The Contractor The Insurance Company Sends In An Emergency: Be Careful What You Sign

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Oftentimes when an insured suffers a loss to their home, like fire or water damage, the insured will make an immediate claim to his or her insurance company.  The insurance company, in turn, will often send a third-party contractor out immediately to address the damages, like a water remediator or personal property repair and storage companies.  These companies can sometimes prove less than competent or ethical, and using them can make a bad situation worse.  Furthermore, they often have an ongoing relationship with the insurance company, and are willing to cut corners on repairs if they believe it will help them continue to receive business.  Policyholders are often surprised to learn that their insurance company often won’t stand behind the work done, or fix damages caused by, the contractors it sends to an insureds property.

What an insurance company is responsible for where a third-party contractor the insurance company recommends is negligent, causes damage, or does faulty work, is an unclear and a highly fact-specific area of the law.  On the one hand , “insurers have a nondelegable duty to timely and in good faith resolve claims by their insureds and to thoroughly investigate a claim.”  (Rattan v. United Services Automobile Ass’n (2000) 84 Cal.App.4th 715, 720.)  Therefore, insurers are presumably responsible for any damage caused “where an insurer has used an agent to determine when to pay benefits.” (Id. at 723.) On the other hand, where a third-party “professional fails to perform adequately” his services, the insurer is not liable for that conduct. (Id. at 717.) In essence, generally speaking, an insurance company is responsible if a third party helps it investigate the loss to determine what to pay, but is not responsible if the third party only performs repair work with the insurance money.  The problem is “the line between decisions which involve payment of benefits and the use of those benefits may in some circumstances be difficult to discern.” (Id. at 723.)

Practically speaking, this means that when something goes wrong with what a contractor has done, the insurance company has room to argue that it is not responsible. This can occur in many situations. Common examples are water losses, where the water remediator fails to adequately dry out, remove or replace the wet areas, mold develops, and the problem becomes worse, and often very serious. The insurance company may disclaim responsibility, taking the position the water remediator worked for you, and if the work was bad, you have to deal with the water remediator. The water remediator, however, often won’t do additional work unless paid additional money.  This puts the policyholder in the position of having an unrepaired home, while the insurance company and third-party remediator point fingers at eachother. Another common example is where a third-party company arrives at the scene of a loss and takes the insured’s damaged personal property to inventory and store. A dispute can often arise with the storage company about the amount of fees, or damage to the property, and the insurer will often claim it has no responsibility.

Because there are grounds for an insurance company to disclaim responsibility for damages caused by contractors in the immediate aftermath of a loss, policyholders have to be extremely careful about what they sign with companies who show up at the scene of a loss.  In the heat of the moment, when the insured is in the throes of distress from the immediate impact of a loss, and someone is saying they were sent by your insurance company and are there to help, it is easy to sign documents without carefully reading or understanding them.  Whether the policyholder has directly contracted with a third-party sent by the insurer can often have a significant impact on your insurance claim.  Policyholders should resist pressure to sign agreements or authorize work unless they understand what is involved