Contractors often tell me and other Merlin Law Group attorneys of the crazy excuses and refusals insurance adjusters give to avoid paying for required construction materials, processes, and practices which constitute quality workmanship. Cheap and non-quality construction is easy to do and often overlooked by policyholders completely unfamiliar with the detailed specifications demanded by manufacturers of materials, building codes and OSHA requirements which must be followed for legal and quality construction to take place. Insurance company claims mangers know that doing construction right is a lot more expensive and demanding than paying for cheap construction.

An excellent article, Quality Construction Management, was published by International Risk Management Institute n/k/a IRMI and concludes:

A contractor must have a robust quality management program as it is critical to the overall success of a construction project. An effective program creates a process for clarifying standards and requirements, established means and methods for managing the process, defines responsibilities and accountabilities, and adds another avenue to more effectively manage the supply chain, while it reduces misunderstanding and potential conflict. It effectively facilitates and manages the collection of data, identifies performance discrepancies and nonconforming work, and substantially increases efficiency by reducing defects and punch list work, which aids in. improving the working relationship with the design team and the project owner. It systematically manages quality and enhances the contractor’s project delivery, increases productivity, eliminates or reduces waste, and ultimately improves profitability.

It does not take a rocket scientist to figure out that quality contractors performing the type of work discussed in the IRMI article cannot possibly stay in business if insurance companies demand “cheap” pricing. Contractors and policyholders reading this post should also read, Insurance Company Adjuster Training Scripts and Role Paying, on how insurance companies teach their adjusters with scripts to avoid paying contractor demanded pricing as well as overhead and profit costs.

Many insurance claims departments have a culture that will only pay for “okay” construction. AT&T’s current advertising campaign about “okay” services and products makes the point. Would you want just an “okay” surgeon or tattoo artist? Would you want your sushi to be just “okay?” Would you search for and buy your grand-baby the “cheapest but acceptable” car seat?

Yet, when it comes to insurance restoration construction, I have never heard an insurance company property insurance adjuster demanding that the contractors providing their pricing, or the pricing found in Xactimate, to be only from quality contractors with the types of processes and culture I quoted from in the IRMI article. They always go cheaper and for “okay” construction. They wrongfully allow the “cheap” contractors to provide data for pricing used by Xactimate.

Quality restoration contractors fighting these adjustment practices are heroes for all of us. Demanding fair pricing which allows for quality and standing up to the insurance industry adjusters is admirable. It is far easier to accept lower pricing and provide cheap and inferior workmanship.

A post about how State Farm tried to influence and obtain “okay” construction and pricing is found in, Membership in Professional Organizations Helps a Small Public Adjusting Firm Achieve a Big Result. Clay Morrison was a State Farm preferred construction vendor. The State Farm claims manger demanded that Morrison provide unethical pricing which would only result in cheap construction. Rather than acquiesce and keep the State Farm business, Clay Morrison rose to the occasion at his moment of truth and refused. He lost State Farm’s business, but he was a champion for all policyholders, his family and himself.

Similar battles are being fought every day by those in the insurance restoration construction trade. Those contractors that follow the rules and refuse to become just “okay” should be congratulated.

Thought For The Day

A dream doesn’t become reality through magic; it takes sweat, determination and hard work.
—Colin Powell

  • Tad Balzer

    I recall my exit from the State Farm vendor program with the program manager telling me ‘it was important for us to withhold enough from you so you would be as vested in this program as we were’ (at the time they were delaying payments for our completed work, some 90 days or more)

    ‘We made you, son and we will break you’ was their comment when I complained about our treatment and their demand we buy our raw materials from their suppliers that were giving them a discount. At the end, they were requiring that we utilize the Home Depot and Lowes install programs and then we had to guarantee their work for 5 years.

    My parting comment was ‘I was here before you and will be here after you, you have one week to get your invoices caught up.’

    It started as a good program and then sadly it devolved.

    In my opinion, it is important that ever Public Adjuster have some construction experience. The only way to achieve a real claim value is to compile the tasks that will happen in each of the areas of repair. If you don’t know how each trade interacts or a proper method of repair, you will not report work that will happen and then you have to explain to the homeowner or the contractor that they have to do that part of it without getting paid.

    I want every Public Adjuster to be able to say ‘I can put my hand on everything in my estimate and tell you why its there,’ or ‘tell me what will NOT happen during this repair and I will remove it from my estimate”. No carrier adjuster has answered these so far.

    Line item estimating is designed to know what they are paying for. Now it seems like they don’t want to know. It’s our job to educate them.

  • Tim Varga

    Please allow me to make a reasonable point:
    The insurance poilicy owes for the “reasonable” costs for repair or replacement of the damaged property using like kind and like quality materials for like use. Adding to that fact: “using the contractor of choice” as determined by the insured!

  • Tad Balzer

    Simply put, pre-loss condition. We cannot allow normalization of claims by cost. I have had too many claims disputed (all of them) by carriers adjusters without even looking at the scope. They go right to the bottom line and just say no. A reasonable cost is the cost to restore to pre-loss condition. That is the coverage that is paid for by the insured. Homeowners hold up their end of the contract. It is not ‘unreasonable” to expect the carrier to do so as well.

    • Anthony

      Your clients should use a good public insurance adjuster from day 1. This will help eliminate the risk of the claim being underpaid. Allow the licensed professionals negotiate the scope.

      • Anthony—Tad is a public adjuster. He has
        also worked as a restoration contractor in the past. Many public adjusters have
        very similar stories about the problems of insurance company adjusters simply
        not agreeing to anything other than the bottom Xactimate estimate which is
        prepared. Look forward to seeing you later this week.

    • Tad—thanks your your insights to this topic. They are important and

  • Kyle Larson

    At the root of this, and most every other discussion regarding this issue, is what is a fair and reasonable profit for a contractor? If we could somehow get everyone to agree what that number was, we could then just present our job cost invoices, have the agreed margin added, and go onto the next one. No more need for Xactimate or any of the back & forth dance we now engage in with insurers.

    • Kyle— good point. I have long been a proponent that a
      “reasonable cost” is dependent on a lot of factors and only a part of them have
      to do with what other contractors charge. Certainly, charging more than the
      “average” contractor does not make a charge unreasonable. Quality
      contractors are going to have processes and internal methods of doing business
      that inherently increase components of construction which make a job more
      expensive up front. Still, the quality job completed will be different than the
      cheap job completed by another contractor or a contractor who is doomed to go


    Fantastic read.

  • Lisa Shepard

    Another excellent article!! Maybe the insurance industry needs to revisit what “insurance” means.