Believe it or not, insurance claims adjusters and restoration contractors share a common goal: creating a satisfied customer from a job well done. One major restoration services franchise organization strives not just for satisfied customers but for “delighted” customers, and they achieve this in 60% of their jobs.
This is truly a remarkable achievement, considering most of their customers have had an insurance loss and, no doubt, have endured the stress and inconvenience associated with these kinds of events.
The more a customer, adjuster and restorer get “out of sync” on a restoration project, the more likely it will be that the customer will not be happy and costs of the project will escalate. Seriously unhappy customers may turn to litigation to resolve their differences.
Here are a few of the most common denominators that arise from many liability claims. See if any or all sound familiar:
- The property owner becomes dissatisfied with the restoration services being provided by the first contractor on a project.
- The property owner reaches out to a second contractor, who usually points out to the property owner where the first contractor has made errors in the restoration which, for more money, the second contractor can fix. Interestingly, both contractors are usually working from the same set of industry guidelines.
- The property owner complains to their insurance company about the restoration work and refuses to pay the first contractor.
- The insurance company that recommended the first contractor shuts that contractor down for all future referrals of work until the problem with the dissatisfied customer is resolved.
- In an attempt to get paid for the original work, the first contractor puts a lien on the property.
- Angered by the whole process, the property owner sues the first contractor and the insurance company. This is where the claim for “Johnny not being able to learn in school anymore” as a result of the restoration work will get thrown on into the mix of compensatory damages, increasing the costs dramatically.
- The first contractor ends up paying, or their liability insurance company ends up paying, teams of lawyers to defend them. The first contractor is also responsible under their contracts with the insurance company to pay the defense costs of the insurance company or the claims network that hired them, plus the costs associated with the second contractor. Most restoration firms do not realize that their service contracts obligate them to pay the legal bills and escalated claims costs of multibillion dollar insurance companies on a job gone bad.
- The second contractor gets drawn into the legal mess with depositions and other internal costs and will usually also a have difficulty getting paid. (Only the lawyers win in this scenario, because the legal bills alone will commonly exceed the original job costs by a factor of ten to 100.)
When a job goes bad, the adjuster will normally side with the policyholder, not the contractor. This situation often leaves the contractor on a slippery slope of accelerating costs, with the normal synergy between the contractor and the adjuster thrown out the window. Restorers need to be aware that the natural gravity of this situation can quickly escalate into unpaid bills, loss of future work from the adjuster and possible litigation.
Here’s how to avoid starting down the slippery slope of a job gone bad:
1. Clear CommunicationMaintaining good lines of communication among the adjuster, the contractor and the property owner at the beginning and throughout the project is essential. Setting and meeting reasonable expectations is the key to a satisfied customer.
2. Avoid Bad CustomersIf you are getting negative vibes, stay away from the job. Some customers are obviously out to set up the contractor for legal action in hopes of getting a windfall recovery from the insurance company. If the customer says “I am suing my first contractor, will you fix this for me?” be very careful; it could be a set up.
3. Set Realistic Expectations for All Parties Early OnIf you know the cabinets will not be available for three weeks, do not tell the property owner and claims adjuster you will be done with the project in two. By the forth week the property owner will be second guessing if you washed the walls appropriately. The adjuster will be second guessing how many dehumidifiers you billed them for.
4. Follow Industry GuidelinesThere are widely accepted industry standards for remediation and restoration; things will go better on jobs that follow them. The second edition of the IICRC S520 Standard and Reference Guide for Professional Mold Remediation took three years to produce and had well over 1,000 public comments considered by a 33-member drafting committee before it became ANSI-accredited.
After that much review, chances are this protocol does not have any glaring errors in it. The Restoration Industry Association also offers protocols incorporating industry best practices, protocols that have been peer reviewed thousands of times.
Claims adjusters and contractors should follow these kinds of industry protocols to the maximum degree possible. Deviating from accepted industry practices opens both parties up to relatively easy-to-prove allegations of negligence.
5. Get on the Same PageClaims adjusters and contractors need to be on the same page as to how to perform the restoration. In my experience, contractors are much more up to speed on the cleaning and restoration industry standards, protocols and guidelines lines than claims adjusters are.
Adjusters need to be aware that deviations from the industry standards are exactly what trial lawyers are looking for to prove the adjuster was acting in bad faith and that the contractor performed a negligent remediation. Not following the guidelines needs to be recognized as a high-risk proposition by the adjuster and the contractor.
As a general rule, if a claims adjuster is not willing to pay for work to be performed according to applicable guidelines, a smart restoration contractor will gracefully avoid the project. The adjuster will assign it to another contractor, possibly a close competitor (who, if they accept, may not be a competitor for long).
The insurance claims industry is set up to enable the adjuster to make their customer happy at the expense of the contractor. On a job gone bad, the contractor is likely to be held responsible under their master service contracts to reimburse the insurance company for any costs the insurance company incurs that were caused or exacerbated by the contractor’s activities.
What makes this situation so unusual is the adjuster will essentially be spending the contractor’s money to make their insurance-buying customer happy, with little or no input from the responsible contractor on the reasonableness of those expenses.
Because of this quirk in the normally synergistic relationship, contractors need exceptionally high-quality liability insurance coverage specifically designed to deal with the relationship between claims adjusters and restoration contractors. Even the claims department of the contractor’s insurance company needs to be briefed on this unusual relationship so that they can respond appropriately to a liability claim against the contractor.
On the bright side, liability insurance policies from insurers that understand the unique relationship between the adjuster and the restorer do not necessary cost more than the ones that don’t.
Contractors need to be aware that making voluntary payments to an adjuster or property owner may not be covered by liability insurance, and that doing so has the potential to void out insurance coverage for those and other expenses. In any situation where it looks like the contractor is being held responsible to reimburse an insurance company for their costs, it is very important that liability insurance company of the contractor be notified as soon as possible (see R&R September/October 2009).
Clear communication based on reasonable expectations while following standard industry restoration guidelines will create satisfied customers for the adjuster and restorer. Following these same guidelines will prevent most jobs from going bad.
On those few jobs that do not go according to plan, restorers who realize the risk deck is stacked against them and actively work to manage their risks will do better in the long run than those operating under the assumption that only good things happen to good people.