Insurance companies have started exercising their options to repair under many of their contracts. What this means is that they are bringing in contractors of their choice to fix the damages resulting from a property loss they cover. Let’s be honest.  They have a right to do this, but it often isn’t in the best interest of their customers when they choose to do so. Why?

Problems often arise when the insurance carriers motivation is to save as much money as possible and avoid claim disputes that could lead to litigation. So they engage the cheapest contractors possible. But cheap does not always equal best quality and let me give you a few real-life examples of situations where things did not necessarily work out to the customers’ benefit. 
Example 1:  A contractor was brought in to fix building damages as a result of a sinkhole. Instead of properly leveling the house as the policy coverage allowed for, they built up the floor with mortar mix in the corner of the dining room in order to get the floor level. They then installed replacement ceramic tile but found that the floor elevation was now too high to accommodate an existing china cabinet. Their solution: saw off the top of the china cabinet to make it fit!

I don’t know about you, but if I was a homeowner and found that this had happened, I’d be a bit annoyed to say the least!
Example 2:  Under oath, during the course of a lawsuit, a managed repair program contractor took the stand. When he was questioned about why he used a mismatched tile in the middle of the bathroom floor, he answered “I didn’t think that the homeowner would notice.” Didn’t think that they’d notice! Think about that for a moment. He knew that it wasn’t right and that it didn’t make the property owners whole again, but to save money, he did it anyway under the authority of the insurance company. 
Example 3:   A property owner had a sinkhole confirmed by his insurance carrier. The carrier sent out a contractor who wrote what the homeowner refers to as “a duct-tape” repair estimate. The initial estimate was in the neighborhood of $18,000. He subsequently brought in a Public Adjuster who (using industry software, a tape measure, and the naked eye) wrote an estimate in the approximate amount of $110,000. When further damages to the roof structure evidenced themselves, the PA called in an independent licensed class A general contractor who wrote an estimate for repair in the area of $135,000.00.

The insurance company continued to insist on hiring their contractor to do the slap-dash home repairs and also engage a sub-surface contractor to “repair” the sinkhole by injecting concrete into the ground, despite that fact that the experts brought in by the homeowner’s team of representatives pointed out that the soils were sandy and non-supportive and there was a pond (old sinkhole) directly behind the property in question. 

The fight lasted for years. It had been approximately 2 years before the engagement of the PA, and another 7 years including the filing of a lawsuit before a mediated agreement was reached between the parties. The agreement allowed the insurance company to have the sinkhole repaired at their cost, by their contractor and under the supervision of their so called engineering expert. Once completed, they would have their experts write an estimate for any differences of opinion which could be sorted out later. 
Their experts, including the engineering firm and the sub-surface contractor found that the costs to repair the sinkhole itself (which would have included the installation of non-standard sub-surface supports around the entirety of the perimeter and underside of the slab) and the risks involved to surrounding properties and to the life, health and safety of the workers involved rendered the repair process not economically feasible. This was exactly what the homeowner and his representatives had been saying for the entire time.  All this, some 9 years after the loss had been discovered and reported!

Something a property owner should keep in mind and an insurance company should surely be aware of: The typical first-party property policy does certainly allow for the carrier to exercise their option to repair but it does not abrogate their responsibility to indemnify their insureds to make them whole again. Further, once they have exercised that option, they have essentially executed a new contract with the property owner, a contract without policy limits and it is the property owner who is the final arbiter of whether the job has been done completely and correctly. 

This dilemma, coupled with the problem of sub-standard contractors being employed by carriers in many cases opens the door not to cost savings but to an actual increase in claims costs which (let’s not kid ourselves) are passed on to you the consumer in the form of higher insurance premiums. 

Let us know what you think.