Fair Contractor Markets - Adjusters "Three Trade Rule" Hoax

Most construction business owners know about the financial shell game flim-flam scam mantra perpetuated by corrupt insurers and adjusters against their unsuspecting loss claim clients -

“There needs to be two-three or more trades before WE pay O&P”

So in other words - There “needs to be” three or more trades work to account for before contractor business overhead and profit calculations are to be applied towards full replacement costs.

“Needs to be”??..Say who? Certainly not any sane construction business owner in our solar system. And who is suppose to truly understand and manage 1-3+ trades without overhead and profit costs factored into the replacement cost?
The construction business ignorant policyholder?

So to the corrupt insurers and/or adjusters who spout such corrupt construction market nonsense -

  1. How does predetermined general contractor replacement costs of structures, factored in your clients premiums, somehow NOT apply mathematically to the first 1,2,3, or more trade work cost calculations required after a catastrophe?

  2. How is it financially legal for you to charge policyholders for general contractors business models in various zip codes, but then skim off the top of the loss value general contractor overhead and profit values towards the first three, or more, trades?
    iso.com/Products/SPI-Plus/Sa … PEgWG_LTuc

  3. You so-called “adjusters” that help insurers skim off the top financial loss values you naturally owe your struggling clients - How do you justify the financial fraud, and immoral behavior?

  4. As the meaning for the term “illegal windfall” (profit), and what it takes to make that illegal thing happen, becomes clearer to loss claimants, and Judges, and juries, and the general public, and legal authorities - Will adjusters become justice system fall-guys for insurers financially illegal and unfair daily market conduct?
    http://www.tdi.texas.gov/bulletins/1998/b-0045-8.html

Texas Administrative Code
TITLE 28 INSURANCE
PART 1 TEXAS DEPARTMENT OF INSURANCE
CHAPTER 21 TRADE PRACTICES
SUBCHAPTER C UNFAIR CLAIMS SETTLEMENT PRACTICES
RULE §21.203 Unfair Claim Settlement Practices

(1) misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;
(4) not attempting in good faith to effectuate prompt, fair, and equitable* settlements of claims submitted in which liability has become reasonably clear;

http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=28&pt=1&ch=21&rl=203

*Equitable liability = When a prospective general contractor business model is used to establish replacement costs, and also indemnify, a structure - Adjusters…Do not illegally calculate sub-trade costs ONLY on 1-3+ trades as being true loss values owed to claimants.

General contractor + Roofing contractor = Full insured roof value.
General contractor + HVAC contractor = Full insured HVAC value.
General contractor + Guttering contractor = Full insured guttering value.
General contractor + Siding contractor = Full insured siding value.
General contractor + Etc. specialty contractors = Anticipated insurance policy assumptions regarding General Contractor replacement costs of structures…pre-paid by policyholders.

I don’t work for “what insurance pays” but I had a lady request that I break down my estimate for her.

She then wanted me to go over it all with her.

When I got to the part about GL and WC insurance, she said quote: " I don’t think that I should have to pay for your insurance". End quote.

:shock:

I try to stay away but on this one I cant help myself…

In the final analysis, whether general contractor overhead and profit (the infamous “10+10”) is owed on a claim has nothing to do with the number of trades, Exactimate, or what the TDI has to say (the TDI bulletin doesnt address this issue). As a policy coverage issue, the question is whether it was reasonably necessary and incurred. In fact, if you read the TDI memo referred to in the post, it states:
Indemnity is the basis and foundation of insurance coverage. The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured. This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss.
It’s very simple. Was it necessary? Was it reasonable? Was it incurred?
What it is not is an add-on line item for roofing contractors to drive up their profit margin. Just bid/estimate your roofing job with your regular profit margin included. If a general contractor is needed on the job, he can submit his own estimate for his work.

—> InsurerPerspective

So does that mean that if an insured decides to go with a general contractor, the general contractor is entitled to O&P?

Is a general contractor required for a roof only? No is most cases. There are exceptions to every rule and the following are a few examples.

  • If the homeowner is eldery and doesn’t know the first thing about construction.
  • If the homeowner has a medical condition, handicap or is mentally unable to coordinate a roofing project.
  • If the homeowner 2nd language is english and they can’t effectivally communicate very well.

Now on the other hand if the homeowner can pick the phone up and call a roofing contractor is O&P warranted? The answer, in my opinion would be no.

If the insurance company should pay for O&P for roof only who should get it? That would be up to the homeowner and contractor but I would lean towards the homeowner. The reason being in this unusual example would be that the homeowner is doing the work and acting as a GC. The roofer is simply their sub contractor.

Is a GC need on every claim. No in my opinion.
Is a contractor needed on every claim. No in my opinion
Is a PA needed on every claim. No in my opinion.
Homeowner can and do repairs themselves.

Just put the O&P inside your estimate then submit to the homeowner. Because the roofing company is the homeowners subcontractor. The homeowner may request that the roofing company send their estimate be sent to the insurance company. The reason…Because the roofing company is the sub contractor and the homeowner doesn’t have the time,energy, etc… to do it.
The lines get crossed frequently on the responsibility of each party. But the bottom line is that the homeowner is the GC unless there is a GC retained.

How many roofing company would get their same rate if they worked as a sub for a GC. My guess is slim to none as evident by previous posts about the subject and my own experience. Again, there a a few exceptions to rule.

[quote=“InsurerPerspective”]I try to stay away but on this one I cant help myself…

In the final analysis, whether general contractor overhead and profit (the infamous “10+10”) is owed on a claim has nothing to do with the number of trades, Exactimate, or what the TDI has to say (the TDI bulletin doesnt address this issue). As a policy coverage issue, the question is whether it was reasonably necessary and incurred. In fact, if you read the TDI memo referred to in the post, it states:
Indemnity is the basis and foundation of insurance coverage. The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured. This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss.
It’s very simple. Was it necessary? Was it reasonable? Was it incurred?
What it is not is an add-on line item for roofing contractors to drive up their profit margin. Just bid/estimate your roofing job with your regular profit margin included. If a general contractor is needed on the job, he can submit his own estimate for his work.[/quote]

Exactimate?

Sorry. Was in a hurry and didnt proof read. Xactimate.

As to Kendge’s question…“No, O&P isnt payable every time a GC is involved.” But it would be payable if a GC’s involvement is reasonably necessary given the scope, size, and nature of the project. Again, my focus is on what is reasonable, what is necessary, and what is actually incurred. Are these specific words in the policy? No, but they are consistent with the intent of the policy and the purpose of property insurance in general.

As to CatContractor, he is the type that makes my job not only interesting but fun!

[quote=“InsurerPerspective”]Sorry. Was in a hurry and didnt proof read. Xactimate.

As to Kendge’s question…“No, O&P isnt payable every time a GC is involved.”

Interesting. Why is that?

But it would be payable if a GC’s involvement is reasonably necessary given the scope, size, and nature of the project.

And how do you determine if GC involvement is “reasonably necessary”?
And who determines the “nature” of the project?

Again, my focus is on what is reasonable, what is necessary, and what is actually incurred.

Without constant, mature, and applied daily construction business ownership “focus”, how do you presume to actually know what is “reasonable”, “necessary” and “actually incurred”, when you are not a certain construction business owner, responsible for performing a specific project successfully?

Are these specific words in the policy? No, but they are consistent with the intent of the policy and the purpose of property insurance in general.

So you believe that GC O&P value is only “necessary” when you say so…And not when the unbiased indemnification loss value math says so?

As to CatContractor, he is the type that makes my job not only interesting but fun![/quote]

It seems that many insurance industry adjusters are clueless about honoring indemnification principles that are truly equitable to inherent structural loss values owed a claimant.

Reread TDI Bulletins B-0045-98 and B-00680-08 - with precision.

GC O&P values are part of predetermined (general contractor) replacement cost/loss values intrinsically owed no matter how many trades, or complexity, is tied to a loss…Or whether a contractor is used or not by a claimant.

Have fun with that!

I’m not sure why I even bother, but regardless, I will “have fun with that”…

Policy premiums are set based on a lot of factors, including the MFL (maximum foreseeable loss). In a total loss situation, the analysis is no different…what is the reasonable, necessary, and incurred cost to put the insured back in the position he was before the loss. If a GC is needed and used, which I absolutely agree is more likely in a MFL situation, then my policy pays for it. But that doesnt mean I have to pay for it in every single claim, regardless of whether GC charges are necessary and incurred. Your concept of “unbiased indemnification loss value math” is silly. It has no application to my obligations under my policy.

As to who makes the decisions on GC involvement, reasonably necessary, etc., I don’t. My policy does. I apply the policy provisions. It is the contract between my company and its insured. The insured and I work together to come up with a reasonable application of the policy provisions. But, yes, in the end, since I have the checkbook I recognize that I effectively make the final decision as to payment. If the insured disagrees, like with any contract dispute, it can seek redress through the courts. And if I’m wrong, bad faith law compensates the insured.

Finally, I have read the TDI Bulletins…many times. As an aside, lets begin with this language in the bulletin:

Thus, the insured continues to be entitled to reasonable and necessary expenses to repair or replace the damaged property,

Thus, it appears that even your Biblicaly-applied Bulletins even agree with my use of the terms “reasonable and necessary”.

Further, as I quoted previously:

*Indemnity is the basis and foundation of insurance coverage. The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured. This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss. *

That is my driving and primary focus–what was reasonable, necessary and incurred (“indemnity”). I will pay what it costs to put the insured in the same position it was before the loss. That’s it. If GC involvement and payment of GC O&P is necessary to complete the repair work to accomplish that objective, I will pay it. But I will not pay it when it serves only to allow the insured, or more usually the roofing contractor, to “reap economic gain”. And lets all be honest here, that is typically what the 10+10 line items are used in Xactimate estimates are used for—just to jack up the claim and contractor profits.

Nowhere in the Bulletins does it state…even when read with precision…that O&P is owed on every claim. The clear and simple intent of the Bulletins is to advise that when calculating an ACV holdback/payment, the total RC claim value must be considered. If O&P and taxes are part of that RC figure, they must be included when calculating the ACV holdback/payment. That’s it. That’s all it says.

If I’m wrong, then show me the language that says O&P must be paid on every claim. Have fun with that.

[quote=“InsurerPerspective”]I’m not sure why I even bother, but regardless, I will “have fun with that”…

Policy premiums are set based on a lot of factors, including the MFL (maximum foreseeable loss). In a total loss situation, the analysis is no different…what is the reasonable, necessary, and incurred cost to put the insured back in the position he was before the loss. If a GC is needed and used, which I absolutely agree is more likely in a MFL situation, then my policy pays for it. But that doesnt mean I have to pay for it in every single claim, regardless of whether GC charges are necessary and incurred. Your concept of “unbiased indemnification loss value math” is silly. It has no application to my obligations under my policy.

As to who makes the decisions on GC involvement, reasonably necessary, etc., I don’t. My policy does. I apply the policy provisions. It is the contract between my company and its insured. The insured and I work together to come up with a reasonable application of the policy provisions. But, yes, in the end, since I have the checkbook I recognize that I effectively make the final decision as to payment. If the insured disagrees, like with any contract dispute, it can seek redress through the courts. And if I’m wrong, bad faith law compensates the insured.

Finally, I have read the TDI Bulletins…many times. As an aside, lets begin with this language in the bulletin:

Thus, the insured continues to be entitled to reasonable and necessary expenses to repair or replace the damaged property,

Thus, it appears that even your Biblicaly-applied Bulletins even agree with my use of the terms “reasonable and necessary”.

Further, as I quoted previously:

*Indemnity is the basis and foundation of insurance coverage. The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured. This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss. *

That is my driving and primary focus–what was reasonable, necessary and incurred (“indemnity”). I will pay what it costs to put the insured in the same position it was before the loss. That’s it. If GC involvement and payment of GC O&P is necessary to complete the repair work to accomplish that objective, I will pay it. But I will not pay it when it serves only to allow the insured, or more usually the roofing contractor, to “reap economic gain”. And lets all be honest here, that is typically what the 10+10 line items are used in Xactimate estimates are used for—just to jack up the claim and contractor profits.

Nowhere in the Bulletins does it state…even when read with precision…that O&P is owed on every claim. The clear and simple intent of the Bulletins is to advise that when calculating an ACV holdback/payment, the total RC claim value must be considered. If O&P and taxes are part of that RC figure, they must be included when calculating the ACV holdback/payment. That’s it. That’s all it says.

If I’m wrong, then show me the language that says O&P must be paid on every claim. Have fun with that.[/quote]

Sorry to “bother” you, and thank you for your candid reply.

Your partial quote from TDI Bulletin B-0045-98 skews your line of reasoning. When I come back to the office, we will go over the rest of the paragraph -and another.

Quote - "The Department´s position is based on the following:

– Indemnity is the basis and foundation of insurance coverage. The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured. This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss. The calculation of this payment results in under-compensation if an insurer deducts prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy. Conversely, the inclusion of contractor´s overhead and profit and sales tax on building materials does not over-compensate an insured for the amount of the loss because these items represent part of the insured´s loss."

“The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium. If the insurer in determining actual cash value excludes costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an illegal windfall because the insurer receives premium on insurable values for which loss may never be paid.”

“–The insurers’ argument that the cost of contractor´s overhead and profit and sales tax on building materials should be excluded from an actual cash value loss settlement because the insured has not incurred these expenses is not persuasive. Using this logic, an insured who opts not to repair or replace damaged property would not incur any of the expenses necessary to repair or replace the damaged property, including the costs of building materials, and would collect nothing under an actual cash value loss settlement. This result would be contrary to the purposes of the subject insurance policy.”

“…there is no situation in which the deduction from replacement cost of depreciation and contractor´s overhead and profit and/or sales tax on materials will be the correct measure of the insured´s loss.” -End Quote

General contractor replacement costs of insured structures is also the basis of the foundation of indemnifying the insured structure. You constantly miscalculate intrinsic loss dollar values by synthetically redefining those loss values in a skewed post-underwriting manner and (by espousing ambiguous and contradictory policy “language”) as to what clients are actually owed as simply natural and actual RCV-to-ACV insurable values owed them.

Since plumbing contractors do no replace structures - GC construction business “O&P” is necessarily part of construction business dollar math calculations (factored into premiums) so as to to properly indemnify a structure.

The on-the-fly damage complexity and number of trades indemnification mumbo-jumbo financial fakery, is just that. Hopefully you can see it is owed on every claim, because it is naturally charged for IN premiums, up to the limit of liability. Not naturally including it BACK IN your RCV-to-ACV calculations cheats consumers all over the USA of insurable values intrinsically woven into a loss.

Thus - “illegal windfall” is naturally created over and over again by your illegal financial transactions.

CatContractor,

I’ll just end with this…

The intent of the TDI Bulletin is quite clear – when O&P is a claim component, it cannot be excluded when calculating a RC holdback. Nowhere does it say, explicitly or implicitly, that O&P must be a component of every claim. It’s simple.

Further, the only “illegal windfalls” are being obtained by individuals like yourself who have found that getting involved in the insurance claims process is a great way to make a living. Your focus is not on putting the building owner back in the same position he was before the loss at a fair price, but instead on putting as much insurance company money in your pocket as you possibly can. The fact that the majority of the posts on this “Roofing” forum involve insurance issues is very telling. Each week I encounter lots of good contractors–roofing and otherwise. They don’t quote TDI Bulletins, underwriting statistics, bad faith laws, or anything else having to do with insurance. They give their customer a bid to fix their damage, with a reasonable profit included. That’s it. They stay out of the insurance world. I resolve those claims simply and fairly.

Unfortunately, contractors like yourself view insurance companies as a slot-machine that keeps on paying. You do everything possible to extract all you can out of us–with an obvious goal to maximize the insurance recovery and minimize the repair costs. All for your own financial gain. As long as there are contractors like yourself out there who have that attitude, there will be conflict in the claims process.

For the rest of you, just submit a fair estimate for your work (with a reasonable profit included) and allow the insurance process to play out as it was intended to–between the insurer and its customer. Utopian? Perhaps. But most claims get resolved amicably in that situation.

See you on a roof soon.

IP

I have no problem with most of your post, Insured.
I believe a contractor should do exactly what you state: quote a fair price with a reasonable profit that replaces the customers loss with quality work.

However, the sad reality is that many insurers fail to pay what it takes to do the job properly. Most people rely on their insurance to cover the majority of their loss, and few have the skills or knowledge to deal with their adjuster and the insurance company.

As a result, they end up with a low cost contractor who performs shoddy work or even worse they fail to get the work done because the gap in funds seems impossible to overcome.
Eith way the insurance company wins, and the customer loses.

I got out of the insurance game after getting tired of trying to get insurance to pay my customers what it took to allow me to do a good job and stay in business for the long run.

Fewer jobs but they all make the margins I need to stay in business. Less stress. Happier customers. That doesn’t help the people the insurance companies screwed, but I learned a long time ago I can’t save the world.

IP
Very good explanation of the TDI bulletin (O&P). I don’t know how if it could be broken down any easier.
Unfortunately, a few contractors will still or refuse to comprehend it. Those same contractors are a minority and make good fodder when they complain on a forum about how they are cheated out of O&P on a roof only claim.

[quote=“InsurerPerspective”]CatContractor,

I’ll just end with this…

The intent of the TDI Bulletin is quite clear – when O&P is a claim component, it cannot be excluded when calculating a RC holdback. Nowhere does it say, explicitly or implicitly, that O&P must be a component of every claim. It’s simple.

Further, the only “illegal windfalls” are being obtained by individuals like yourself who have found that getting involved in the insurance claims process is a great way to make a living. Your focus is not on putting the building owner back in the same position he was before the loss at a fair price, but instead on putting as much insurance company money in your pocket as you possibly can. The fact that the majority of the posts on this “Roofing” forum involve insurance issues is very telling. Each week I encounter lots of good contractors–roofing and otherwise. They don’t quote TDI Bulletins, underwriting statistics, bad faith laws, or anything else having to do with insurance. They give their customer a bid to fix their damage, with a reasonable profit included. That’s it. They stay out of the insurance world. I resolve those claims simply and fairly.

Unfortunately, contractors like yourself view insurance companies as a slot-machine that keeps on paying. You do everything possible to extract all you can out of us–with an obvious goal to maximize the insurance recovery and minimize the repair costs. All for your own financial gain. As long as there are contractors like yourself out there who have that attitude, there will be conflict in the claims process.

For the rest of you, just submit a fair estimate for your work (with a reasonable profit included) and allow the insurance process to play out as it was intended to–between the insurer and its customer. Utopian? Perhaps. But most claims get resolved amicably in that situation.

See you on a roof soon.

IP[/quote]

The actual true “intent” of the TDI Bulletins is that GC O&P is naturally built into replacement costs of structures. Period. There is no wiggling out of that, except by unhealthy ego.

Bash, insult, and “end it” as you wish. Real construction business professionals, who are also fathers, husbands, and neighbors, will ALWAYS stand up to predatory flim-flam artists.

Always.

Cat,

I had an adjuster tell me a few days ago that he had just went through an 11 day class on the 2 famous TDI Bulletins that are always mentioned on this site. If it takes 11days to explain to adjusters, 2 bulletins that can be read in 10 minutes you’re wasting your time.

These bulletins are obviously directed at scolding the insurance companies for unfair claim settlement practices. Anyone who doesn’t believe O&P is to be payed on every claim, should call the TDI number at the bottom of the page for clairification. They will ask you to please file a complaint so they can bypass the phone drones and go right to the legal department where the people that know ignorance of the law is not a good defense for unfair claim settlements.

The 2-3 trade O&P conflict is fascinating to me. On one side is the insurer who feels that the insured should not hire a GC unless there are multiple trades involved. On the other side is the repair contractor who feels that they should be fairly compensated for their efforts, expertise, and risk. What has been lost in the middle is that the value of a claim is what it costs to restore the damage. Unfortunately, that value is a moving target as factors such as material costs, job site conditions, and quality of contractor (just to start) are considered.

The reality is that, in the absence of an agreed price with a qualified contractor of some type, all estimates are theoretical. The insurer says it is worth $100.00, the contractor says it is worth $1,000,000.00. Like Schrodingers Cat, both can be correct at the same time . . . unless one or the other is agreed to or refused by a qualified contractor.

What has been lost in the discussion is that at some point a qualified contractor has to agree to drive nails for the money offered. It used to be that part of an adjusters job was to reach an agreement with the insured and/or their contractor. Today, the job is to write an estimate on the specified software omitting the specified items (such as O&P, taxes, or O&P on taxes, or any of a myriad of ridiculous made up “policies” affecting the estimate), and then present that to the insured as the bottom line.

Conflicts develop when the contractor is not considered in the settlement process.

[quote=“ChrisCole”]The 2-3 trade O&P conflict is fascinating to me. On one side is the insurer who feels that the insured should not hire a GC unless there are multiple trades involved. On the other side is the repair contractor who feels that they should be fairly compensated for their efforts, expertise, and risk.

What has been lost in the middle is that the value of a claim is what it costs to restore the damage. Unfortunately, that value is a moving target as factors such as material costs, job site conditions, and quality of contractor (just to start) are considered.
[/quote]

Chris - The various ways that many corrupt insurers/adjusters have tried to invent and then promote anti-contractor market “norms” by mass and deceptive market propaganda, is fascinating.

Even more fascinating is that the general public, and legal entities, by continuous and incremental education by Fair Contractors - are seeing that predetermined loss value dollars inherently owed loss claimants - whether a contractor is used or not - are consistently withheld from loss claimants.