Overhead and Profit on Insurance Claims

The Overhead and Profit paid on mitigation and restoration losses has been an item of contention for decades. 

It stems from a misunderstanding of the terms, tasks, and responsibilities of those involved. It is coupled with the age old contention that insurance companies and owners want to  pay as little as possible, while Contractors want to be able to bill as much as possible. Each is motivated to make or save enough money to stay in business.

To understand the right solution, we have to first understand that there are 3 types of Contractors:

1. Contractors – Any person who signs a contract to do work on your property is technically a Contractor. In most States, they also need to have a license issued by the municipality. Usually this type of Contractor performs 1 or 2 trades that are compatible or may be done in tandem.  Examples: carpet and vinyl, drywall and painting, excavation and concrete, roofing and framing repair, or electrical, plumbing, heating and/or air conditioning, etc.

2.General Contractors – When a job requires several trades, such as building or remodeling a home, a General Contractor is required to oversee the coordination and quality of the work performed. 

  > They may have in-house employees that can do one or all of the trades;
  > They may hire Sub-Contractors to perform some or all of the work; or
  > They may be the Owner doing any or all of the above. 

General Contractors are paid by the Owners, and then issue payments to the Sub-Contractors they hired. General Contractors also inspect, guarantee the quality, and warrantee all work performed.  

3. Sub-Contractors – Contractors, (see above,) when hired by General Contractors or Owners to perform one or more individual trades on the project, become Sub-Contractors. They are usually accountable to the General Contractor, not the Owner, because the General Contractor retained them. (If the Owner hired them, then the Sub-Contractor’s relationship is with the Owner.) The General Contractor is responsible to hire, coordinate, inspect, and pay the Sub-Contractor for the work they do. Sub-Contractors also guarantee their work to the General Contractor, who then guarantees it to the Owner.

From these definitions, the insurance companies operated under a rule of thumb, starting about 50 years ago, which was typically accepted across the industry. It stated that any company that performed or oversaw 3 or more trades on a project was a General Contractor and entitled to Overhead & Profit on the entire project. Typically O&P was calculated as 10% Overhead + 10% Profit, but some areas of the country may have differing percentages.

While I don’t know of any documentation that details this practice in writing, adjusters would usually pay claims this way. As an estimator and General Contractor, I have seen this play out this way for decades.

The reasoning used, was that General Contractors spent time in scheduling, coordinating, and warranting the cost of an entire project, not just a trade or 2. This time wasn’t included in any line items of the estimate. If they didn’t perform 3 or more trades, they were not managing the project; they were just a Contractor and their O&P was built into the estimate price for the portion of work they did. 

Anyone who has been in restoration for more than 20 years is familiar with this way of doing things.

Xactimate® estimating software, made by Xactware®, added a white paper to their website explaining how Xactimate® calculates O&P. A portion of their paper is listed below, and used with permission.

(If you don’t want to read the legal text of the paper, jump down below the indented portion and I will tell you what it says.)

General Overhead are expenses incurred by a General Contractor, that cannot be attributed to individual projects, and include any and all expenses necessary for the General Contractor to operate their business.

Examples (including but not limited to):General and Administrative (G&A) expenses, office rent, utilities, office supplies, salaries for office personnel, depreciation on office equipment, licenses, and advertising.  

Including General Overhead expenses in an Xactimate® estimate--General Overhead expenses are not included in Xactware’s unit pricing, but are typically added to the estimate as a percentage of the total bid along with the appropriate profit margin. These two costs together constitute what is normally referred to in the insurance restoration industry as General Contractor’s O&P, or just O&P. General Overhead and Profit percentages can be added in the Estimate Parameters window within an Xactimate estimate.

Job-Related Overhead are expenses that can be attributed to a project, but cannot be attributed to a specific task and include any and all necessary expenses to complete the project other than direct materials and labor. 

Examples (including but not limited to): Project managers, onsite portable office and restroom facilities, temporary power and fencing, security if needed, etc. 

Including Job-Related Overhead expenses in an Xactimate® estimate--Job Related Overhead expenses should be added as separate line items to the Xactimate estimate. This is done within the Line Item Entry window of an Xactimate estimate by selecting the proper price list items, or creating your own miscellaneous items. 

Job-Personnel Overhead represents the non-wage related expenses incurred by a General Contractor that are associated to having their own employees perform the work, or the total G&A expenses incurred by a professional Sub-Contractor when using their services. 

Examples: Vehicle costs, uniforms, mobile phones, depreciation on hand-tools owned by the company, etc.Job-Personnel Overhead also includes the portion of General and Administrative expenses and profit that correlate to employees performing billable tasks, and that are not included in the General Contractor O&P mark-up. These expenses will be incurred either by the general contractor using employees or by a sub-contractor, depending on who is actually performing the work. If the work is being sub-contracted, then these expenses are commonly called Sub-Contractor Overhead and Profit. 

Including Job Personnel Overhead/Sub-Contractor O&P in an Xactimate® estimate--Job Personnel Overhead (or Sub-Contractor O&P) expenses are included in the Labor Overhead portion of each unit price in the Xactware® price list. The Labor Overhead, along with expenses for Labor Burden and Worker Wage (wage paid to the individual) make up the Retail Labor Rate. 

Here is what it says above.

General Contractors, managing 3 or more trades, have expenses that cannot be specifically assigned to a particular project. These costs include, but are not limited to: General and Administrative (G&A) expenses, office rent, utilities, office supplies, salaries for office personnel, depreciation on office equipment, licenses, and advertising, etc. 

These particular expenses are not included in the individual line items in an Xactimate® price list. Therefore, to be compensated, they are added as an Overhead and  Profit expense at the end of the estimate on the entire cost of the project. 

If a General Contractor has expenses that are unique to a project such as purchasing or renting a particular piece of equipment, acquiring permits and fees, or retaining an expert, (such as an architect or engineer), then this expense should be added as a line item in the estimate as a typical Job Related Expense, explained below. 


Job Related Expenses are expenses that can be attributed to a project, but cannot be attributed to a specific task. These costs include, but are not limited to: Project managers, onsite portable office and restroom facilities, temporary power and fencing, security, etc. This would also include: permits, fees, architects, engineers, and other experts.

These expenses are added to the estimate as individual line items and include any O&P due a Contractor or Sub-Contractor.

So, if your Project Coordinator spent 3 hours calling, scheduling, and inspecting the project, the Project Coordinator line item is written into the estimate. This is just the same as if you had rented a portable toilet or fencing for the job. This is true whether you are a Sub-Contractor or the General Contractor using your own people. The Sub-Contractor O&P is already built into the line item prices by Xactimate® in this situation.

Finally, Job-Personnel Overhead represents the non-wage related expenses incurred by a General Contractor that are associated to having their own employees perform the work, or the total G&A expenses incurred by a professional Sub-Contractor when using their services.

The caveat here that everyone misses in this statement, is: These expenses will be incurred either by the General Contractor using employees or by a Sub-Contractor, depending on who is actually performing the work. 

This is followed with: Job Personnel Overhead (or Sub-Contractor O&P) expenses are included in the Labor Overhead portion of each unit price in the Xactware® price list. They are not added or included in the general O&P for General Contractors because they already exist in each individual line item. It makes no difference if the General Contractor’s employees do the work or if a Sub-Contractor and his employees do the work.

So, whether you are the mitigation contractor who comes in the middle for the night and cleans up the mess or the drywall installer/painter who puts it back together, your O&P is already included in the individual line items and should not be added again to the end of an Xactimate® estimate. 

According to general industry standards, you can only add O&P on the entire job if you managed 3 or more trades as a General Contractor because you incurred additional expenses that are not already included in the individual line items.

This said, Contractors have the right and freedom to charge whatever the market will bear, providing they are not illegally gouging the customer. But, if they claim to use pricing that is consistent with general industry standards and especially if they state that they use the accepted price lists as published by Xactware®, O&P is typically not acceptable unless they are managing 3 or more trades on the project.

Photo courtesy of XactLoss via https://jwheelerlaw.com/2017/04/who-pays-contractor-overhead-and-profit/

How Owners Can Document Losses Without Really Trying

The older couple looked more worried now than they did when the tornado ripped the roof off their home. I had just presented them with the invoice for repairing and replacing their roof, it was nearly $12,000.00. I laughed and said, "You only have to pay your $250 deductible, the insurance has already paid the rest."

The husband stammered, "We haven't seen any checks from the insurance company."

"Are you sure? The adjuster told me he sent the checks."

"No, we haven't received any checks."

I grabbed my phone and called the adjuster. "Are you sure you sent the checks?"

"Yes," he stated. "They went out over 3 weeks ago. They should have them."

I suggessted to the owners that we look through all the correspondence they had from the insurance. They found opened letters on the counter, some envelopes on the top of the fridge and some other papers on the desk. Half of the envelopes had not been opened. We started with the unopened envelopes. In the second and third ones, we found a check in each. 

I asked why they hadn't opened these checks? The owner said he had stopped reading them because they didn't make any sense and he was tired of being confused. 

While insurance losses can be confusing, Owners have a responsibility to maintain proper records for losses. It not only helps you understand what is going on, but can make a world of difference later if you end up with legal issues. You should ask for copies of all documents you sign from both the insurance company and any contractors. Having in your file what they have in their file, prevents documents from changing.

Keep All Documents in One Place - During an insurance loss, owners are inundated with paperwork. In fact, the adage is really true, "He who has the most paper work usually wins." There will be contracts from everyone, estimates from everyone, satisfactory completion documents, change orders, insurance policies, letters from the adjuster, invoices, etc., and that is if the job goes well.

Create a file, a large envelope or a box that "everything" related to the job goes in. Keep it in the same place. This way the papers will go in and they will still be there when you need them.If there are legal proceedings, the mountain of paperwork will continue to rise. If you don't have a way to organize and retain it all in one place, you will lose critical documents and may lose your case.

I knew one family involved in a lawsuit against a large construction company, who received 20,000 pages of documentation from the opposing attorney. All of it needed to be read to determine if it was accurate.

Prepare for the worst,
Expect the best, and
Take whatever comes.

If you just follow the first phrase and only prepare for the worst, bad things will happen to you all the time. The Law of Attraction is real and we usually receive exactly what we expect.

I had a judge/attorney with a water loss who spent the first 45 minutes I was there telling me about all the lawsuits he had over his home. I innocently asked him, "Should I expect to be sued as well?" He was flustered, but assured me that it wouldn't happen. He was a challenging customer, but since I thoroughly documented everything that happened, we stayed out of Court.


Sticky Notes - For a long time I carried a small spiral notebook in my pocket to record thoughts, ideas, assignments, etc. But then I found I would have so many new notes in one day, that the things I was supposed to do were hidden 5-6 pages back in the notebook. I also found that notes for different jobs were only in my notebook, notes for several jobs were all on one page or they were never in the job folder where I needed them months later. Then I discovered sticky notes.

The 2"x2" size became the hard copy of my brain. I would keep several pads in my car, on my desk and in my notebook. One thought or phone number per page. Then they were posted in the location best suited to be completed or saved; the dash of my Jeep, on the wall by my desk or at home by the phone. They all went into the appropriate job folder and months later I still had the phone number, address, or summation of a phone call.

In spite of technology and the Internet offering us text messaging, emails and other forms of communication, I still find sticky notes often the fastest way to initially preserve a thought, which I can then transfer easily to another medium when I have time.

Notes in the Cloud - There are many note-taking apps that are available for all the different I-Phones, Android Phones, Blackberries, I-Pads, tablets, etc. Most of these include the feature of storing the information on the Internet Cloud and then automatically syncing with multiple devices.

Many apps also enable you to verbally dictate notes that are then converted into text on the spot. This allows you to take quick notes on site or in a meeting and then when you return to your computer, you can flesh out the document, save it and then share it through texting, email, fax or other media.

I often take the notes of the meeting on my phone and send them to the other party at the conclusion so we both have exactly the same notes and written agreements. They can be organized and printed out later to preserve a hard copy.

Photos and Videos - There is no easier way for owners to document their contents, as well as the progress of a job, than with photos. In less than 2 minutes, you can take several pictures of a room and have concrete documentation of your possessions. In less than an hour, you can have a record of everything you own.

Taking photos is no longer hard nor expensive and often they can be shared, even while you are talking on the phone, enhancing the communication experience.

It is a skill to learn what to photograph. I used to go back through the shots I had taken and the item I was looking for was always just outside the frame. Lots of practice will teach you what will likely be needed later. The more photos you take, the greater chance you have of documenting what you need.

The best way to photograph is the way movies are filmed. 

     First take a wide shot of each wall,
     Then take closer details of each shelf, 
     Then close-up shots of items of greater value or interest,
     Possibly both front and back.

Videos are also great for documenting larger areas, such as the exterior of a building, large rooms or piles of content. It is important to pan slowly and remain for at least 5 seconds on each area or item or you will become motion sick playing it back or have to continually pause the video.

It is important to store an additional copy of your documentation at another location or on the Cloud. I had one client with several collections of rare and expensive items. Fortunately she saw a show on TV encouraging everyone to photograph their items. She grabbed her son's digital camera, went around the house and took about 600 pictures. Two weeks later, they had a fire that destroyed 90% of their home and all of her collections. We found the camera on the floor in her son's bedroom submerged in 6 inches of water. The SD card was undamaged and she was able to be compensated for all her years of hard work.

Whatever method or methods you use to document your loss, the better you do it, the less your chances are of ending up in court. Most of these ideas are simple and easy once you decide to develop the habit.  

Remember, he who has the most paper work usually wins.

It is Everyone's Job - It is important for each of us to take responsibility for our own documentation. The extra time spent properly documenting always saves you time and lots of money. Documenting responsibly and regularly is one of the paths to happiness and peace of mind.

Mold Coverage and Insurance Policies

"Not covered, what do you mean?" Sarah whispered to her self, but wanted to scream.  Instead, she just stared at the adjuster like a deer in the headlights.  "I'm sorry," the adjuster murmured, "but your policy doesn't cover mold remediation."

Returning from three weeks of unimaginable fun in the Bahamas, Sarah and her husband Jack discovered that the washing machine water line had broken, spraying water all over the laundry room.  

There was mold growing on the laundry room walls as well as on the ceiling and walls in the bathroom below.  There must be thousands of dollars of work to be done and if isn't covered by their insurance, she had no idea how they would pay for it now.  

What is insurance for, if not for this?  Why isn't this covered?  

She felt cheated, . . . abandoned, . . . violated.

Mold coverage in insurance policies varies greatly from company to company and you must check with your insurance company to see what coverage you have purchased. 

What follows is a general synopsis of how I have seen different insurance companies in the United States deal with mold coverage.  As coverages change from policy to policy as well as from year to year, I will not identify specific companies and their policies, just general guidelines.  You must check your own policy to determine the coverages you actually have.

Example: Homeowner, Rental and Commercial policies, even issued by the same company, usually have differing coverages for damages, repairs and remediation.

General Mold Exclusion  
Every insurance policy has a General Mold Exclusion.  Wording for this exclusion usually follows this vein:

"Fungi", Wet or Dry Rot Or Bacteria meaning the presence, growth, proliferation, spread of any activity or "fungi", wet or dry rot, or bacteria is not covered under this policy.

There is a reason for this exclusion and its wording.  Insurance policies are designed to cover the costs of repairs to your property in the event of a sudden, unforeseen or accidental event.  Damage caused intentionally, by neglect, or abuse, is not covered under most insurance policies.  Insurance covers accidents, not maintenance.

To make this distinction, policies do not pay for any repairs, unless it is a direct result of a sudden or single, event or occurrence, which causes loss or damage.

Therefore, damage that results from failure to properly maintain your home or long term damage that could or should have been fixed, such as a slow leak, but wasn't, are not covered. This would also include fungal, mold or bacterial growth that was a result of the environment; especially in very warm, moist, humid climates, where mold and bacteria proliferate without a water leak occurring.

Example: Mold grows along the baseboards behind the bed or dresser, or in the corners of the room at the ceiling because of condensation resulting from high humidity levels, caused either by the climate or a bathroom shower. Neither clean-up nor repairs would be covered.

While this is a general policy, there may be situations where mold remediation might be covered.

Complete Exclusion
A few companies have a complete exclusion on any mold remediation, regardless of the source.  There are no instances where they will cover any mold remediation. Many policies with exclusions, will cover the costs of the covered repairs, such as drywall, paint and carpet; but they will not pay for any labor or equipment needed to clean or remediation the mold.

Some policies will also not cover the water loss itself, if mold has grown as a result.  Their reasoning - If your home had been properly maintained, the leak would have been discovered and corrected before mold had time to grow.

Example:  You take your family on vacation for 2 weeks.  A water line breaks as you drive down the street, flooding your home the entire time you are gone.  There is significant mold growth in the wet areas of the building.  With this type of coverage, neither the mold, nor the water loss damages would be covered.  You would have to pay for all of the repairs yourself.


Mold Riders
Many insurance companies, after announcing an exclusion on fungal, mold or bacterial remediation, will add back to the policy, a rider covering remediation and clean-up under limited conditions.  These conditions can include:

1. Mold growth that occurs as a result of a covered loss.
2. Existing mold growth that has to be removed/cleaned before damage from a covered loss can occur.

Example: With this policy, if you went on the same trip, as in the previous example, all the repairs, including the mold remediation, would be covered.

If your policy has the rider covering remediation from a covered loss, it still will not cover mold growth resulting from an uncovered loss, such as ground water or culinary water that enters through the foundation from the outside.

Limits of Coverage
Providing you have coverage for mold remediation resulting from a covered loss, the limits of this coverage vary greatly.  Your company could pay any one of the following:

1. From $1000 up to $100,000 toward the remediation of the mold only.  The repairs to the structure would be covered by the water loss portion of the policy up to the value of the policy.   The average cost allowance for the mold remediation by insurance companies is between $5,000 - $10,000 per occurrence.
2. From $1,000 up to $10,000 for the total cost of repairs.  This would include the cost of the mold remediation as well as all of the drywall, paint, carpeting, etc. 

Statistically the national average for the cost of a typical mold remediation, as well as my personal experience, is about $2,000 - $3,000 for the remediation and about the same or less for the repairs. Some jobs are more, some are less, but most people will never encounter a remediation situation of $50,000 - $100,000 where their entire home needs to be demolished. Most often, there is mold growing along the baseboard in a bedroom, or growing behind a kitchen cabinet or bathroom vanity.

It should be evident, that coverage for mold, fungal or bacterial remediation varies drastically from company to company.  It is imperative for home owners to carefully research what their policies cover and what risks they may still be exposed to.  Paying $5 less per month for a policy that does not have mold coverage is no bargain if you later have to pay $1500 to $5,000 for repairs that resulted in mold growth.  But then, maybe you always win at blackjack, too.

It is also important for agents to carefully read and discuss with company adjusters, what the policies they sell actually offer their customers.  There are few things worse that overselling your product to a customer and then watching the resulting anguish and heartache as they try to deal with the situation; while your credibility erodes and your client defects.

Mold coverage in insurance policies varies greatly from company to company and you must check with your insurance company to see what coverage you have purchased.

 

What Will My Insurance Company Cover In a Fire?

--Each insurance policy is different.--
You will need to speak with your insurance adjuster to determine 
exactly what your insurance company covers in a fire.

The huge firetruck screeched to a halt. The Fire Chief barked orders and the crew flawlessly connected hoses to the hydrant, snaked them across the yard and water began to pour onto the burning house. Paul marveled at the sight, until the realization that this was his house snapped him back into reality. In less than half an hour it was over. Eighteen years of sweat equity, repairs and pride was reduced to a smoldering, sagging shell. He had insurance, but Paul had no idea who it was with, what was covered or where to start.


The first thing to do to determine what is covered in a fire loss is to speak with your agent.  Your agent will be able to tell you who the insurance company is and how to contact them.  Often, your agent can file your claim for you, sometimes they can't and you will have to do it yourself.


After the fire is over, you may not be able to find your policy or remember who the company was, but you should have your agent's name and phone number recorded in phone, Rolodex or some other place you store your contact's names and phone numbers.  It is always a good practice to have these special numbers in different locations, such as; work, with a friend or another family member's home.  

Fire insurance was actually the first type of insurance available to home owners. You will find that most insurance companies cover all the damages that result from a fire. This includes demolition, cleaning, repairing and rebuilding the structure as well as, replacing damaged furnishings and contents.



Demolition - This is the process of removing the debris from your home.  It can include; framing, drywall, insulation, carpeting as well as damaged furniture and clothing.  Those items that are nailed down are generally referred to as "property" and what is not nailed down, are "contents" or "personal property".  Labor, materials and dumpsters to haul off this debris is usually covered.


Cleaning - Most fires do not completely destroy a home.  Part, if not all of the structure, can be cleaned and repaired.  Cleaning consists of more than just wiping the black off with a wet cloth.  Special grease cutting agents are used and proper protocol, including the direction and way to wipe, are needed to do the job right. 


Cleaning is usually cheaper than replacement, so insurance companies are generally eager to try cleaning first, if it is a viable option, then look at replacement.


Sealing - After the structure is cleaned, there may still be staining and/or odor.  The staining can result from either chemical changes to the exterior finish from the heat or the soot particles can enter the pores of the surface when they open from the intense heat.  Regardless of the reason, the remaining staining or odor will not come out.  Special sealers are applied to these surfaces to trap or encapsulate the staining and odors.  



Repairing/Rebuilding - Once the debris is removed and the remaining structure cleaned and sealed, the repairs can begin.  Your insurance will usually pay to put the structure back exactly as it was before the fire occurred.  This includes the same design and materials that were originally used.  It is possible to change colors, materials or finishes as long as the total cost of repairs is equal to, or less than, what was there before the fire.


That said, an owner has the right to rebuild their home how ever they choose, including a complete remodel or extensive additions.  If this is the case, your insurance company is usually only obligated to pay the cost to put your home back to its pre-loss condition.  Any costs that exceed this would be borne by the owner.

Furnishing and Contents - While most homeowners will look at furniture and clothing as different items, the insurance company considers them all "contents".  Most companies have a "new for old" replacement clause for homeowner policies.  This means that any piece of content that was damaged, as long as it is still serviceable, will be replaced at the current replacement cost with a new item.


Some policies for businesses, rentals, condos, or assigned risks, do not have "new for old" replacement clauses.  It is wise to examine your policy before a loss to determine what your potential risks actually are in this situation.  Many times it is much greater than the policy holder assumed.


You will be required to generate a complete list of all the damaged items, with the replacement cost, and submit it to the adjuster for review and payment.  In the event of a large loss or other extenuating circumstances, the insurance company may pay for the services of a qualified restoration company to help generate this list.


Some policies also have a code upgrade rider available, to pay for additional costs needed to bring the structure up to current building code requirements.


Payment - You will generally be paid in steps during the repair process, upon verification of the loss and costs.  Checks are often issued to you for:

• Emergency Needs - Emergency purchases of new clothing, food or lodging.
• Additional Living Expenses - Payment for all additional expenses incurred as a result of the fire, i.e., lodging, food, etc.
• Contents - Payment for replacement of these damaged items.  
• Construction Draws - For small jobs, this can be the entire amount of repairs, for large jobs, it can be various percentages of the total cost that are paid as benchmarks are reached.
• Final Payment - At the end of the job, items that were not anticipated in the beginning or already paid, are examined and reviewed so that final payment can be given to you. 

Again, every insurance company and policy are different.  

You will need to discuss with your agent or adjuster
to determine exactly what is covered by a fire and
how much money is allowed for the various categories.

What Do You Do After a Fire

         

1. Contact your insurance company. You need to report the fire, and your insurance company will give you valuable information regarding your coverage, including where to stay if your home is un-inhabitable. Your insurance company will usually dispatch an adjuster to evaluate the damage. Sometimes it will be that day, but often it is the next business day after the claim was reported.

2. Contact a reputable restoration company. You will need to choose a restoration contractor (such as Utah Flood and Fire) you are comfortable with. Your insurance company may recommend contractors in your area, but the final decision is yours alone. Your insurance company will pay the reasonable repair costs for most reputable companies. A restoration company will be able to help with the following items.

3. Secure the premises. Often in a fire, the firemen need to break doors or windows to enter the house or evacuate the smoke as quickly as possible. The fire may also have burned holes in the walls or roof. These need to be boarded up and/or covered as protection from weather and theft.

4. Restore the power. The power is usually shut off to the house as a precaution. The flames may have burned and exposed live wires that could short and start another fire. A qualified electrician is needed to separate the damaged circuits and restore power to the house. The power company often needs to inspect the building before they will allow the power to be restored.

5. Turn on the water. In major fires, the water is also shut off by the fire department. This is to prevent additional water damage from pipes that may have been damaged. This will need to be checked and turned back on before the cleaning process can proceed.

6. Restore the gas. The gas is also shut off as a safety precaution. A plumber is needed to check the gas connection and work with the gas company to restore the service.



Beautiful tri-fold copies of this article are available for distribution by insurance agents, adjusters, fire and police departments. Contact Utah Flood and Fire Network for more information

When Do I Need A Public Adjuster

Karl wanted to SCREAM. It had been two months since the fire and nothing had happened. He was crammed into a hotel room with his wife and three kids, five restoration contractors were hounding him daily to hire them for the job and the insurance adjuster wouldn't return his calls to tell him if the claim was even covered. If something didn't happen soon, he was going to explode.


When a fire or flood damages your property, most insurance companies are quickly on site offering assistance and helping to resolve the owners problems. Restoration contractors also have the knowledge and experience to guide a family through the process of repair and claim resolution. With the insurance adjuster working in tandem with a good contractor, most claims are settled in a manner and time that is acceptable to all. But, occasionally, this type of care and service is just not there. When that happens, an owner needs additional resources to protect their interests.


A public adjuster (PA) is an independent adjuster that is hired by the owner. Just as the insurance adjuster looks after the interests of the insurance company, the public adjuster looks after the interests of the insured. Many Insurance companies do not pay for the services of a PA, so they will usually charge you a percentage of the claim, much like a personal injury lawyer. Some states mandate that they charge an hourly rate for their services rather than a percentage. 


It is important to discuss their terms and conditions before hiring a public adjuster. Without exercising due diligence, you can find your claim settled, finalized with the insurance company and not have enough money to make your repairs after the PA is paid.


There are fundamental differences in the approaches of public adjusters versus insurance adjusters. Insurance companies like to take a minimalistic approach to repairs. They want contractors to only estimate what obviously needs to be done and nothing more. Because this initial estimate may seem low, many owners are concerned that they will end up on the short end of the stick and not have all the work done. 


To compensate for this, the insurance companies leave claims open for a period of one to two years from the date of the loss. Any additional work that is required or undisclosed damage that comes to light within this period, is usually always covered by the claim and repairs will be paid for.

Public adjusters, on the other hand, want to finalize the total claim up front. Their estimates usually reflect everything that could possibly be wrong, or could go wrong, in the course of the reconstruction. This would include several items that might need to be done, but actually never are done. Because insurance companies never want to pay for something that didn't happen, and many policies stipulate that they are only obligated to pay the actual costs of repairs; long, drawn-out legal battles can ensue before an amount is agreed upon. 


It is not uncommon for claims handled by public adjusters to end up in court or arbitration. Once the claim is settled and the PA paid, the owner must know that there will still be enough left to adequately make the repairs.


Most insurance companies are concerned about their long term relationship with a policy holder and do their best to settle a claim with fairness and integrity. In most insurance claims, a public adjuster is not needed.

What will my insurance company cover in a water loss?

Each insurance policy is different and you will need to speak with an insurance adjuster to determine exactly what your insurance company will cover in a water loss.

Most companies cover the water damage resulting from broken or frozen pipes within the perimeter of the building. A simple way to determine if a loss is covered is to remember that your policy usually covers your home, that is the building. Accidents that happen to or within the building are usually covered. This would include valves that fail, pipes that break or freeze, washing machine hoses that split, sink supply lines that pop off, any appliance that has water and malfunctions or accidents such as forgetting to turn off the sink or tub.

Most companies do not pay for the repairs to the source of the problem, only the resulting damage. Example: if your water heater ruptures and floods the basement, the replacement of the water heater will likely not be covered. The rest of the damage, from drying the structure to replacement of drywall and carpet, probably will be.

The exception to this rule is in the case of a frozen pipe. The freezing water is considered the source and the split pipe is part of the resulting damage and usually your insurance company will cover this in a water loss.

Most companies also cover the damage from drain line blockages, providing the blockage is within the foundation of the building. This would include toys or diapers that clog the toilet and make it over flow or broken drain lines that cause damage. The test of coverage is if the plug or break is within the foundation of the home. Those companies that do not offer sewage back up as part of the standard policy may allow you to purchase coverage as a rider.

Sewage back ups outside the foundation of your home, fall under another category. If the blockage is between your foundation wall and the curb, most companies do not cover this type of loss. If the blockage or break is in the street, beyond your curb, it is often, but not always, covered by the City or water district that owns those lines. If liability is accepted, coverage can range from a flat payment of $2500 toward all the cleanup and repairs up to paying for the complete repair and replacement for all the damage. Costs for sewage backups usually start at $2,000 and can easily go up to $20,000 to $30,000, depending on the extent of the back up. It is important to determine who is liable and what they are paying before you begin the clean up and repairs.

Coverage for water from the outside is a multi-faceted issue. Some companies will cover a loss if the outside water is from a plumbing source, (sprinkler line, main water line, etc.) Others will only cover it if the water is from a plumbing source and it enters the house through an opening, (a door or window.) But others will not cover water from the outside regardless of the source or entry point. It is good to discuss this with your agent so you have a solid understanding of what your insurance company will cover in a water loss.

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