By Rachel Stewart | October 16, 2018 |
The Arizona monsoon season officially came to an end last weekend. We’ve had a very active season, characterized by a steady lineup of heavy-hitting storms carrying high winds and record amounts of rainfall. Statewide, the damage to homes and businesses from these summer storms has resulted in millions of dollars in repairs.
On the other side of the country, Hurricane Florence has caused widespread and historic devastation from high winds, rain and flooding, and tidal storm surges. The resulting damage and cleanup costs will run into the billions.
Whether you live in Arizona or North Carolina or somewhere in between, as restoration contractors, it’s important to understand the new emphasis on laws that prohibit waiving or discounting insurance deductibles.
In the past, it has been the practice for many companies in our industry to offer home and business owners a discount on their deductible in exchange for a contract to work on the property. This practice has come under new scrutiny and has become illegal in many states and regarded as a felony. What was once a gray area, is now clearly black and white. It’s important that every company be aware of the laws and statutes in their own state in order to be in compliance and avoid fines and even jail time in some cases.
While not every contractor passed the deductible discount back to the insurance company or produced inferior workmanship, the opportunity for fraud is too accessible. In order to stop these unethical tactics, several states are instituting laws to prevent this practice altogether.
Regulations and enforcement in these matters vary from state to state, but there can be serious criminal penalties. In California, for example this practice is punishable by up to three years in prison and up to $10,000 fine, for anyone who knowingly offers a discount intended to offset a deductible.
Even in Texas where laws are much looser, the Better Business Bureau released this statement, “The BBB recommends that … contractors and consumers alike exercise caution in participating in such programs (waiving deductibles). These programs walk along a very fuzzy line of insurance fraud, and neither [contractor] nor consumer would want to be held liable for such serious allegations.”
It’s important to note that as a contractor, not only do you want to stay clear of criminal charges, but by adhering to the law, you protect your customer as well. A homeowner’s insurance policy, between an insurance carrier and the insured, is a legal contract signed by both parties. The contract outlines the responsibilities of each party, including the homeowner’s duty to pay their deductible. It’s not just insurance companies that have financial responsibility in the case of claim; the homeowner has financial responsibilities as well.
As contractors, we have a legal and moral obligation to provide our services at the highest ethical standards and to practice honesty and integrity in our estimates, our billing, and our claims settlement. As these laws have started to be established in more and more states, restoration companies have the opportunity to scrutinize their policies regarding deductible discounts to make sure they are in alignment with the regulations in their area.
Obviously, this will improve the industry as a whole. The damage caused by potentially unethical activities, like inflating bills or using inferior building materials, have long-lasting and far-reaching consequences. First, the insurance carriers pay more upfront and have to increase premiums at a faster rate. Currently, the FBI estimates the cost of insurance fraud at over $40 billion a year and that is a cost passed directly on to consumers.
Second, the property owner could be held legally liable for their part in the fraud and can be found in breach of their contract. This can leave render the contract null and void, leaving the homeowner in a precarious financial situation and no longer covered by his insurance company.
Next, obviously, the contractor themselves could now face legal and financial ramifications as well as brand damage and loss of public trust.
Finally, and maybe most importantly, when contractors participate in fraudulent insurance practices, the restoration industry as a whole is affected by loss of public confidence and tainted by speculations of dishonesty and corruption. This hurts every contractor in business.
Like you, over the years we have seen the laws change and have made the necessary changes to adjust our business practices accordingly. Ultimately, these increased regulations will make it harder for fraudulent activities to occur industry-wide, allowing honest contractors to be more competitive with those who have used unscrupulous tactics or improper billing practices in the past.
I am convinced that as we continue to provide an excellent product without cutting any corners—legal or financial—our work will speak for itself and our reputation with clients and carriers alike will allow us to be even more successful. Each one of us can make the restoration industry better by upholding high ethical standards, never participating in offsetting deductibles, and always ensuring that there is transparency for everyone involved in the process.