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Last Post 12/17/2007 10:14 PM by  HuskerCat
What Is The Definition Of Replacement Cost Coverage?
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Ray Hall
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12/11/2007 7:12 PM

Mr. Contractor: Just have the insured send in a sworn proof of loss to the insurance company for the amount of the loss, by registered mail. Also send your documantation and photos and he/ and you (with a direction to pay) should get a joint check within 5 days. If the property has a mortgagee call them for instructions and you may not need to have them included if they are confident their interest in not impaired, or just ask for a three party check.

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Doug Weaver
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12/12/2007 6:45 AM
Sounds like a typical Allstate experience to me. They claim to allow 29% O&P but there estimates always fall short of actuall Xactimate pricing. Allstate uses a different estimating software program. As a contractor I truly hate to hear an insured tell me there company is Allstate.
Good Luck with this brother, and keep us poster on your results with them.

Doug
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Ray Hall
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12/12/2007 11:43 AM

What is the definition of replacement cost coverage ? This seems to be a hard question for many as it is not in the definition page of the HO-3 (last) ... "new for old; except the betterment will not be paid up front in all claims".

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Ed The Roofer
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12/12/2007 11:57 AM

Well guys, lets put my own situation aside for a moment.

What seemingly started out to be a simple question, seems to not have a definitive answer, or does it, and some insurance companies just try to skirt around the contracted value.

I looked up the definition of "Replacement Cost Coverage" on the Insurance Information Institute, and this is what they state as a definition:

REPLACEMENT COST
Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

 

That seems to allow for the actual costs incurred up to the maximum dollar amount listed on the declarations page.

If Insurance Company X pays one sum and Insurance Company Y pays a different sum and the contractors standard everyday pricing is slightly higher than both X and Y, whos price is correct?

From the definition, it would seem that the actual price up to the limits of the policy would be the only cost that matters.

Besides trying to chisel down the value of the loss, would there be any other reason that I do not see, that could create this disparity?

P.S.  When the situation begins to unfold in the actual job I have initially posted about, I will most definitely keep all of you good folks aprised as to the outcome and how it arrived there.  You all have been extremely gracious by continuing to explore this topic, and I would make certain that you all get to hear the final outcome.

Thanks,

Ed

 

edit:

I dug up this example from the Insurance Information Institute as well:

How is the settlement amount determined?

The settlement amount depends on which type of policy you have. Having inadequate insurance can affect the amount of compensation you get.

Replacement Cost and Actual Cash Value
Replacement cost provides you with the dollar amount needed to replace a damaged item with one of similar kind and quality without deducting for depreciation—the decrease in value due to age, obsolescence, wear and tear and other factors. An actual cash value policy pays you the amount needed to replace the item minus depreciation.

Suppose, for example, a tree fell through the roof onto your eight-year-old washing machine. If you had a replacement cost policy for the contents of your home, the insurance company would pay to replace the old machine with a new one. If you had an actual cash value policy, the company would pay only a percentage of the cost of a new washing machine because a machine that has been used for eight years would be worth less than its original cost.

Suppose, also, that the tree damaged your 15-year-old roof so badly that it had to be completely replaced. If you had a replacement cost policy, the insurance company would pay the full cost of installing a new roof. If you had an actual cash value policy, it would pay a smaller percentage of the cost of replacing it.

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Leland
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12/12/2007 1:49 PM
From your side of the story it sounds like you're not being treated fairly but I don't think your focus on the legal, contractual definition of replacement cost is really helping yourself.

If you went into a local diner and ordered ham & eggs that would legally be considered a type of contract: "offer and acceptance". The sign in the window that says "Ham & Egg special $3.99" would be the offer and your words "I'll take the Ham & Egg Special" would be the acceptance. So certainly the "LAW" would apply. Now if you got a bad deal, ie. the eggs were cold, which would make more sense:

A) Ask the waitress nicely to reheat your eggs
B) Ask the waitress to have new eggs cooked
C) Refuse to pay
D Ask for the manager
E) Research contract law in your state. Discuss the meaning of "offer and acceptance" with the waitress. Explain to the waitress what an "implied contract" is- that a reasonable person would have an expectation of warm eggs. etc etc.

In my opinion answers A,B,C,D are all good options to get a SOLUTION.

Leave answer E for the lawyers and legal textbooks.

My humble recommendation is to just drop this whole focus on the legal defintion of what "Replacement Cost" means.

My take is that you still don't have an agreement on SCOPE.

The reason your estimate and their estimate are so far apart has nothing to do with the precise legal defintion of replacement cost. It has everything to do with the fact that you did a bunch of work the insurance company doesn't seem to want to know about.

Talking to us adjusters about replacement cost definitions does nothing to educate the insurance company on the work you did that they aren't paying for.

Please reread my earlier posts and other adjuster's posts. We told you numerous practical things you can do to get paid. I respectfully recommend you employ one or more of those strategies.

If you fail to reach agreement after trying some of those ideas, and then you end up in court, perhaps your lawyer would like your theory that replacement cost equals the value of a signed "arms-length" contract that is within market pricing for the locality. Your lawyer might think that is the greatest legal argument that could be made, and it very well might be. In the meantime I don't see how this concept is helping you to reach agreement with the insurance company.

To reiterate just two of the numerous practical strategies that have been posted on this thread:

1) Go over the adjuster's head
2) Have the homeowner demand a meeting with the adjuster.

You sound like a nice guy and the discussion is educational and worthwhile but it seems like you haven't taken very much of the advice you're asking for. Maybe I'm wrong and I apologize if I sound harsh but going on and on about the definition of replacement cost just doesn't seem to me like a way to put money in your bank.

God bless
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Ed The Roofer
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12/12/2007 2:23 PM

Leland,

I have very well learned much from your posts and others and am proceeding with your advice.  An appointment with the home owners is sceduled for this evening to discuss the recommended courses of action.

This discussion was to have taken place this past weekend, but the ice storm we had here negated that opportunity.

I have printed out all of the recommendations and have a draft prepared for this evenings meeting.

I too, felt that harping on my individual circumstance was becoming redundant, at least until further action takes place, therefor, that is why I used my last post to turn this discussion around in more generalities about the understanding of how replacement cost coverage is interpreted differently from multiple view points.

Thank you for the condensed version in your recent post.

Ed

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Leland
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12/12/2007 2:30 PM
I sincerely hope you kick the adjuster's ass.
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johnclark719@yahoo.com
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12/14/2007 12:01 AM

12/10/2007 5:40 PM  

Just because the adjuster has your estimate in hand and understands your bid does not mean it is correct. This does not imply either that he is giving you permission to repair the home this can only be done by the homeowner who should, however doesnt have too wait for the adjuster to complete his job. Sounds like someone jumped the gun on this one.

Thanks,

Irving Sewell

I have watched this thread as well as the original one and have to respond to the post above by Irving.

It is my understanding of the claim process a claim has been presented by the insured based on the contractor estimate. This was given to the adjuster who as I have read, agrees with the scope. It appears the adjuster did not do his own figures at that time but agreed with the repair procedure. I can agree with the contractor that some cost are going to be added after starting as it is near impossible to see all the different rafters and or possible ceiling joists that may be damaged. It is also imperative to start repairs as soon as possible to mitigate any further damages.

The insured going with the contractor and his scope & figures at that time has presented their claim to the Insurance Company.

It is then the Insurance Companies responsibility to refute the claim or give their value of the claim. For them to wait till after the work is done is unethical as well as in my opinion, bad faith. I think with all the documentation the contractor shows, they would not loose this in a court of law, though I am no lawyer.

To say the contractor jumped the gun is a little much. The insurance company had the opportunity to refute the damages or the amount before work was started. It also appears to me the contractor starting, helped to mitigate any further damages. The adjuster did not refute the scope or the cost, therefore it would seem he accepted the estimate he was given. The adjuster could have at least checked the unit cost to see if he agreed.

With what I have read I would be for the contractor on this claim. I also have MS/B Integra on mu computer and have compared it to the Good Hands people's estimates and they are less than mine using up to date data bases. When I purchased Integra it stated it would hold up in a court of law.

How do the Good Hands people back theirs up when it is less and supposedly the same program.

Plus if I remember correctly the second adjuster out stated he could not do anything, with the 3rd adjuster admitting the measurments were off.  What does this tell you about the adjustment on this?  It seems someone worried more about his own earnings on the assignment than doing the job right. 

Excuse me if I am wrong but from what I have read it appears the final adjuster only knows how to enter what is on the Integraclaim Database and he has and no feel for what the job entailed with all the little extras.

I agree with the posts to go up the ladder to the supervisor and higher if necessary.  If you documented as you stated, you have the upper hand as the adjuster did not until after the job was completed. Not that I am agreeing with your scope or prices, ( which I am sure are in line), but the way this came down, you should be paid on your billing.

I must also say if you were not used to the 29% o/p he was talking about it should be taken off your estimate as you already had it included with your regular pricing.  I think the Good Hands people use this as a sales pitvh to make you think you are getting something more.

 

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johnclark719@yahoo.com
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12/14/2007 12:06 AM

Something I forgot to put onprevious post.

Another things is, I also use & have Exactimate on my computer.  I have done reinspections in the past on Preferred Vendors and they used Exactimate and the company had me use Integra for comparison. The Exactimate always seemed to be higher on the daily claims I was reinspecting.  I have also had people tell me they think Integra's bottom line is higher but I never experienced that.

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Ed The Roofer
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12/14/2007 1:19 AM
Posted By John Clark on 12/14/2007 12:01 AM

I must also say if you were not used to the 29% o/p he was talking about it should be taken off your estimate as you already had it included with your regular pricing.  I think the Good Hands people use this as a sales pitvh to make you think you are getting something more.

 

John,

Thank you for the thorough diligence of reading the entire scenario from beginning to now, including the previous, initial thread about this topic.

My actual properly calculated invoice amount would have been the only amount billed by me had the adjuster not stated to me, and verified last night with the home owners English speaking daughter, who was on hand during the conversation, that the additional funds were going to be due spoken out of the mouth of the adjuster at a meeting at the home, with no prompting on my part.  

At that time he told me that I would be entitled to the additional 29 % O & P, due to the multi-trades specialty skills required to remediate this project, which was at the pre-job inspection stage of the project.  So, it was after he had approved, authorized and even requested that I begin work with a sense of immediate urgency, to avoid additional damages being incurred to the interior of the home with the near range forecast of inclement weather and winter right around the corner.

I did request this additional amount be paid, but if the industry standard is to add this proclaimed figure to the total of all of the specialty trades amounts, then it would seem to be inappropriate for them to deny adding this amount at their whim.

Had the adjuster not informed me of the 29 % additional amount being triggered by the multi-task work that we had contracted for, I would have been clueless as to that being due.  If the insurance companies have a standard when that fee is supposed to kick in then it should not be left at the discretion of an adjuster trying to minimize the true and actual costs of a claim that seem to be rightfully due and deserved, unless the home owner nor the contractor know about it.  That would seem to be unfair enrichment of the particular insurance company, in regards to taking advantage of home owners or contractors who are not schooled in the typical and proper methodology of calculating the full amount due.

So, I see that I got drawn back into the specifics of this particular job, rather than examine the seemingle undefineable understanding of "What Is Replacement Cost?".

Should I now add to that question;  "When Does The Additional O & P Kick In?". 

This surely has been an entertaining and educational topic, and I have enjoyed participating in it and learning from it.

Ed

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OdieWyatt
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12/14/2007 9:33 AM
My actual properly calculated invoice amount would have been the only amount billed by me

...

taking advantage of home owners or contractors who are not schooled in the typical and proper methodology of calculating the full amount due



Ed

The full amount due is what your actual properly calculated invoice amount was. You had already included your profit and overhead in those figures. Some contractors show O & P as a line item, others include it in their unit costs. Either way, I don't think you are OWED more than you were asking for. Now, the adjuster may need to add the O & P to his estimate, since his unit prices don't include all the profit and overhead that your original prices contemplated. Once the adjuster adds the O & P to his estimate, if it gets him close enough to your original figures, he can then recommend using your original figures to pay the claim and conclude the loss. I really don't see anyone taking advantage of homeowners or contractors, if the final amount paid ends up being your original figures, less a deductible.

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Ed The Roofer
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12/14/2007 11:00 AM

Then that is what I am going to expect.

I guess I was thrown by him telling me at the beginning of the job that I would be entitled to the additional O & P, since he already had my signed contract with the line item costs for any potential add ons.

Thank you for the simple clarification.

Ed

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Wes
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12/14/2007 12:08 PM

Ed you may have mentioned this in your prior posts but do you use any kind of estimating computer program or do you hand write all your estimates? As adjusters we are required to use one of the readily available programs. All of the contractors down here in Florida also use the programs. We almost never have a disagreement on final costs when all parties are using a program. Our disagreements are generally on scope of damages. If you had been using one of the programs the O&P issue is clearly broken down for all parties to see.  You and the adjuster would also be working from the same or similar line item pricing guidelines.  Thats not to say as a contractor you don't have the ability to adjust the line item pricing for your particular job.  After all no one knows real world repair cost better than a contractor that is actually purchasing the materials and hiring the labor.

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Ed The Roofer
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12/14/2007 1:10 PM

The short quick answer, is, No, I do not use one of the software products available.  If I were to pursue and even chase after the insurance resoration side of the business, their would be a significant potential of increased volume with less sales and marketing efforts required, so therefor, my prices could adjust downward slightly.

The longer answer is as follows:

My pricing is calculated on our own companies historical records of work hours from similar style jobs.  Sometimes it is an exact science, but in reality, no two men, nor two jobsite situations are ever identicle, and at best, these records are assumptions, which I attempt to cover any potential adverse condition discovered, so that even the poorest performing crew member can provide the work to a satisfactory end result, that I would still be earning a profit from the task.

The pricing that is figured for the intitial base bid must also be priced competitively to remain viable in the open market where customers typically contact at least 3 contractors prior to selecting the contractor they are most comfortable with.

The pricing for various different sized lumber removal and replacement is based on taking observations from the past and determining what the realistic time to do all of the tasks requires.

For instance, in a similar roof without the hidden surprise factors, but all decking is being removed and replaced, you encounter just one broken 2" x 6" rafter.  If I only charged the price per foot for that one 16 foot rafter, I would be doing that task at a loss.  There is the drive to and from the lumber supply and the wait in line time and the meeting with the home owner to explain the damage found and the necessary required repair and taking photos for documentation and getting them either developed or loaded onto the hard drive to be printed out.  Therefore, for a minor add on, a different cost must be charged.  If the task becomes repetitive, then the charge per lineal foot becomes fairer to the home owner.

I have only seen the free version of Craftsman Renovation Estimating, and found their price guidelines to be severely amiss.  Upon further reading though, they state many additional factors which can sway the pricing, that could easily be missed.

The prices I charge keep me in business, at least for the past 23 years.  If I were to charge at an "Average" price of all of the contractors around, I would be one of the Department Of Labor statistics.  Minimally, at least 80 % of all contractors are out of business within the first 5 years of existence.  Of the remaining 20 %, an additional 80 % go out of business within the next 5 years.  Therefor, after 10 years, only 4 % of the original group being reviewed are still in business.

If a fairer, "Average" pricing structure were to be used, it would only include contractors who have been in business for at least 10 years.  When I hear the term for comparisons sake to my pricing referring to "The Going Rate", for certain charges, I immediately re-translate that to, "The Going Out Of Business Rate".

In an open free enterprise system, I believe that  the fairest price is from a contractor who can remain viable for the peace of mind offered with the length of the warranty period. 

If the programs such as Exactimate or MS/B were available for a set fee, at best, those numbers would just be a method of checking up on myself and my pricing structure, but it would not dictate my pricing.  I do wish that I had access to a free usage and the knowledge level to manipulate the program correctly, so that I could be better documented from the point of view the insurance industry understands.

Ed

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Wes
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12/14/2007 2:36 PM
Hey you sound like you know what your doing and if you been in business for 23 years you must be doing something right.
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Ed The Roofer
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12/14/2007 7:53 PM
Posted By Odie Wyatt on 12/14/2007 9:33 AM



The full amount due is what your actual properly calculated invoice amount was. You had already included your profit and overhead in those figures. Some contractors show O & P as a line item, others include it in their unit costs.

Either way, I don't think you are OWED more than you were asking for. Now, the adjuster may need to add the O & P to his estimate, since his unit prices don't include all the profit and overhead that your original prices contemplated. Once the adjuster adds the O & P to his estimate, if it gets him close enough to your original figures, he can then recommend using your original figures to pay the claim and conclude the loss. I really don't see anyone taking advantage of homeowners or contractors, if the final amount paid ends up being your original figures, less a deductible.

 

Odie,

I had to think about my previous response a little and I began to sense that I waivered from what I was originally told.  I have heard here and elsewhere that there is an O & P for each individual facet of the job, or sub-trade activity.  (That O & P would already be part of the pricing provided and agreed to in the signed contract.  Also, by the adjuster insisting that we get started as soon as possible conveys the message that the contract and all pricing in the contract are implicitly accepted.)

I also was specifically told, that I would be entitled to an additional contractors O & P of 29 % based on the multitude of various trade tasks I had scheduled, supervised, and implemented.  (Not his words)  He just said that I would be entitled to an additional 29 % general or contractors O & P.

So, if there is O & P for co-ordinating everything, that is not the same as the individual trade tasks O & P.  Am I right?

By the way, I sent a final e-mail to the adjuster and am going up the chain of command depending on if he responds at all and what his response would be.

Ed

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BobH
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12/15/2007 1:42 AM
I also was specifically told, that I would be entitled to an additional contractors O & P of 29 % based on the multitude of various trade tasks I had scheduled, supervised, and implemented. (Not his words) He just said that I would be entitled to an additional 29 % general or contractors O & P.
As others have pointed out - he is speaking from his perspective of "the Allstate world". And likely that O&P would be added to their unit costs to have a comparative estimate - not added to your bottom line.

when you think about it - Allstate's valuation of the claim is lower than your invoice to the customer. so the 29% is just smoke and mirrors.

For what it's worth, I have been doing property claims 17 years and have never used 29% O&P. that is just odd. there was another thread that went into the O&P thing in depth, and "right or wrong" the standard is 20 % on top of the industry standard unit costs.

Let's say I do my estimate and allow 20% O&P, it is a 25 page estimate with detailed line items = 75,000.

You could put together a one page proposal, state the things you are repairing, and the price is 75,000. The price is the price.

As has been said before - I think you folks are far apart because of the description of the work, the scope of the work. I you look over the adjuster's estimate line by line, there is going to be some items you did that are not described or paid for on that estimate.
Bob H
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Ed The Roofer
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12/15/2007 3:09 PM

Well Bob, I think for discussion purposes, the 29 % figure stated or the 20 % figure you say is standard is irrelevant.

The point is, that he stated I would be entitled to it.  Okay, so per the AllState Smoke and Mirrors method of calculating the totals, they would be adding this figure onto their "Lower ThanTypical Standard" rates and then fool home owners and contractors into believing that they are coming out ahead.

Doesn't this bring us back to the original question?

What is the definition of replacement cost coverage?

From everything I have read from sources sited and looking them up myself, the only limitation is the amount covered per the policy limits and also dependant on whether or not the scopes of work are agreed to.

How, in a free country, where consumers have the option of who they choose, can another party state that a contractors prices are too high, based on their software only. 

Wouldn't the true value of replacement cost be the actual cost per a contract?  (That needs some clarification.  As long as the prices were not raised to take undue advantage of the insured and their insurance company.)

What is the legal basis for another party to say that any contractors prices are incorrect?

Ed

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BobH
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12/15/2007 7:22 PM
the 29 % figure... The point is, that he stated I would be entitled to it.

In that same breath, was he saying that he OK'ed your estimate, and in fact he would fatten it up 29%? This makes no sense, because at the end of the day - he has totally ignored your findings, and did his own sheet. I have not heard mention of the adjuster using your estimate, or revised estimate as a "starting point" for the basis upon which to consider adding O&P.

What is Replacement Cost? it is the REASONABLE and NECESSARY cost of repairs. If you have ever sat in on Small Claims hearings, the judge often uses the term "reasonable". If I bring in an estimate to fix my house, my car, and had a buddy write it up for double the going rate, that is not reasonable. I am not saying your price is too high - I don't even know what your price ended up being. But these things can be measured, the tasks described, and compared to historical prices for those tasks. Or they can be put out to bid (like government jobs, street improvements, etc.)

Sometimes the value of things is very easy to establish - you look in the Kelly Blue Book, or see what something sells for on Ebay on the open market.

Simple homeowner claims often involve some flooring, drywall, and paint. There are enough historical prices to draw accurate values for these. The guy brings in flooring quotes, and as long as he isn't replacing rental-grade flooring with wool Berber, we can have an accurate discussion.

IMHO, you could take 100 adjusters in a room, and maybe 5 of them are experienced with framing hip roof issues.  What is involved in surgical repairs that did not total out the entire area. What is involved - what temp bracing, where to stop the repair, what non-damaged rafters are connected to a ridge rafter or hip rafter that needs to come out - etc.

I have seen estimates that call out the time needed to do some of these odd tasks - and at least they allowed for the task, but the time alloted isn't even enough to do a round trip to Home Depot and wait in line.  So again it has to be REASONABLE for you as well.  The adjuster is sitting at his desk, visualizing how many hours to do something - may not be thinking in terms of a 3 man crew = 24 hours in a work day, not 8 hours.  The mistakes that can occur are without limit - and you need to just compare the estimates line by line, then compare them to the real world of what was done.  Something will stand out.

So you are going to get garbage estimates. That doesn't mean that the contractor can pull a number out of thin air - which is why I mentioned on your original thread that the best way to deal with insurance repairs is TO GET AN AGREED VALUE after the emergency work is done to mitigate further damage. If the holes were so bad they wouldn't support a tarp without ponding, then some thin plywood could have been secured over the openings and temp braced and tarp over the ridge and down the other side - secured with 1 x 2's until the value of repair is set in stone. Insurance companies rarely approve an "open checkbook" type of time and materials billing. They expect the adjuster to keep an eye on the cookie jar, they are afraid of the claim going out of control. That is why an adjuster should start to get very nervous if repairs are underway and there is no agreed figure. And the contractor should be nervous - I know you were. You were nervous for a reason, there wasn't a firm agreed repair figure.

And when the multiple layer thing comes up - if the increase in value cannot be resolved within a day or so - button up the membrane and put it on hold.

Hip roof framing is quoted in Xactimate 2 ways, there is a formula for SF of area that includes the ridge and all jack-rafters coming off the ridge, and I think that price comes out higher than the other method. But your guy is using MSB - and I haven't done hip framing with that software. The point is, the value of repair should be "reasonably" priced as opposed to over-priced, and that usually can be allowed for with software if the person writing the estimate doesn't overlook sub-products or tasks that are not included in the items he selected.

Do you personally have a copy of the MSB estimate? I assume the homeowner shared that with you - even if the Allstate adjuster didn't.

Bob H
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Ed The Roofer
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12/16/2007 12:40 PM

On Monday, I am having the homeowners call the claims office and request the adjusters estimate, Again, except this time from the main office and supervisor.

This has been requested several times so far, prior to the job, after the job and when we had the discussion about the pricing.

To date, he has not responded or provided his version of the estimate.  Friday, I sent My Last e-mail to him, trying to follow the chain of command and will have the home owner go up the ladder.  If he does not respond this time, then we must deal with the next level as previously suggested.

Is there any rational reason that he has not provided his version of the estimate to the home owners or to me as of yet?  Is this supposed to remain a secret until the job is done and the contracted prices are invoiced?  Or, is this the insurance companies method of trying to see if a contractors invoice comes in at less than their estimate and thereby reducing the amount paid?

If the insurance companies estimate comes in at a higher dollar amount than the actual contracted invoice amount, I do not think they would object, would they?  I venture to speculate this occurrs from time to time.  Do they pay out the additionally estimated funds?  No.  So, when a slight difference occurs in the other direction, now they use this non-response and delaying tactic to hold onto the amount due.  Shouldn't this be a case of, "Whats good for the goose is good for the gander?"

On Monday morning, I will see which direction this will head next.

Ed

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