claims_ray Member Posts:293  
| 09/21/2009 8:41 PM |
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I was having a discussion with a roofing friend of mine and he was asking advice concerning work that he performed on a house in the replacement of the shingles. The original roof was a wood shake shingle and he replaced it with GAF Armor Shield shingles lifetime warrantied. He wanted to know if he could send off an estimate to the insurance company showing that he went back with Shake shingles instead of the lesser costing Armor Shield shingles. I advised him that he could not and that I believed that if he did he would be committing fraud. He stated that the insured was owed for the shake shingles because that was what was on the roof originally. I advised him that yes the insured was owed for LKQ shingles unless a lesser grade was installed. He advises that the insurance companies that he is dealing with are not disputing when lesser grades are used and paying the withheld depreciation. I told him that he was dealing with lazy adjusters.
I also had a similar discussion with a PA during an reinspection where he claimed that the insured was owed for premanufactured hardwood floors, the previous report had allowed laminated wood flooring. I advised the PA that what he was asking for was a mute point as the insured had already completed repairs replacing the flooring with a standard grade carpeting. The PA ended up being full of crap as I found where the wood flooring had not been replaced at the entry and was a laminate wood flooring material.
This seems to me like common sense to me however I would like your opinions?
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Leland Advanced Member Posts:741
| 09/21/2009 9:59 PM |
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doesn't usually matter what is put back. What matters is what was there.
From a policy standpoint, the estimate should usually be for "like kind quality" of what was there before. If you go back with something more expensive or less expensive it is generally irrelevant to what was owed by the insurance company.
However, as a practical matter there can be all kinds of confusion when something different gets installed. It can confuse the issue of what is owed, if an agreement was not already reached on what was there. It can cause confusion about differences between the dollar amount of the claim and dollar amount of what the contractor is charging.
An honest restoration contractor can submit a detailed estimate for replacing the metallic wallpaper, shag carpet, and acoustic ceiling texture etc. There is nothing dishonest about such an estimate EVEN IF THE CONTRACTOR AND HOMEOWNER HAVE AGREED TO DO SOMETHING TOTALLY NEW AND DIFFERENT.
If an adjuster shows up and notices that the wallpaper is not going back, it would be WRONG to subtract the wallpaper just because the insured is not restoring it. The insured is entitled to what they had, good or bad.
A good practice for contractors is to prepare an estimate for the insurance company and add a note on the estimate that it is for repairing exactly what was there, and that the insured may make changes. Then, to avoid confusion, any changes the insured wants can be written out on change orders. The change order can be very simple:
"Acme contractors will paint the walls instead of wallpaper. Customer will be credited $600.00"
If the insured wants to take the money for hardwood floors, install carpet instead, and use the difference for a built in TV or a trip to Las Vegas or some other thing that is perfectly legal and ethical.
But if it's a replacement cost policy they might not be able to recover the depreciation held back on the flooring.
And if they really do a substandard repair or decide not to repair it could become an underwriting issue.
If the RCV is $10,000.00 with $500.00 depreciation, the insured will need to prove $10,000.00 was spent to recover the depreciation. Some companies won't ask for proof of the cost, they just want a "certificate of completion".
If the insured spends $8000.00 on the repairs and claims they spent $10,000.00 in order to get the depreciation back they may have committed fraud. (I say "may" because "fraud" has several "elements" and not all lies are fraud)
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BobH Veteran Member Posts:759 
| 09/21/2009 10:08 PM |
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Most policies have a "loss settlement" section, and if Replacement Cost is part of the policy (or endorsement) it will be defined.
Typically it is the amount actually spent to do the repair, so if someone "downgrades" to lower cost materials or "gets a really good deal" then that becomes the amount of claim. The deductible will be taken from the amount actually incurred (spent) to do the repair.
Many carriers will accept a signed contract as documentation to pay full replacement cost coverage. If the Insd does not follow through with the contract they submitted to the insurance company, or has some "arrangement" with the contractor other than the one that was showed to the carrier - that is something beyond our control.
Humans will be humans... Bob H
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BobHVeteran Member Posts:759
| 09/21/2009 10:18 PM |
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Posted By Leland on 21 Sep 2009 09:59 PM
If the RCV is $10,000.00 with $500.00 depreciation, the insured will need to prove $10,000.00 was spent to recover the depreciation.
Right - and I think that's the issue on the example of the guy putting a less expensive roof on.
I agree we owe for what was damaged, and that will be the first estimate showing depreciation as applicable. That is a done-deal in the early life of the claim. Bob H
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claims_rayMember Posts:293
| 09/21/2009 10:24 PM |
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I should have added that this was regarding the recoverable depreciation that the contractor wants to recover. He was gong to use the difference to repaint the exterior of the structure.
I agree with both of you.
I advised the PA that I was not submitting for a reduction based on the grade of materials used however I was not going to supplement an increased amount based on what may (in this case was not) have been present.
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LelandAdvanced Member Posts:741
| 09/21/2009 11:35 PM |
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another thing that is misunderstood:
If you have $3000 rcv/ $200 depreciation on Carpet; $1000 rcv/$50 on paint the insured can turn in a receipt for $1000 paint and $2807 on carpet and can recover $57 depreciation. Recovery of depreciation can be done per category; the policy doesn't insist it be based on the WHOLE claim. Of course it really say either way so it is up to interpretation.
How about this question:
$1000 RCV paint/$70 depreciation; $1000 carpet, $50 depreciation, total RCV $2000.00
Insured spends $2009 on carpet. How much depreciation should they be allowed to recover? Why?
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LelandAdvanced Member Posts:741
| 09/21/2009 11:46 PM |
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Or how about this question:
Three contractors estimate the loss at $10,000.00. The adjuster calculates depreciation at $300.00. The insured is also a contractor. The insured does a top notch job, buys all the exact materials shown in the scope, does all the work shown. The 3 original contractors inspect the completed job and declare that the job is worth at least $10,000 the perfect way it was done.
The insured, however, as a contractor, did all the work with his own hands and his out of pocket cost was only $6700.00.
Is he entitled to the recoverable depreciation?
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claims_rayMember Posts:293
| 09/21/2009 11:57 PM |
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Presuming that the insured submits a bill for his labor, yes.
On the previous one the insured recovers the $50 depreciation on the carpet and is advised to let us know when the painting is completed.
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| 09/22/2009 3:04 AM |
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"If the insured wants to take the money for hardwood floors, install carpet instead, and use the difference for a built in TV or a trip to Las Vegas or some other thing that is perfectly legal and ethical.
But if it's a replacement cost policy they might not be able to recover the depreciation held back on the flooring.
And if they really do a substandard repair or decide not to repair it could become an underwriting issue."
I imagine it would be a problem with the mortgagee signing off on the check as well...
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Ray Hall Senior Member Posts:2443
| 09/22/2009 12:36 PM |
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All of us has seen buildings like this. An older building has cast iron plumbing vents or drains on the exterior of the building in cast iron or PVC pipe. Electric conduit strapped to the exterer walls of the houses for new wall plugs in some interior room. The building ( house ) has wood sash windows DH, aluminum windows sliders. aluminum windows SH. front door is a steel unit and the rear door is a solid care unit(original). All floors had solid oak finished floors over 2x4 screeds glued to the slab. In recent years all the Oak was covered with carpet and pad and after the loss the adjuster can see patches in the Oak floor from water and small fire's over the years hat was patched with 3/4 inch plywood to make the carpet surface level.
This house now has wind and all the items above need restoration work from the windstorm. The local building codes are" workman like repairs with existing building materials.This loss has 3 examples of abandoned LQK, but the PA and owner wants the electric & plumbing concealed in the renovation and a dair allowance given on the hardwood floor, as they intend to refinish to original oak floor.
The carrier hird you as the problem solver not to be brow beat on this loss, but to get your points across and make recommendation for settlement.
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LelandAdvanced Member Posts:741
| 09/22/2009 1:41 PM |
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Ray- in your example is there code upgrade coverage?
If so, does the code require the contractor to move the plumbing and electrical into the wall? Or can it be repaired where it is?
The city will often demand the upgrade when the "system" is substantially damaged. If the house is "substantially damaged" that is not the same as the electrical "system" being substantially damaged.
Conduit has wire pulled through it, if one section was damaged it can be replaced and new wire pulled. Now if the conduit was not the water tight exterior conduit AND there is code upgrade coverage I could see paying the extra money to upgrade and switch out the the type of conduit.
But it is a little harder to have imagine a scenario where ALL the conduit is damaged to where it has to be ALL replaced AND moved inside the wall.
And if you do have to move it inside the wall you don't get conduit- just romex and the labor to run it. And if you have to move it into the wall there is always the question of whether it is more reasonable to damage the interior wall or damage the exterior. And should the wires run under the subfloor or through the attic.
For code upgrade coverage to kick in I probably would want to see a note from the building department saying that it has to be moved into the wall. The building inspectors always write notes like that.
The drain pipes are more difficult to move inside. You have to frame a chase around them and drywall it. 4' cast iron is about $40 per foot plus 10 & 10 in XM8.
If the older home has cast iron it is not LKQ to pay for ABS. For one thing cast iron is quieter. The homeowner can be paid for cast iron and run ABS. But it is not usually allowed to run ABS on the outside of a building.
Here's another issue with cast iron vs. PVC- fire protection:
To seal the penetration of a cast-iron pipe through a fire rated floor, all that is needed is some mineral wool batting and fire-resistant caulking or mortar. Firestopping assemblies from various manufacturers can be found in the Underwriters Laboratories standard UL 1479 (ASTM E814). All firestopping assemblies must be listed and approved by ASTM E814 (UL 1479) and E119 standards. The typical cost of firestopping materials for a 4-inch cast iron pipe is about $18 and the time of installation averages about 32 units per day.
Because PVC piping is not fire resistant, it will quickly melt and burn away, leaving an opening that will permit the spread of smoke, heat and flame. To counter this, the firestopping materials for plastic piping must be intumescent. When exposed to the heat of a fire, intumescent materials will expand more than 20 times their original volume to fill and seal the floor penetration. A test sample of a PVC pipe and firestop collar displayed by a firestopping vendor showed little evidence of the original PVC, but the intumescent material had completely sealed off the inside of the pipe penetration. A common firestopping assembly for plastic piping through concrete floors consists of a ring of intumescent material held in place around the pipe with a metal collar. This assembly is more labor intensive to install as it involves shooting in masonry anchors, clamping the collar in place and installing a smoke seal with a bead of the same type of fire-resistant caulking or mortar used for cast-iron pipes.
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Ray HallSenior Member Posts:2443
| 09/22/2009 5:11 PM |
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Leland all your comments do not apply this is a DP1. sorry, If it was a HO-3 with guaranteed replacement cost and code upgrades, why would the insurance carrier be abligated to replace a destroyed wood sash window, and move plunbing or electrical inside a wall, when it is now exposed on an exterior wall.
The insured has waived all rights of enhancement, by the condition of the house at the time of the loss. |
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| 09/22/2009 6:50 PM |
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Posted By BobH on 21 Sep 2009 10:08 PM
Most policies have a "loss settlement" section, and if Replacement Cost is part of the policy (or endorsement) it will be defined.
Typically it is the amount actually spent to do the repair, so if someone "downgrades" to lower cost materials or "gets a really good deal" then that becomes the amount of claim. The deductible will be taken from the amount actually incurred (spent) to do the repair.
Bob
I sometimes get confused regarding settlments based on the amount actually spent. Could you provide more clarity to your comment regarding
"Typically it is the amount actuall spent to do the repairs." When would it not be "typical" in the policy language of the insurance contract?
Thanks
William S. (Bill) Cook
Florida Licensed Public Adjuster William S Cook
Public Adjuster/Umpire/Appraiser
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| 09/22/2009 6:54 PM |
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If the insured wants to take the money for hardwood floors, install carpet instead, and use the difference for a built in TV or a trip to Las Vegas or some other thing that is perfectly legal and ethical.
Try telling that to the Dallas Asst. DA that got busted and convicted for trying to pocket money from an Insurance company He got a ins. ck. for $4995 and got the job done for $1600. He claimed he acted as general contractor on the job and therefore was able to keep the rest. This is a third degree felony punishable by 2-10 yrs. in the pokey and up to a $5000 fine.
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LelandAdvanced Member Posts:741
| 09/22/2009 7:02 PM |
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Well I do DP1s all day long every day. Some have code upgrade coverage.
I have a duplex right now that burned and has some of these issues. If you have 80 year old knob & tube wiring that is damaged from fire, what do you allow for replacement? Anything that you replace it with is going to a code upgrade, for example it was probably 30 years ago that they stopped allowing knob & tube runs to even be extended from a J box. And the knob and tube doesn't have a neutral wire so the cheapest Romex is automatically a "code upgrade".
But I agree with you, the insurance would not generally owe to move the plumbing inside the wall unless there is code upgrade coverage AND the city says it needs to be moved into the wall AND the reason that triggers the city's demand is because it was damaged by the fire. But if a contractor retained by the insurance company can convince the city that the cast iron drain can be repaired and that it is overreaching by the city to demand that it go inside the wall then it won't be a code upgrade anymore.
And for DP1s in California it is pretty standard to pay for plaster walls, wood windows etc. even if they are ACV policies. The insured's always take the money for plaster and put drywall. They can use the difference to put the drain inside the wall, if they want.
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LelandAdvanced Member Posts:741
| 09/22/2009 7:17 PM |
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Benny- your example doesn't make sense.
If the policy covered hardwood floors etc and the job was worth $4995 it is perfectly legal for an insured to take the money and get the job done for less. We are insurance adjusters, not construction quality police.
There might be some interior decorators upset that someone was paid for hardwood and used the money for carpet, but as long as I am an American living in a free country I know its not my job to tell an insured how to live their life. Maybe the government will try to tell us what kind of environmentally correct car to drive or what to eat. but it's not my job to shortchange somebody on an insurance claim because they chose to repair their home using newer materials that cost less than what the builder used in 1924.
If that guy went to jail it's because he commited some kind of fraud and getting paid $4995 for repairs that are worth $4995 IS NOT A FRAUD.
Now if he really didn't have hardwood floors or he had Oak, knew it was Oak, and lied and said it was Hickory, AND the insurance company didn't know any better and relied on his word, THEN MAYBE you start to have the legal elements of fraud.
Or ih he asked the contractor to do a phony invoice for $4995 that could also be a fraud.
But if he had real honset to goodness damage that would normally cost $4995 to fix than something doesn't make sense with your example.
There must be more to that story.
If you call the executives and file examiners for the company that writes the most DP1 policies in California and ask them:
"Should an insured get paid for damaged plaster if we know he is going to be putting drywall?"
They will tell you "YES" without any hesitation.
Them's the rules, lots of case law to back it up. Only exception I know of is some odd policies in Missouri.
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| 09/22/2009 8:24 PM |
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.',,\7:.":.~,;."<,,j..,.:.
By David Jackson
Sl4tf Writerof The DaUasMorning ~ews
A Dallas County prosecutor said
Saturday that he will seek an indictment
against a former prosecutor
accused of defrauding an insurance
company and a mortgage holder on
a claim for repairs to a condominium.
Robert Nathan Goldstein. 31, is
accused of obtaining a $4,995check
after securing an agreement with a
contractor to do the job for $1,600.
The accusation was contained in an
affidavit investigators used to ob.
tain a search warrant of Goldstein's
University Park condominium.
Assistant District Attorney Ted
Steinke, chief of the office's specialized
crime division. said he will ask
a grand jury to indict Goldstein on
charges of securing the execution
of a document by deception. a third.
degree felony punishable by two to
10 years in prison and a fine of as
much as $5,000.
Mike Gibson, Goldstein's attor.
ney, declined to discuss the allega.
tions in detail but said they were
not true. Goldstein declined to com.
ment.
Goldstein. a misdemeanor prosecutor
who joined the Dallas
County district attorney's office in
April. submitted a letter of resigna-
HOIiin November, although District
Attorney John Vance said Goldstein
was fired.
According to the search warrant
affidavit. investigators recorded a
conversation Oct. 18 between Goldstein
and a Garland contractor who
agreed to repair water damage to
walls and floors for 51,600.
The affidavit stated that Gold.
stein told the contractor he intended
to submit higher bids to the
Crum and Forster Commercial In~
surance Co. of Dallas.
He said he then would obuun an
endorsement from NorthPark Sav.
ings Association on an insurance
check based on one of those "bids.
NorthPark Savings' endorsement
was needed because it holds the
mortgage on his home. Goldstein
said he would keep the difference
between the amount of the c1ieek
and the 51,600,according to the affi.
davit.
The affidavit said Goldstein told
the contractor he would "keep the
rest to pay himself back for the ~e
he would put into overseeing the"ie:
pair work, since he was a lawyer
and wanted to be paid for his time."
NorthPark Savings officials en.
dorsed the check after being told
that the work was nearly completed.
wben actually it had not started, of.
ficials said. .
Steinke said he does not expect a
" grand jury to decide the ~ 10l' at
Jeast two weeks.
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BobHVeteran Member Posts:759
| 09/22/2009 8:59 PM |
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What we are missing here is HOW THE CLAIM AMOUNT WAS ORIGINALLY DETERMINED.
Leland would be correct, if the Insurance company adjuster scoped the loss, did their own estimate, and paid what they owed when they knew they owed it. The guy could then get a "good deal" on repairs, complete it within the first settlement and never ask for more (no additional Replacement Cost Benefits). I have never seen a carrier ask for money back if someone gets the job done for less than the carrier's own estimate.
What you failed to say in the initial post was that this guy "told the contractor he intended
to submit higher bids to the Crum and Forster Commercial Insurance Co."
So in YOUR example, the guy is in trouble for submitting one estimate as the basis of the claim, then turning around and knowingly using a lower one. Bob H
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BobHVeteran Member Posts:759
| 09/22/2009 9:08 PM |
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Posted By wscook on 22 Sep 2009 06:50 PM
...Typically it is the amount actually spent to do the repair, so if someone "downgrades" to lower cost materials or "gets a really good deal" then that becomes the amount of claim. The deductible will be taken from the amount actually incurred (spent) to do the repair.
Bob
..."Typically it is the amount actually spent to do the repairs." When would it not be "typical" in the policy language of the insurance contract?
I say typically, because we always have to read the policy that is in force (known as RTFP in the biz). Many carriers will pattern their policy off a basic HO-3 but tweak the language, try to make it easier to read (expletive deleted) or whatever. Gotta read the policy.
Bill keep in mind that in your state of Florida, claims are settled right away at full Replacement Cost Value by statute.
The spirit of much of this thread is on Replacement Cost Benefits. And that is where I was coming from, in the snippet you quoted. In most of the USA, claims are depreciated for the first settlement (and if they have RC coverage, that comes as a 2nd chapter, 2nd payment). It would be absurd to hold off on the initial assessment of loss and base the value of the claim on the amount actually spent.
Sometimes it works out that way (due to delays in reporting or other reasons) but that issue of "the amount actually incurred" is a concept for additional benefits under the Replacement Cost provision (of some policies, in some states). As you know, Insurance is still very much controlled at a "State" level, not Federal. Bob H
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Ray HallSenior Member Posts:2443
| 09/23/2009 1:27 AM |
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Lets go back to my DP1 with a house in California. The house has plaster over wood lath in all walls and ceilings. Over the years all of the ceilings were replaced in both floors because of roof claims and plumbing leaks over fifty percent of the walls had been replaced with drywall for several reasons and the drywall was nailed to the studs or joist as the lath was not a nailable surface.Now this house has a kitchen fire in the only room left with plaster walls and the next to last wood sash DH window. You have to gut the kitchen that was damaged. You call the CM with the DP1 and give him the reserve and tell him the exterior wall was damaged along with the wood sash window. You are going to write an estimate to gut the plaster and lath, move the plumbing and electrical behind this wall, replace the 20 inch deep base cabinets with modular base ans wall cabinets as this is the way to save money in the long haul on this building, Drywall and aluminum window, with a steel rear door. The only betterment will be paint, floor covering, counter top, sink and faucet and dishwasher garbage disposal.
He would say good job or your fired, but I don,t thing he would say wood larth and plaster is to be paid.
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