Q. I had water damage in my house due to an over flowing toilet. My insurance company said it would pay $8,000 to the restoration company that did the clean-up. The problem is that the restoration company who did the water extraction sent me a bill for $36,000. The insurance company sent me a check for $8,050.  Should I mediate or go the appraisal route?
 
A. In a seminar our firm gave to Florida property managers for CE credits last week, part of the presentation involved hot topics in the claim adjustment profession. Other than the FEMA/NFIP debacle with the National Flood Insurance Program insurance premiums, the other hot topic in Florida property insurance is water damage losses as pointed out in my blog last week, Water Losses and Your Home Insurance … Are You “Really” Covered? This included the ASSIGNMENT of BENEFITS forms that are being abused by water emergency service restoration contractors.

Now a policyholder writes and asks the question on how to resolve a dispute they are having with their insurance company and the water emergency service restoration company that did the work. It seems the restoration company charged $ 36,000 and the insurance company sent a check for $8,050.  So, you no doubt ask, how can this be?  Did the restoration company send the wrong bill? There is no way a trained and experienced insurance company adjuster could have missed all this scope and pricing for their policyholder.  So the question they asked me was which dispute resolution form should they use, APPRAISAL or MEDIATION?

This is a difficult one to answer as fact issues would drive my answer, which was not provided.  As an example, did the policy limit water damage coverage to the amount paid, less a deductible?  Remember the insurance industry is reducing this coverage across the board. Was mold involved, or part of the $36,000 bill for contents or personal property that may not have been covered? Was this a condominium loss and the water clean-up company worked on property that was part of the master association as well as that of the unit owners?  As you can imagine, there are always a lot of issues with water losses, all of which should have been sorted out and agreed to BEFORE the work was started.

What should have been done to prevent this type of dispute is that the insurance adjuster for the insurance company and the insured, or if they were sophisticated enough to hire their own professional adjuster, should all have agreed on the scope and price of the loss before work commenced. 

Having said that, my gut feeling is that the insurance company and emergency service company took advantage of this policyholder by not sending out an adjuster to aid them. Then the emergency service company saw an opportunity to inflate the bill. I am told there is a great deal of this going on in South Florida, where in addition to inflating bills, the water emergency service companies are taking an ASSIGNMENT of BENEFITS and then going directly to the insurance company to get paid either through lawsuit or demanding appraisal if that forum is in the policy.

So what should this policyholder do; mediation or appraisal? I suggest that the policyholder and the insurance company marshal their forces and demand the water emergency services company go to a nonbinding mediation. This way the insurance company can question the scope and price of the loss and provide a buffer to their policyholder. Who knows, if the insurance company shows up, the water contractor may wake up and realize that they will not get any more business from this insurance company. If appraisal is available in the policy it can be very dangerous for an unsophisticated policyholder as it will most likely be binding and it is a forum you do not want to enter unless you have an extensive background of knowledge and experience in the appraisal process. Hire a professional if you plan to go this route.

If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster or insurance claim experts.