As I sat at lunch with a restoration contractor, the familiar story unfolded: “I did the Cat 3 water loss according to the IICRC S500 and the adjuster only wants to pay me for a Cat 2 loss. She knocked $1,000 off my bill. The job was from a backed up toilet in a home, I had to perform a Cat 3 water restoration. I had invoiced the job according to Xactimate software. What do I tell the adjuster in order to get paid the $1,000 they owe me?”

I have heard that scenario a lot over the past 10 years, not getting paid more for a Category 3 water loss than a Category 2 loss - it must happen a lot. This situation should never happen at all. If the insurance claims adjuster and contractor are on the same page and both are using the Xactimate software accurately, both would arrive at the same value of the job.

If the property owner and claims adjuster had any idea of how risky it is not to follow the IICRC S500 Professional Water Damage Restoration Standard and that they are completely uninsured for the resulting risks arising from not following the industry standards, I suspect there would be many fewer disagreements whether to follow Category 2 or Category 3 water loss protocols on a Category 3 water loss. 

There are common denominators in every case I am familiar with where a claims adjuster or property owner did not want to pay the contractor for the extra work necessary to eliminate the bacteria-related loss exposure on a Category 3 job:

1. The customer and the contractor were not in agreement at the beginning of the job on what level of restoration would be necessary as determined by the IICRC S500 Standard.
2. It was very risky for all the stakeholders to perform restoration work below the IICRC-recommended protocol.
3. Neither the property owner nor claims adjuster had any appreciation for the uninsured risk they were taking on in their decision to not remediate according to the IICRC Standard
4. Once Category 3 water entered the picture, both the property owner and the insurance company were totally uninsured for losses arising from their decisions on the level of remediation to be conducted.

The key to getting paid is to convince the property owner or claims adjuster at the beginning of a project that a Category 3 water loss needs to be remediated as a Category 3 water loss. One way to convince them to do the job the right way is to show them it is over-the-top risky to do so otherwise.

One problem you face is that the property owner and the claims adjuster likely have never heard of the three categories of water.  Carry the S500 with you to be able to show them the differences.

Three out of the four common denominators in being short-paid on Category 3 water jobs are insurance and risk management related. Therefore playing the risk management card should be a powerful motivator for the property owner and claims adjuster to pay you for performing a Category 3 water restoration. Playing “the risk management” card also helps you manage your own risk. 

What is the risk management card? Think of a deck of cards with each card stating a reason why your customer should hire you or why you should perform a job a certain way. Those reasons would include: does quality work, fair and reasonable pricing, on-time performance, carries the right liability insurance, and other benefits associated with hiring your firm.

Believe it or not, insurance companies are very risk adverse. As evidence of this, all you need to do is look at their contracts for restoration work. They ask for lots of insurance and make you be their insurance company through indemnity agreements if anything goes wrong on your job, even if the insurance company made the mistake. Cleaning up Category 3 water as if it was Category 1 or 2 water are examples of common insurance claims adjuster mistakes.

At the home office level insurance companies place a very high value on the risk management card and this would especially be true anytime a toxic tort may be involved. A tort is a civil wrong which unfairly causes someone else to suffer loss or harm resulting in legal liability for the person who causes the harm. A toxic tort is where a party is accused of causing harm by exposing others to toxic materials. Exposing others to fungi/mold/bacteria fungus falls within the definition of toxic torts. By default, Category 3 water can lead to a toxic tort because of the bacteria the water contains.

Insurance claims adjusters deciding to not remediate a water loss properly can set their employers up for a toxic tort lawsuit. This has happened before. The “toxic mold” insurance crisis was really set into motion by a homeowner named Melinda Ballard as a result of a leaking ice maker which resulted in mold growth in the subflooring of her home in Dripping Springs, TX. Farmers Insurance Company, who had issued a homeowners insurance policy with a $300,000 policy limit on the property, was going through a period of corporate restructuring in their claims department when the Ballard’s submitted their first water damage claim. Three sets of Farmers claims adjusters worked on the Ballard claim for many months seeking resolution. The third set of Farmers claims adjusters had some tests conducted on the floor, which revealed the home was infested with mold. The adjusters did not share that information with the Ballard’s nor did the adjusters warn the Ballard’s of the dangerous living conditions in the home which were created by the mold. When Melinda Ballard discovered what Farmers Insurance Company had done, she sued them for injuring her family through negligent claims adjusting. Ballard’s lawyer won the case and the judge slapped Farmers with a $32-million toxic tort judgment. Selling a homeowners insurance policy with a $300,000 limit of liability and getting zinged with a $32-million loss (which was reduced upon appeal) set the insurance world into a “toxic mold” tizzy around 2002. In response, insurance companies slammed in mold and bacteria exclusions in 2005 which also left everyone uninsured or under insured for Category 3 water.

The Ballard case is a perfect example of what can happen to an insurance company allowing their claims adjusters to endanger the occupants of a property. Treating a Category 3 water loss like a Category 2 water loss endangers the occupants of the property.  So one way to play the risk management card is to inform the claims adjuster of the risks they could subject their employer to by treating a Category 3 water loss like it is a Category 2 loss. You pointing that out to the adjuster in writing increases the risk of the claims adjuster in not following the S500 protocol. As a result, it increases the likelihood that you will be paid for a Category 3 water loss.

The S500 book itself is another card to have in your deck. Every word in the IICRC S500 has been reviewed with an eye towards risk management. I know this because I have served as a voting member on the consensus drafting committees of the S500 and the S520, which means I have reviewed every word in the document several times, just like every other committee member. The lowest risk path for the property owner, claims adjuster and the contractor alike is to stick to the standards and guidelines in the book. Deviating from the book is risky for everyone. Getting the adjuster to stick to the book will get you paid for Category 3 water. 

 Author’s Note: This is Part 1 of a two-part series. See Part II in the May issue of R&R here.