About a third of my business comes to me in the form of referrals from contractors who have customers with property damage and insurance companies that are unwilling to pay what is necessary to restore the damaged property to its condition prior to the damaging event.
Recently, I received a call from a frustrated general contractor who explained that his customer’s insurance company was refusing to pay him overhead and profit for replacing a roof. He told me that his original bid for interior water damage to the home did not include damage to the the roof, and that the roof was added to his scope of work after the damage had been discovered by the insurance company’s adjuster.
When he subsequently contracted with the policyholder to replace the roof (in addition to the interior), he made the common mistake of agreeing to accept “what the insurance company agreed to pay” as his fee.
Overhead and profit was included with his contract for the interior and the insurance company agreed to pay him for it, but refused to pay overhead and profit for the roof. He felt that this was improper and asked for my assistance with the claim.
I didn’t have very good news for him.
First, I explained that public adjusters represent policyholders and not their contractors. Accordingly, if I were hired by his customer to assist him in getting all of the money that he is entitled to recover under his policy for the damage to the home, one of the many things I have to do is prove that the policyholder has incurred certain costs.
In this case, since the policyholder had signed a contract with a general contractor to have his roof replaced for “what the insurance company agreed to pay“, the policyholder was not incurring the additional costs of overhead and profit and could not claim them. His insurance company has no obligation to pay him more than what he is being charged to address the covered damages.
In my opinion, a better procedure for the contractor would have been to provide an amendment to his bid that included the roof replacement and all associated costs, including overhead and profit. His client could then show the insurance company what he was being billed by his contractor of choice. At that point, the insurance company would be able to address the total cost of roof replacement incurred by their policyholder and chose whether or not to comply with the terms of their policy. Under those conditions, refusal by the insurance company to pay for an incurred expense (such as overhead and profit) could be addressed much differently.
Contractors who agree to charge “what the insurance company agrees to pay” must accept the fact that they have allowed the insurance company … not the market … to set their fee for them. They will certainly not be collecting more than what they charge.