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August 18th, 2016
One of the first calls a homeowner makes after a fire or water loss is to his or her insurance company seeking help with both cleaning up the immediate mess and eventually repairing the damage. More often than not, the insurer will provide the homeowner with the name of a contractor who will respond to the home to assist with the initial clean up and to secure the home from further damage. Homeowners understandably assume that when their insurer places them in contact with a contractor who will respond to a loss that the insurer will stand behind the contractor’s work, particularly where the contractor is one of the insurer’s “preferred” contractors and is being paid directly by the insurer for work performed at the home. Unfortunately, this assumption is wrong more often than it is right.
Insurers take steps from the outset to attempt to distance themselves from liability if something goes wrong, such as where the contractor fails to properly dry the home resulting in mold growth and further damage. When the contractor first arrives at the home, the homeowner is often instructed that certain documents must be signed before the contractor begins work. If the contractor is one of the insurer’s “preferred” contractors, the homeowner will be instructed that he or she needs to sign a document prepared by the insurer “authorizing” the contractor to perform work in the home before work can commence and later “authorizing” the insurer to pay the contractor. What the homeowner rarely realizes though is that in these documents the insurer declares the contractor to be an “independent contractor.” The significance of this designation is that if something goes wrong, the insurer will rely on the document in an attempt to avoid liability for the contractor’s negligence.
An argument exists to get around the insurer’s attempt to insulate itself from liability for a contractor’s negligence where there is evidence that the insurer was actually controlling the contractors’ work and/or the homeowner was led to believe that the contractor was working for the insurer by the acts and representations of the insurer and/or contractor. A key component of holding an insurer vicariously liable for damages caused by the contractor’s negligence is demonstrating that the insurer was actually controlling the contractor’s work. Control may be demonstrated by evidence that the contractor was communicating directly with the insurer regarding the scope of work to be performed and did only that work pre-authorized by the insurer. Likewise, evidence that the insurer and contractor are communicating with the homeowner in a manner that would lead a reasonable person to form a good faith belief that the contractor was working as the insurer’s agent and/or representative can be used to find the contractor to be an ostensible agent of the insurer for whom the insurer is vicariously liable.
In order to become a “preferred” contractor for an insurer, the contractor often agrees to a lower rate of reimbursement than that which may be charged on the open market in exchange for obtaining the higher volume of work created when the insurer directs insureds to the contractor. The insurer wants its insureds to utilize the “preferred” contractors because the “preferred” contractor has agreed on the lower reimbursement rate and the insurance company saves itself money on the claim. Because the “preferred” contractor is beholden to the insurer for work, it will take direction from the insurer despite the protests of the homeowner and in direct contradiction to the insurer’s documents declaring the contractor to be a “preferred” contract. When this happens and something goes wrong, the loser is the homeowner, particularly where both the insurer and the “preferred” contractor disclaim liability or point fingers at each other. If you ever have the unfortunate experience of suffering a fire or water loss at your home, you are not required to utilize the contractors “suggested” by your insurer. If there is a reputable remediation contractor in your area that you want to use, you have the right to do so even if the contractor is not on your insurer’s “preferred” list. How the remediation contractor is reimbursed for work will be dependent upon the precise terms of the insurance policy at issue. However, rarely does an insurance policy mandate the use of the insurer’s “preferred” contractor. Instead, most policies will pay the reasonable costs of necessary remediation work.
