What would you do if you were forced to use a contractor you didn’t choose?
If you’re like me, to put it mildly, you’d be fuming.
When picking a company to work with, you’re supposed to have a choice, right?
99% of the time, the answer is yes, but when insurance companies pay the bill, that’s not always the case.
Do I Have a Right to Choose My Own Contractor for a Home Insurance Claim?
In most situations, yes, you have the right to choose your restoration contractor. Then, you work with the insurance company to get to an agreed price for your insurance claim. Technically, an insurance company can’t ‘force’ you to use their contractor because they can’t force you to make the repairs. What they can do is make it so that using their preferred contractor is the best or only viable option if you’re going to complete repairs.
Here are some ways it can happen.
Not all insurance policies give you the freedom to hire your own contractor. Some insurance policies have a “Preferred Contractor Endorsement.” These specific endorsements usually state the insurance company will perform the repairs.
Managed Repair Programs, like that of Citizens Property Insurance Corporation in Florida, can allow the insurance company to cap the total amount of the claim. This would happen if you didn’t use their preferred contractor. For example, your claim could cost $100,000, but you’d only get $10,000 if you wanted to use a contractor of your choice. With these programs, the insurance check gets paid to the contractor directly by the claims adjuster.
An insurance company can invoke its “right to repair” and require you to use a contractor of its choosing. Even insurance policies that do not have a Preferred Contractor Endorsement or Managed Repair Program requirement will still contain a clause called the “Right to Repair.” This means insurance companies can bring in their own restoration contractor to perform the repairs. It’s not common for insurance companies to do this, but it’s helpful to know that nearly all policies give an insurance company this right.
A good insurance agent will inform you of these types of endorsements and policies; make sure you know what you’re buying.
Why Would an Insurance Company Invoke Its Right to Repair?
An insurance company might invoke its right to repair for the same reason you look for cheaper gas or buy a plane ticket when it’s on sale. Saving money.
If your roofer says they can replace the roof for $25,000 and the insurance company has a preferred contractor who’ll replace it for $20,000, why would they pay more money?
An Insurance Company Only Owes Fair Market Value for Insurance Claim Repairs.
This means that your insurance company isn’t required to pay whatever a contractor charges. It’s their responsibility to pay fairly to put you back to your previous condition. They’ll often use a preferred contractor as a backstop to decide what ‘fairly’ is.
Why Does My Contractor and the Insurance Preferred Contractors Disagree on Construction Costs?
In my experience, when there’s a disagreement on price, it’s often related to incorrect or incomplete communications regarding the scope of work for the project. The insurance company’s preferred contractors work from the scope of work the insurance company approved. That’s generally where things start heading down the wrong path in the claim process.
Construction costs are (should be) driven by the scope of work and complexity of a job. All additional factors are considered after defining those two variables. To determine a full scope of work, you need to know the full extent of the damage and everything that will go into fixing it. An insurance adjuster is rarely qualified to decide what the full scope of work should be for repairs. They can get you started with an estimate, but you need a contractor to determine the full scope of work and price.
4 Common issues that cause disputes over property insurance claims and repair costs
Scope of work discrepancies and disagreements (most common issue)Reputable contractors understand the importance of a proper scope of work for an insurance claim. It defines the agreement around the work to be done. It protects all parties from cost overruns and disagreements over what is included in the price. And when documented well, it becomes powerful within a Proof of Loss.
Issues with coverage
Not everything is covered under every policy. If you’re trying to get paid for something that is clearly not covered, you’ll run into a dead end. It’s important to remember that a restoration contractor or general contractor can’t legally argue or negotiate over coverage with an insurance company.
Miscommunication The home insurance claim process is not easy, and it’s easy to get overwhelmed by it. There are so many moving parts and different conversations happening that information can be easily misconstrued. Having a clear understanding of all the different parties’ perspectives is the key to clearing up disagreements.
Inflated contractor estimates & deflated adjuster estimatesContractors charging more than Fair Market Value OR insurance carriers attempting to lower claim costs by underpaying (often both occur at the same time) are both issues that lead to claim disputes. Public adjusters can be helpful in clearing up these types of issues between your contractor and home insurance company.
If you’re not working from one central scope of work when getting bids or negotiating your insurance claim work, you’re speaking different languages. Even a simple fence bid can contain major differences in the scope of work.
You must know exactly what you’re getting before comparing prices; otherwise, it’s like comparing a Toyota Camry to a Porsche 911 – they may both be cars, but they’re certainly not the same.
What if I Don’t Want to Use my Insurance Company’s Preferred Contractor?
Short answer: you don’t have to. But, the insurance company will likely challenge you to pay only up to the amount their preferred contractor says the job will cost. If you don’t know how to navigate this type of situation, choosing a contractor that isn’t on the insurance company’s list could put you on the hook for the difference if their price is higher.
If you want to use a restoration company of your choice and still have your claim paid in full, you need to disqualify the preferred contractor as a viable candidate to make repairs. Your insurance policy and state statutes will explain the conditions for using a preferred contractor, and if those conditions can’t be met, you can demand to use an independent contractor.
For example, an insurance company can’t force you to hire an insurance company contractor who can’t perform the work in a timely manner. They can’t force you to work with a business that isn’t properly licensed or doesn’t have general liability insurance.
Pros and Cons of Using an Insurance Company’s Preferred Contractor
Every decision has positives and negatives, and choosing whether or not to work with an insurance company contractor is no different.
Streamlined ProcessOne advantage can be a streamlined claims process. Insurance companies pay based on pre-negotiated terms with their preferred contractors and material suppliers for home insurance claims, which can expedite the repairs and lower costs.
Preferred contractors are usually vetted by the insurance company, providing a minor level of quality assurance. They’re often required to meet specific standards and offer you a warranty and guarantees on their work.
Insurance companies negotiate rates with their preferred contractors, which can result in cost savings that might be passed on to the policyholder in the form of lower premiums or deductibles.
The insurance company sends the insurance check to the preferred contractor, simplifying the payment process for the policyholder.
The most glaring downside is the limitation on choice. Policyholders may have to forego their preferred contractors for those chosen by the insurance company, which can be frustrating. Preferred contractors may force you into a one-size-fits-all process. They may not be as skilled as your contractor.
Potential for Low-Quality Work
While insurance companies usually vet their contractors, the reason for these programs is cost savings. The focus on cost-savings can sometimes lead to subpar work, as contractors may cut corners to meet your insurer’s budget constraints.
Conflict of Interest
The contractor’s primary relationship is with the insurance company, not the homeowner. This creates a conflict of interest, where the contractor prioritizes an insurer’s interests over the quality and completeness of repairs for you.
Legal ComplicationsIf the insurance company invokes its right to repair and uses a preferred contractor for the repair work, the policy effectively becomes a construction contract. This can introduce legal complexities, including your insurer’s liability for construction means, methods, and construction defects. This can be positive for you if the insurance company takes on the risk of the contractor performing appropriately. If the insurance company isn’t taking on that risk and responsibility, you’re at a serious disadvantage when working with a preferred contractor.
Using an insurance company’s preferred contractor has its merits, particularly in terms of process efficiency and cost-effectiveness for the insurance company. However, it also raises concerns about quality, choice, and legal implications. So unless you’re getting great guarantees and the insurance company takes responsibility for the contractors’ work, it’s not worth working with a preferred contractor.
Ultimately, the decision is up to you, but don’t be bullied. If you want to use your own contractor and you’re having trouble, post a question to our experts.
Thanks for reading.