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dparsons
USA
13 Posts |
 Posted - 10/03/2003 : 10:43:55
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| Insurance Companies are tyring every angle to keep from paying just about everything and the newest item of the day is one company has decided that they don't owe anything under the Replacement Cost Coverage endorsement if the insured does the work himself. The RCV enddorsements have been around about 50 years or so and I have never heard this angle before in my time at this (less than 50 years but long enough to be grandfathered). Surely SF or AS has tried this but not to my knowledge. I have re-read the form and I know they are hanging their hats on the "actual amount spent" language but I also know there is enough gray area to interpret "cost" as actual labor. Anyone out there have any cases that apply? |
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JWill
USA
28 Posts |
Posted - 10/03/2003 : 14:45:56
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| The NFIP only pays federal minumum wage for cleanup performed by the policyholders. When an insured does the repairs himself/herself, unless they are employed in the trade actively, they aren't entitled to trade wages which is how the RCV + Materials is arrived at. However, as your statement says, "Don't owe under the Replacement Cost Coverage Endorsement" is somewhat tainted. Generally, and in most cases, the ACV settlement is usually plenty and some left over when the insured works themselves. I don't have any links for case law for you to review. They only owe the actual cost to repair/replace. More on this later, have to run. |
J. Williams |
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dparsons
USA
13 Posts |
Posted - 10/03/2003 : 16:56:32
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Let me clarify this. I am not talking about Flood claims. I am talking about everyday hail, wind, and fire claims where items are allowed using unit prices, which do not differentiate between labor and material. I know that is how the databases arrive at these prices but we all get out little lists of local prices for roofing per square, paint per square foot, and so on. I figure a typical 3-tab roof with only 1 layer. I also allow for some paint damage in a den that only stained the ceiling so I only am going to pay the ceiling. Since some companies now want depreciation held back on slopes and ceilings, I take the proper holdback by dividing the estimated age of the roof and paint by its expected life. Say the roof is 10 years old (hard to believe in West Texas!) and is a 20 year 3-tab. I will compute this to 50%. This 50% is applied to the unit price, not just the material. I also do the same to the paint but in this case it is 2 years old and has an expected life of 10 years so we hold back 20%. Again this is 20% of the unit price of, say $.45 SF, instead of 20% of the 2 or 3 gallons of paint. Since it does not take a genius to paint, our insured decides that he will paint the ceiling. Let us also assume that the insured has studied putting on a roof and decides a 3-tab isn't that big of a deal, and decides to do it himself. Now then, he calls and says, "I'm done, come inspect it" so her I go and I see the insured has gone ahead and painted the entire room and he has done a nice job. I also see the roof is installed correctly and according to specs. Now then, since he did not pay someone to do what he did, even though the results are the same, I am now going to tell Mr. Insured that the Insurance Company will not pay him for the holdback. To make this even more interesting, lets say our insured has decided to upgrade to a 30 year laminate which costs him more for material.
It is my opinion that this guy's labor has value and he is entitled to compensation for that value. You can argue the "actively employed as" all you want but let's face it. In small towns, the local carpenter or school teacher puts roofs on and they only do it after a hail storm and you would have NO problem issuing the RCV check based on their invoice. Also, I know in Texas there is no such thing as a "licensed" contractor or roofer so there goes that argument. All you have to have to be a contractor or roofer is a ladder and some cards and invoices.
I guess my beef with this is that once again an insurance carrier has decided to "sharpshoot" the policy language in their favor and to the detriment of the insured. Say, isn't this one of the prime examples of what "Bad Faith" is?
Remember, it is your name that will go on the bottom line!
If someone thinks the company is right in this scenerio, please show me the error of my ways.
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CCarr
Canada
1200 Posts |
Posted - 10/03/2003 : 17:40:11
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Dave, I don't share your view that "insurance companies are trying every angle to keep from paying just about everything ....". I look at JWill's comments and have no criticism of the way ther NFIP approaches the issue, even if that methodology was applied to losses from other perils. I generally agree with JWill's other comments.
There is some other threads where this issue has been battered around, as follows in the Coverage forum;
Page 2 - "Does property have to be replaced in 180 days?". This thread contains some relevant comment and some case law relative to the issue.
Page 4 - "ACV problems in insurance policies". This thread may be of general interest to your issue, once you get past the tail feathers lying on the floor of the thread.
I don't have anything substantive to add to what has already been said in these other threads.
However, reading your 2nd post, I guess there is a difference of opinion in your assessment of carriers "sharpshooting" the policy language, versus my thoughts on carriers "applying" the policy language.
In the "Loss Settlement" clause relative to the building, we see the wording say, ".... at replacement cost without deduction for depreciation, subject to the following ....", then we have the insured to value paragraph, then, ".... but not more than the least of the following amounts .... the necessary amount actually spent to repair or replace the damaged building".
That last language, "necessary amount actually spent", is what triggers the issue you have raised, and in fact is the 'qualifier' even if the insured gets a contractor to do the work, and it cost less than the original estimate.
I think the noted wording in the "Loss Settlement" clause is self explanatory, and is the language that dictates what you say is happening in the issue you raise. I'm not saying you are wrong Dave, but I do think the carrier's application of this is correct.
The problem resulting is two fold. First, not all carriers apply the wording this way, and today we have carriers reverting to it from their previous disregard for it. Second, utilizing unit pricing does not allow for the proper application of depreciation (holdback), as you have pointed out, there is no separation of labor and materials in the example you gave; and I agree it is wrong to "depreciate" labor. However, carriers may be looking at this as a 'factoring' of the unit price to more accurately represent a DIY project by the homeowner, not worthy in dollar value for the built in contractor's labor price allowed in the original estimate. |
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Ghostbuster
476 Posts |
Posted - 10/03/2003 : 20:20:02
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All of which points up the reality that one must plan ahead to play the game of Maximum Recovery. One possibility is for the Insured to set up his 92 year old widowed neighbor has his contractor to have a phony invoice and collect the applied depreciation. It is very important not to get ambitious or greedy and stay low key so as not to attract attention. Timing is also a factor. It needs to arrive in the claims office at the same time as the rest of the neighbors hits the office.
If your gonna play the Game, play by the rules.
(If all of this sounds treasonous, it probaly is. I've been trying to make sense of the criteria used by Farmers Ins Group underwriters on homeowners policy acceptability today, and I'm kinda burned out.) |
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dparsons
USA
13 Posts |
Posted - 10/03/2003 : 21:50:06
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I can remember years ago when these Bad Faith suits started coming up. The courts felt that since the insurance carriers had the sole control over the writing of the policies, they bore a greater duty to the insureds who had little or no control over their makeup. I even remember a case where the court ruled that if an insurance carrier failed to look at coverage in a way that tried to find coverage, that in itself was proof of Bad Faith. I'll bet most of us can either remember having this pounded in our brains in training, or are old enough to remember going through "retraining" to get the old system out of our heads. Well, it seems we have a new breed of management who has no ties to where we have been. Property claims divisions are being headed up by Auto or Casualty people who haven;t a clue about what the differences are. One company's property claims division has been taken over by Casualty pukes from Progressive, which in Arabic means Sweat Shop. I think the "Peter Principal" has been replaced with the "Dumb and Dumber" principal. If you are Dumb, you will be made a manager. If you are Dumber, you will be a Division manager. If you are a complete Dumbass, you will be the CEO! If someone cannot make it on the street, a Fire and Casualty carrier will hire this person as upper level management and they will learn to say "team" and "family". I guess seeing all of the crap that is coming out of the insurance companies today makes we sad. I am not sympathetic to their so called losses because they have really brought it on themselves by being less than candid. Many are owned by out of country conglomerates and they skim everything off the top and expect the claim rep to work 15 hours a day and micromanage the hell out of him or her. Nosiree, I chuckle at each big ol' award. They have earned it. They moved out all of us dinosauers because we tried to show them where they might be wrong. I have finally figured out that people can't think, see or hear while running around with their nose up someone elses' butt. I is really sad what has happened to the Insurance industry in tha last 15 years. Oh, and this is not treasonous, just a fact.
And to clarify "sharpshoot". This is when an executive with no porperty experience decides language means something it never has before and finds a lawyer to back him up. Sometimes they goto 2 or 3 attorneys before they get a "correct" opinion. Who cares about history forged by common law and cases. All the insured is good for is to pay 3 times as much for 60% less coverage. Then we will keep that idiot in line by "new interpretations" that allow even more denials! |
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KileAnderson
USA
875 Posts |
Posted - 10/03/2003 : 22:07:03
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I have encountered this situation several times while working cleanup. Usually if they submit the invoices for materials and explain they did te work themselves I have always paid the RCV benefits they are due in full. I have done this several times and no one has ever told me to do otherwise. I've cleared it with the storm manager on several occasions and they have always been fine with it.
I always thought that it was funny that if an insured does the work himself he gets full RCB, but if he hires a contractor who does it for less than the estimated price he gets the difference between ACV and what was spent. The insured would be better off asking the contractor for the materials receipts and skipping the contractor's invoice all together. |
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Type R 1090
Canada
14 Posts |
Posted - 10/04/2003 : 00:33:10
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If an insured decides to do the work themselves, I will always reimburse them replacement cost on materials (that figure of course, not to exceed the materials estimate on the scope)upon completion of work and submission of invoices.
As far as labour is concerned, I would usually credit them $10(Cdn)/hour. I'll explain to them that insurance is a contract of indemnity, so they cannot profit from their loss in anyway and are therefore not entitled to a contractor's labour rate or their 21% overhead and profit. |
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dparsons
USA
13 Posts |
Posted - 10/04/2003 : 09:38:46
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| I agree that the insured is probably not entitled to the same rate as a roofer (we don't pay P&O on roofs or painting here) but I think we might be more up front with a disclaimer in the ACV payment letter. |
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CCarr
Canada
1200 Posts |
Posted - 10/04/2003 : 10:44:43
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That is another valid point Dave, but I wouldn't refer to it as a "disclaimer" in the ACV letter. Aside from what the adjuster verbally communicated to the insured when an ACV payment was made (if that is the carrier 'system'), the payment should be attached to a template type letter that spells out the policy language on ACV and RC requirements; should the insured wish to repair or replace the damaged property. The insurer's initial obligation is only to the ACV value of the damage, it is the insured's election and choice then to proceed according to the policy with replacement.
With that letter attached to the ACV payment, the insured is informed, and has clear expectations regarding any efforts regarding replacement after the initial ACV payment. |
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JWill
USA
28 Posts |
Posted - 10/05/2003 : 18:15:59
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As to the NFIP, they seem to be the only ones that will address "homeowner labor" in writing, that's why I referenced it.
Now we are all back to the same page. It goes back to that first conversation the inspecting adjuster had with the insured, did he explain the RCV/ACV settlement? Did he quote an "about figure" for the loss?(a no no) Was a contractor in tow as the loss was inspected? Usually during the converations with most insureds they exclaim that they wish to do the repairs, the loss is adjusted in that manner and is reasonable. What about the times when an insured will ask the adjuster about doing the repairs themselves and being an astute person with the pricing in their area of operation for say, minimum sheetrock repair and painting, while adding in the head, they tell the insured that if they did the repairs, their deductible would not be satisfied. What worms are crawling about now?
It all boils down to the "Actual Cost of Repair or Replacement", that's it. If you arrange an "Agreed Price", they owe it all, (I say this because most carriers try and engage experienced large loss adjusters on fires for this reason, have you ever been told that they would like to see an agreed price and contract within ten days of your arrival at the loss site?)if you leave it open, the carrier is entitled to know if the ACV was satisfied, if the loss came in lower, they owe no more. An interesting point also, if adjusters keep over estimating losses, E&O can trigger.
I've found that if I spend the time to explain RCV/ACV settlements to the insureds and that if they get the work done cheaper than allowed by the accepted estimating software we all use(our backup for what appears to be a fair settlement)then that's all they are entitled to. The policy conditions set forth was adhered to. They got a new roof for their loss, there friend down the street completed the job at $1500, your estimate was $2500 less $1000 for depreciation, less $250 for the deductible, no other payment is needed. |
J. Williams |
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Manmut
USA
26 Posts |
Posted - 10/07/2003 : 13:06:52
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I would argue that what is generally presented to an insured is an estimate. It is our best, educated guess as to what it will cost to complete the necessary repairs. Unit cost estimates (allegedly) include allowances for expenses a contractor incurs, such as overhead and profit, that an insured does not incur. The estimate is not a promise, a contract, or an agreement. If the estimate was too low, the insured would certainly not accept a rigid adherence to the amounts on the estimate, so why should he/she insist on the same if it is too high?
If the insured insists on completing repairs rather than hiring a contractor, I generally reach an agreement before settling the claim that I will pay the insured materials and labor. We reach an agreed labor rate up front, anywhere from $10 to $15 per hour depending on the job to be done. I pay the insured the ACV on the materials alone, and agree to pay the labor expense once it is incurred. On smaller claims I'll often reach agreement with the insured that their labor satisfies their deductible.
I think there is a huge difference between an insured completing repairs and a contractor completing repairs. The insured generally purchases the materials at a higher cost than the contractor, but can perform the labor at a much cheaper rate. However, if there is a problem with the repair itself, I can't subrogate against my own insured for poor construction. For this reason alone I'm not a big fan of insureds doing their own repairs. I don't see any advantage to paying an insured the same amount you'd pay a professional contractor for doing the same repairs, especially if you have no legal recourse when you find out they improperly repaired the home. |
Patrick W. Laws |
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KileAnderson
USA
875 Posts |
Posted - 10/07/2003 : 19:56:54
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| But then you run into what is the actual time spent to do the repairs. A roofer might be able to do the entire job in 12 hours but an inexperienced homeowner might spend an entire weekend doing the front and another weekend doing the back. Do you now owe him for 40 hours when an experienced contractor could have done it in 12? |
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fivedaily
USA
258 Posts |
Posted - 10/07/2003 : 20:15:34
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Maybe for 40 hours, but at what rate? The contractor's rate? I don't think so. Unskilled labor gets minimum wage on the open market.
Jennifer |
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khromas
USA
103 Posts |
Posted - 10/07/2003 : 21:47:35
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With the explosion of DIY shows on the tube, this issue will continue to be an area of contention in regards to the "value" of a repair for a claim. More and more people are taking the approach of doing their own work, especially on the smaller losses and will sometimes (NOTE THE QUALIFICATION!) do a better job than a contractor would do because they may take more time and care. You also may find someone like myself who spent over 20 years as a builder and be extremely unlikely to hire any work out! Since I have been out of construction for 7 years, would the value of my work be less since I do not have the "contractor's costs" involved?
The issue here is the "VALUE" of the repairs as it pertains to returning the property to its pre-loss state. A piece of drywall, properly hung and finished has the same "value" to the insured property regardless of who put it in place. If I have come to agreement with an insured that the "value" (i.e. COST) of the piece of drywall is $20.00, then that is the amount properly payable to restore the property, regardless of the other issues. The policy wording of "reasonable and necessary" has been used by the industry in a way to cut claim costs in a highly questionable way. I anticipate a future legal challenge if a savy insured gets hosed by this issue!
(I have a JD but I am NOT providing legal advice on this issue so do not hold this out as a legal opinion! Just the way I look at it!) |
Kevin Hromas |
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Ghostbuster
476 Posts |
Posted - 10/07/2003 : 23:10:35
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The root of this diatribe lies in the cold hearted fact that the insurance industry is infected with a bad case of 'controlitis'. That is to say, we are control freaks. This is evident in the claims world because we are the money and money talks and all else walks. We want to control every aspect of the claim. The element of trust and common sense is a fading dream. It should make no difference to us who does the repairs. Our estimate should reflect the correct scope and pricing that a competent contractor would charge to restore the property to pre-loss condition. If the loss is of the magnitude to warrant O&P, then O&P should be included. Apply proper depreciation, the deductible, then write the check for the ACV payment.
Probing discussions as to who will do the repairs is NOT our business. We should NOT care who does the repairs. Now, per the policy language for the RCC payment, this must be followed verbatim. It is the actual cost of repairs that determines the amount of the RCC payment. If the Insured does their own repairs and spends less than the ACV payment, there is no more recovery. As the Insured profited? That is not the issue for us, that is a red herring. We have made an ACV payment based on our estimate. That is our duty, not to play mind games with our customer and try to bend the nickle till the buffalo poops. |
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Payment of Holdback
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