right to charge for it. The softwares instructions states that after all the individual items have been compiled within the invoice, O&P is added onto them at the end. This instruction is directly from Xactware, the company that owns Xactimate. Why then would something so simple be such a hot-button issue? As we discussed already, adjusters “adjust”, that’s what they do. The adjusters main job is to adjust the claim so that it least affects the bottom line of the insurance company. O&P is usually the single most expensive line item, conveniently placed right at the very end of the invoice where it is super easy to find. So slashing this one line item could save them 20-25% in one single swoop. Excuses we usually hear range from “the job isn’t complicated enough”, “you need 3 trades”, “not on Mitigation” or some other excuse. Sure enough, I am unaware of any insurance policy that states that they will only pay for your claim if its complicated enough, if enough people are involved, or only on a specific task. As usual, this is purely a cost cutting tactic and a game many adjusters play on uninformed home owners. Not surprisingly, this topic has already been determined by many states and has been litigated in court and is referenced in the following cases as well : Mee v. Safeco Ins. Co. Property Loss Adjusting Textbook Tritschler v. Allstate Ins Co. Fire, Casualty & Surety Bulletins Karl v. State farm Fire and Casualty Co Mazzocki v. State Farm Fire & Casualty Corp. Snellen v. State Farm Fire and Casualty Co. Bond v. American Family Mutual Ins Co. TX Dept of Insurance Commissioners Bulletin #B-0045-98 Mills v. Foremost Colorado Div. Of Insurance, Bulletin # B-5.1 Burgess v. Farmers

I’m sure you will agree with me, it is absolutely reasonable for us to believe in covering our expenses and making a profit as part of operating a viable business.

Payment

It is ultimately your responsibility to make sure we are paid within the allotted time dictated by the contract. Payment is expected no later than 14 days from receiving the invoice. This is more than reasonable amount of time for a carrier to review the documentation and send payment. It’s important to note here that It can be beneficial for a carrier to delay payment (the longer they hold onto your money, the more interest they collect on it). Therefore, if the carrier does not pay the invoice in full and on time, you are ultimately responsible for all charges and/or late fees. As with any business (except a bank), it is not feasible for us to float these expenses for long periods, and doing so causes unnecessary hardships and strain on our company. We encourage you follow up on the payment status of your claim every 3-4 days to ensure your claim is being processed in a timely fashion. In the event our contractual payment deadline lapses and payment has not been received we encourage you to pass the late fees and/or penalties on to the carrier. Consider how they would act if you were to pay your insurance premium when it suits you best…..

Final words of wisdom

Protecting your interests: As your contractor we have no power or say with your insurance carrier. To them, we are just ‘your contractor’. Unlike you, the insured, they do not have any obligations or responsibilities to us (i.e. responding to inquiries, making payment within contractual timeframes). The only ‘power’ they bestow upon us is the ‘right’ to ‘negotiate’ our invoices with them (which is also illegal since we are not licensed to ‘negotiate’ insurance claims in CA). Insurance is there to cover you for an unexpected loss in which you incur a monetary expense (a covered loss as defined in your policy). Until you actually incur this monetary expense (i.e. paying the contractor), as far as the insurance carrier is concerned, our invoice is negotiable. Much time is usually wasted by the carrier reaching out to us (without the insured’s knowledge) attempting to negotiate our invoices. Of course we do not negotiate our invoice with them just as they don’t negotiate the insurance premiums you pay them. In our experience, we find that it is a near certainty that you will need to stand up for yourself and protect your interests. We understand this can be challenging especially if you have never dealt with an Insurance Carrier before. We are here for you. Not only to restore your home, but to also guide and help you through this process. Together, lets expedite getting the work paid for without the headache. We will guide you through this. You cannot possibly ask us to many questions. We are here for you long after the project has been completed.

Insurance Law

Fair Claims Practices Act as Ground for the Breach of Good Faith and Fair Dealing – Cal. Ins. Code § 790(h) – acts constituting insurer’s breach of covenant of good faith and fair dealing: (1) Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. (2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies. (3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. (4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured. (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. (6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered. (7) Attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.(8) Attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker. (9) Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made. (10) Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration. (11) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information. (12) Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage. (13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement. (14) Directly advising a claimant not to obtain the services of an attorney. (15) Misleading a claimant as to the applicable statute of limitations.

Timeframes from Notice of Claim – Code of Regs. § 2695.5-7:

• Notice and Acknowledgement of Receipt of Claim: 15 days
• Time to Begin Investigations: 15 days
• Receipt of Claimant’s Communication: 15 days

o This is only if it is clear from the communication a response is required.

• Acceptance or Denial of Claim: 40 days
• Payment of Undisputed Claim: 30 days

Lowball offers – Code of Regs. § 2695.7(g): No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. The Commissioner shall consider any admissible evidence offered regarding the following factors in determining whether or not a settlement offer is unreasonably low:

• (1) the extent to which the insurer considered evidence submitted by the claimant to support the value of the claim;
• (2) the extent to which the insurer considered legal authority or evidence made known to it or reasonably available;
• (3) the extent to which the insurer considered the advice of its claims adjuster as to the amount of damages;…;
• (5) the procedures used by the insurer in determining the dollar amount of property damage;…

Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies – Code of Regs. § 2695.9:

• Consequential Damages: (1) When a loss requires repair or replacement of an item or part, any consequential physical damage incurred in making the repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for depreciation nor any other cost except for the applicable deductible.
• Reasonably Uniform Appearance: (2) When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance.

No Private Cause of Action: None of the laws mentioned above provide for a private cause of action. These are laws under the Insurance Code or promulgated by the Department of Insurance. Although these laws do not provide a private cause of action, they are the basis of the implied covenant of good faith and fair dealing and when an insurer is in breach. Essentially, these laws are used to determine whether an insurer was reasonable. In addition to these laws there is voluminous case law establishing reasonableness of an insurer while processing a claim. So if you feel insurance is acting unreasonably, there is a good chance they are.

Word of Caution to Third-party Vendors: It has become common practice for insurance to rely on quotes from vendors who provide unreasonably low quotes to justify lower settlements from insurance.

• Third-party Vendors as Potential Defendants: While it is not common for third-party vendors to be included in a lawsuit against insurance, the tides may change. When these vendors provide unfavorable reports or estimates to insurance used to underpay or deny claims, those vendors run the risk of being liable to the policyholder for Inducing a Breach of Contract or Negligent Interference with a Contractual Interest.

o When the vendor provides report/estimates to induce the insurer’s breach of the contract, they will be liable for not only what insurance should have paid but potentially punitive damages as well. Showing intent can be established by circumstantial evidence showing the vendor receives a benefit from such acts (e.g., will receive more work for providing low offers or unfavorable reports).

o If they are negligent, then they will be liable only for what insurance would have been responsible to pay. In these cases, the vendor simply makes a mistake in their assessment of a loss.

Assignment of Benefits v. Mechanics Lien v. Lien on Case – California Ins. Code § 520 – An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss except as otherwise provided in Article 2 of Chapter 1 of Part 2 of Division 2 of this code.

• A post-loss agreement to assign benefits is allowed. This is usually done in lieu of a mechanics lien being filed on the property or the matter being litigated in the small claims court.
• Assignment of benefits of a policy is allowed, but the assignee of such benefits can incur the costs associated with litigation (e.g., court filing fees, attorney’s fees, expert witness fees, costs of depositions, etc….)
• An alternative to assignment is taking a lien on the policyholder’s case. If the work has been completed, but the claim was underpaid or denied, then the policyholder can allow vendors who provided services to take a lien on their case. Once a settlement is reached, the policyholder can make payment toward the lien.

Additional Living Expenses (ALE) and Personal Property In many circumstances the policyholder is not provided ALE upon submission of a claim. This is one of the first items that should be addressed during a claim. Properties that are deemed uninhabitable as a result of the loss are not fit to live in, and the policyholder should be provided with a suitable replacement property. In those cases where ALE is provided, insurance will often place the policyholder in a hotel. For losses requiring repairs that will take place over a long period of time, this is not sufficient and most policies provide for like kind temporary housing.