Florida’s Property Insurers and the "Right to Repair"
Each property insurance company in Florida has tactics they use against claimants - “Right to Repair” is One
Last week we wrote about some bad actors (public adjusters and attorneys) in the minority who cause harm to the insurance industry causing problems for homeowners. This week we want to discuss one specific insurance company tactic that was recently in the headlines.
People’s Trust Insurance Company pioneered Florida insurance companies in using a program for direct repairs after a homeowner has sustained property damage, but an ongoing lawsuit alleges that the company pays bonuses to its contractors for cutting corners on those repairs.
What is the “Right to Repair”?
The right to repair, also referred to as the option to repair, direct repair program, or managed repair is an option in many property insurance contracts that allows a property insurance company to be in charge of the repairs that are performed when a home has been damaged instead of paying a homeowner to repair the damages themselves or find their own contractor.
This option for the insurance company is similar to language in auto insurance policies where instead of paying an insured who has been in an accident a some amount of money to shop around and get their car fixed, the insurance company may have a list of repair facilities that the insurance company knows and trusts will charge a fair price and who will presumably do a good job with the repair.
In theory, this method can eliminate a lot of headaches both for the insurance company and the insured. It reduces the risk of a less-than-reputable repair person charging an unreasonable amount or trying to rip off an insured and creating an unnecessary dispute between the insured and insurance company, it reduces the risk of shoddy repairs, and most importantly it puts the insured back to pre-loss condition.
But, does this successful auto insurance solution translate well to homeowners insurance? Not exactly.
The People’s Trust Right to Repair
As we mentioned, People’s Trust Insurance Company was a trailblazer in Florida’s property insurance industry in exercising the right to repair. They weaved the whole idea of managing repairs throughout their business model. People’s Trust’s founder created a construction company that he wholly owned called Rapid Response Team, and if you made a claim to People’s Trust, they would send this wholly owned (read: conflict of interest) contractor to your property, charge you your deductible, and then try to profit by completing the repairs as inexpensively as possible.
This method creates all kinds of problems, as you can imagine, where the insurance company is trying to maximize profits by charging premiums, maximize profits by delaying and avoiding paying claims, and maximize profits by trying to complete the repairs on a shoestring budget.
In practice, we saw nothing but problems come out of the managed repair program, and because they were profiting on every aspect of a homeowner’s insurance, we saw People’s Trust Insurance Company quickly rise in the number of policyholders they had throughout Florida, often undercutting other insurers and offering rock bottom premiums. After some initial complaints, People’s Trust started making people sign a waiver when they initially received their policies from an insurance agent that People’s Trust/Rapid Response would be performing the repairs if the homeowner made a claim for property damage.
Not long after People’s Trust started these practices, a number of other Florida insurance companies followed suit. None of the insurance companies had their own in-house contractors, but all the insurance companies who started down that path saw it as an opportunity to control profits by directly controlling the contractor who would do the repairs.
The Right to Repair Converts the Insurance Contract into a Construction Contract
When an insurance company exercises the option to repair, legally, it converts the insurance contract into a construction contract. Despite all the headaches and pitfalls of having contractors trying to cut corners during the repairs, an insured homeowner is often put into a better legal position because the conversion of the insurance policy into a construction contract removes the coverage limits, essentially meaning that whatever damage exists, the repair must be completed in a satisfactory manner by the insurance company, and meet all applicable building codes.
The insurance company, then, steps into the role of a general contractor and project manager. Whatever general contractor the insurance company hires (and the homeowner typically is not given a choice like with auto repair facilities), then becomes a subcontractor of the insurance company.
The insurance company dictates a scope of repairs and an amount they will pay, and the general contractor then is in charge of meeting or exceeding that budget. Supplemental claims are typically met with extreme scrutiny.
In practice, we have seen contractors operating on such small margins dictated by the insurance companies that repairs often go incomplete, contractors walk off job sites, or in some extreme cases, we’ve seen contractors who have gone bankrupt and out of business before the job is finished and repairs are completed.
We initially said that exercising this option puts the insured homeowner into a better position legally, but for that to be enforced, it can often take significantly longer than a normal claim and require litigation to remedy. No homeowner wants to go through litigation if they can help it, but if your repairs have been botched or the job has been abandoned while your home is still damaged, you may not have a choice.
The People’s Trust Lawsuit
Recently a south Florida attorney filed a lawsuit alleging that People’s Trust and its affiliated companies used a deceptive and fraudulent business scheme related to the right to repair, often disguising this option as a nominal premium credit, only to then cut corners on performing the repairs to an insured’s damaged home.
Our public adjusters can’t speak to the allegations in that complaint, specifically, but we sure have seen some serious problems with the right to repair, both for insurance claims with People’s Trust/Rapid Response Team and with other Florida insurance companies.
Some Horror Stories from VIP Adjusting’s Public Adjusters have witnessed
One of our public adjusters had a client whose repairs were performed by People’s Trust and Rapid Response team. The homeowners’ personal property were all placed in storage, Rapid Response Team performed about 95% of the repairs and then just disappeared from the job site. The insured couldn’t get Rapid Response Team to finish the punch-list repairs to complete the job, Rapid Response Team left a permit open resulting in a $10,000 fine to the homeowner, and no one would respond as to how to return the personal property to the homeowners. All their furniture was indefinitely in storage, meaning they had to continue to pay to live elsewhere for more than a year and a half.
Another insured with a different insurance company had a plumbing leak in a supply line to the dishwasher in their kitchen island. The insurance company’s contractor repaired the leak by digging through the floor (also referred to as “trenching”), but when repairing the damages to the home did a substandard job, leaving gaps in the floor throughout the home, unfinished thresholds, visible drywall patches, mismatched colors, and other substandard workmanship in almost every part of the home. While the homeowners were justifiably upset at the quality of the home’s repairs, the dishwasher leaked again because the contractor had reinstalled it improperly adding insult to injury. In this instance, the contractor walked off the job declaring that they had lost money on the job, and the insurance company refused to address the substandard repairs and the second leak. It was later learned that the contractor had declared bankruptcy following this job.
Yet another insured with a different insurance company had a plumbing leak that damaged wood flooring throughout a home. The insurance company’s contractor improperly installed the replacement floors without a vapor barrier which almost immediately buckled and caused significantly more damage than the original leak. Despite the new damage being within a week of completion of the repairs, the insurance company tried to disavow the damages, instead claiming the damages were the result of high humidity levels.
As it pertains to People’s Trust, we’ve also witnessed some unethical legal practices from them, as well. True to their business model, People’s Trust Insurance Company also has an in-house legal department with in-house attorneys. This is permitted by the Florida bar, however, in-house attorneys are generally not permitted to provide legal services for outside clients for a number of reasons. First, non-lawyers are not permitted to own an interest in a law firm and the attorney’s representation for an outside entity would essentially constitute the insurance company acting as a law firm. For that same reason, entities that are not law firms cannot represent clients. Notwithstanding these regulations, People’s Trust Insurance Company’s in-house attorneys routinely represent Rapid Response Team, despite the fact that they are separate legal entities.
The Moral of the Story
When staring down an insurance company looking to profit from the repairs by minimizing losses, you’re facing an uphill climb, especially if your insurance company regularly elects the Option to Repair, but the guidance of an experienced public adjuster can put you in a better position than you ordinarily would be and make sure the seeds have been planted to protect you in case the repairs should go sideways. If you find yourself on the receiving end of this type of tactic, feel free to contact VIP Adjusting’s public adjusters today for a free claim review.
You might also be interested in:
Water damage claims resulting in Mold Damage
Sink hole claims can be particularly tricky with the Option to Repair
Insurance Claims as a result of Fire Damage and Smoke Damage