The Problem: Waiving insurance policy deductibles (“you scratch my back and I’ll scratch yours”) has been common place in Texas since 1989 and came about as the result of a poorly worded statute passed that same year that contractors have basically ignored. Contractors who have broken the 1989 law by waving deductibles (primarily roofing contractors) are known as “deductible eaters.” Homeowners were lured into signing contracts with the deductible eaters based on promises, for example, of a “free roof.” And then, homeowners/policyholders were duped into committing insurance fraud when in submitting a request pursuant to their policy for replacement cost (RCV) hold-back, they failed to tell their insurance company that the deductible part of the claim had not been incurred. What this means, again for example, before the new law, is that the roof job a homeowner got where the $2000 deductible was waived or “forgiven” and buried in other ways in the contractor’s paperwork, will now be required as payment out-of-pocket and proof that it was paid before the insurer will pay the RCV hold-back.

The Cure: This new bill out of the 86th Texas Legislature and signed into law this month by Governor Abbott is designed to cure or at least curb the above abuses. The new law, entitled Payment of Insurance Deductible, goes into effect September 1, 2019, and will be located in Chapter 707 of the Texas Insurance Code. The first full paragraph states: “A person insured under a property insurance policy shall pay any deductible applicable to a first-party claim made under the policy” See Tex. Ins. Code §707.002. This really has always been the law but has been ignored and not enforced.

However, the new law provides that it is a violation of this law if a contractor:

  • Pays for,
  • Waives,
  • Absorbs,
  • Rebates,
  • Credits or Offsets or
  • Otherwise assists the insured in any other manner in avoiding monetary payment of the required insurance deductible or provides a good or service knowing that the insured will pay for the good or service with the proceeds of a claim under the policy and without the insurer’s consent to do so.

The new law creates a Class B misdemeanor offense of 180 days in county jail and a fine of up to $2000, for (1) a business who sells goods or services to provide such a good or service in such a prohibited manner (violating contractor), (2) an insured (policyholder)who commits an offense if the person, in connection with a first party claim knowingly submits or allows a claim to be submitted in violation of subsection c, (the violation section directly above) unless the insured person promptly notifies the insurer of the violation.

Another key provisions is Section 707.004, Reasonable Proof of Payment, which provides that an insurer may refuse to pay a claim for withheld recoverable depreciation or replacement cost holdback until the insurer receives “reasonable proof” of payment of the deductible by the policyholder. “Reasonable Proof” is set out in the statute as consisting of a: “canceled check, money order under receipt, credit card statement, or copy of an executed installment plan contract or other financing arrangement that requires full payment of the deductible over time. Tex. Ins. Code §707.004.

The new law also amends the Texas Business and Commerce Code. This section provides that a contract that is reasonable expected to be paid wholly or partly from the proceeds of a claim made under a property insurance policy to provide a good or service of more than $1000 must contain the following provision in 12 pt. font:

Texas law requires a person insured under a property insurance policy to pay any deductible applicable to a claim made under the policy. It is a violation of this Texas law for a person or business paid wholly or partly from proceeds of a property insurance claim to knowingly allow the insured person to fail to pay. Or assist the insured person’s failure to pay, the applicable insurance deductible. See SECTION 2. Business & Commerce Code, is amended to read as follows: Section 27.02. “Goods or Services Paid for by Insurance Proceeds: Payment of Deductible Required

Finally, although in my humble opinion the new law is well-written and extremely clear, there is a provision in it (§ 707.003) that the Texas Insurance Commission will be in charge of consumer education about the new law and “shall develop and implement an education program relating to the payment of property insurance deductible.” The new law also set forth the specific, mandatory requirements that the educational program must contain.

Touted as a consumer/policyholder’s victory, I am not sure what that victory entails. The only benefit I can think of is that if a policyholder or insured knows about this new law, then a contractor’s con about a “free roof “would raise a red flag. Other than that knowledge benefit, I am not sure there are any others.

  • Victor Pike

    The ones this really helps is the insurance companies trying to keep homeowners from filing claims because they can’t afford the deductible.
    I bet if you look behind this its lobbyists that pushed this and they come from insurance companies because they are the ones that are going to profit from this not the homeowners it’s definitely not looking out for homeowners best interest because Insurance deductibles are so high here in Texas people are going to have damaged roofs and leaks because they can’t afford an insurance deductible anymore.
    There was a bill to require registration of all roofers in Texas and have licenses to do so but that got shot down , that would have been something that could have actually benefited homeowners and policyholders, but it got shot down because that would give the roofing companies a voice of recognition to argue such stupid legislation just like this one that passed

    • Travis Aaron Rogers

      The people this helps are the legit, insured, reputable roofer companies who are currently getting under-bid by people who slap vinyl wraps on their truck one weekend and call themselves roofers, then break the law by offering non-competitive discounts and shoddy workmanship.

      • Kay k. Morgan

        You are correct Travis– this legislation does help the legit roofing companies and not the fly-by-night folks that always show up after a disaster. So there is some good to it but it does not help homeowners that much even thought it was touted as a homeowner’s bill. Thanks for your comment. It is very rewarding when someone comments on these blogs. Appreciate it.

      • Larry E

        The assumption that a roofer that helps a homeowner with a deductible is “fly by night” is dubious. I know of at least a dozen companies from large to small that do so with full general liability coverage, BBB A+ rating, factory certified, in business for 20+ years, that put on great roofs and back their warranties. The insurance companies will benefit from fewer claims and reductions of claims for depreciation payments. The contractor associations, backed by the insurance industry, has lobbied for this type of legislation for many years. It is their belief that it will reduce competition and fix prices higher. I believe it will slow the roofing industry down for everyone, to the direct benefit of the insurance companies. I actually heard a spokesman for the contractors association state to a large gathering that “We don’t want teachers and firemen to be able to start roofing companies.” He also had to state 5 or 6 times that he wasnt talking about price fixing. Interesting

    • Brandon

      Going to be interesting to see how it plays out. It’s funny how no one’s talks about insurance companies paying cheap labor in Texas mainly due to illegal immigrants and not people legal and paying taxes.

      • Dustin

        I can see both sides of the argument, but this is definitely, more so, in the interest of the insurance companies. I’m sure they’re hoping that it will cause them to release less depreciation overall. Licensing would change the industry for the good, this will cause more stress to homeowners and create needed change in the future. I’m sure the finance industry is drooling at the thought of homeowners having to finance deductibles. As with most insurance policies in Texas, the deductibles are increased while they strategically scale back coverages over time. The larger the company, the more items are omitted or set within “non coverage amendments.” Everyone focuses on contractors, given, they’re are a lot out there that shouldn’t be trusted, but they should be focused on the insurance company policy changes and how they’re affecting the bottom line and pocketbooks of the insured. Just my opinion.

        • Kay Morgan

          Thanks Dustin for your thoughtful comment. And yes, the bill is definitely insurance company orientated and I am also sure that it was the insurers thinking they would have to toll out less deductible money in the long run. I think it is good that you can look at both sides too. It is difficult to control anything insurance companies decide they want to do policy wise because they are the big gorilla with all the power and all the money but with small minds and absolutely no thought given to policyholders or little thought given. And you are correct again, that a lot of people do unfairly focus on contractors as the evil doers but that probably is because contractors are easier marks than gorillas.

      • Kay Morgan

        Thanks Brandon for your comment. And your are correct–it will be interesting to see how it plays out with the next big storm and sure hope it is NOT this season. Of course, we are in the middle of hurricane season here in Houston and no one really knows when we will get another one but hoping with fingers crossed it won’t be this year.

    • Kay Morgan

      Thank you for your comment. I really appreciate you taking the time to read about the new legislation and then taking time to comment. Yes, you are absolutely right that this legislation helps the insurers and not homeowners and was pushed, of course, by the insurance lobby. Not a lot we can do at the moment to get help for homeowners on insurance matters at the state level.

      • Dion Harris

        You realize premiums are based on the idea that you pay your deductible, which is YOUR portion of your loss. If you don’t pay or a company “waives” the deductible, the only way they can do that is to have the insurance company pay more than what’s actually owed. They then cover your deductible with that money. This causes premiums to rise because insurance companies are paying out more.

    • disqus_qnKsZxEiEW

      Your deductible should be based on the coverage you choose with your agent and the cost of your home!! Please do not blame this on just the price of the deductible.

      • Mike

        Coverage they choose are you kidding Home owners dont choose the coverages the Carriers dictate how much the have to have and its always higher then it cost to rebuild if its catastrophic loss. It then forces home owners to a choose 1 percent deductibles and some home owners not knowing what it means choose 2 percent and higher to save on the premiums there stuck with.

  • Cory S

    The lack of a registry for contractors coupled with no licensing requirements by the state has created an environment that is conducive to fraud and mistrust. Reputable roofers bear the stigma brought on by the ne’er do well fly by night gypsy contractors.

    The roofer registration bill would have benefited homeowners and reputable roofers. The was a whisper campaign to discourage support for the bill claiming it had an unintended consequence would be targeting of small Hispanic-owned businesses (though it applied only to the owner and anyone interfacing with the homeowner – sales staff). The other objection was the the registration fee would cost prices to skyrocket. It was not targeting Hispanic-owned business as it applied to all companies. $250/year is not going to raise costs for roofers in any significant way. It would have helped to identify companies that preyed on vulnerable homeowners following a storm.

    Insurance companies do not want to see roofers licensed or registered in Texas. With licensing comes requirements such as training and testing. Training itself will be an added cost. However the bigger cost concern is an improved labor pool, which will ultimately cause labor prices to rise to offset the cost of training. As it is now, the insurance companies pay for the claim and they are no longer involved. Any quality issues are between the homeowner and the roofing contractor. (Thus, the reason to use a local contractor, who will be around to support the warranty).

    Homeowners also sought roofers willing to not collect the deductible. Frequently we receive requests for an estimate after a storm even though the adjuster’s estimate is in their possession. However, they seek a lower bid so they can keep the difference. Insurance companies definitely do not overpay on a claim and in seeking out the cheapest roofer, you get what they pay for- because the roofer has to make up the difference somehow.

    My sole issue with Payment of Insurance Deductible/HB 2102 is that it places the onus on the roofing contractor to collect the deductible, which is the product of the business arrangement between the homeowner and their insurer. The deductible amount is unknown unless the insurance documentation is shared. The legislators who wrote the bill were reticent to enact any punishment on homeowners who are just as culpable, so that was eliminated from the bill. This will result in contractors who are talked into a lesser charge to bear the punishment while the homeowner only loses the recoverable depreciation. In my opinion, that the insurance company can at their discretion demand the proof of payment from the insured is an opportunity for the insurance company to lessen the costs of claims. If it were required on all claims that the proof of payment be submitted, it would be legislation more evenly applied. As it is written, insurance providers have nothing to lose and everything to gain. The new arrangement costs literally nothing for the insurance industry and makes roofing contractors a part of the insurer/insured relationship.

    Its language is too broad and vague resulting in a diminished ability to negotiate with contractors. “A contractor commits a violation if he or she pays, waives, absorbs, rebates, credits or otherwise declines to make a homeowner pay the deductible.” A homeowner with a $10,000 roof and $1200 deductible will now pay $10,000 for the same roof that a cash paying customer might get for $8750.

    The Texas legislators who shot down the simple bill by Gio Capriglione, The bill was his third attempt to enact protection for consumers and reputable roofers.

    There are resources for finding good roofing contractors such as RCAT and NTRCA, two associations that are enacting voluntary licensing programs with requirements that will protect consumers and improve quality of the work provided.

    • “A homeowner with a $10,000 roof and $1200 deductible will now pay $10,000 for the same roof that a cash paying customer might get for $8750.”
      The homeowner in this example would pay a total of $1,200.00 out-of-pocket and the insurance company would pay the balance of $8,800.00.
      Still a much better deal than the $8,750.00 out-of-pocket cost to the uninsured homeowner. That is how insurance works.

      • sitnhere

        What this new bill will effectively do is give homeowners good cause to research and compare policy costs and provisions, including deductible options with carriers now……instead of opting for a 2% deductible to save money on yearly premiums while seeking out illegitimate roofing contractors to “cover” the difference. This should cause the Texas insurers to become more competitive in their quotes and policy provisions to the homeowner and allow a more consistent and improved policy to be written for the dollars expended in general. Most homeowners carry insurance for fire, theft, water damage, storm damage, and the like……but rarely spend anything on their roofs out of pocket. Most roofs will last at least 15 yrs. unless damaged by storms. A very large percentage of homeowners in Texas spend more money on yard maintenance, heating/cooling systems maintenance, and home improvements than they have ever spent on a new roof……end of story. The premiums for insurance covers more than just the roof from storm damages……and is required by most mortgage companies. It’s the insurance companies that have been allowed to charge high premiums and impose large deductibles in Texas because the homeowners were “allowed” to have these large deductibles offset in some way. Now we will see what happens when the marketplace seeks more clarity and competiveness from these insurers.

        • ThinkAgain

          So previously Contractors or Homeowners did not have to show proof that the deductible was paid. Now this proof is required. Isn’t this is counter productive? 1. This makes contractors more profitable by eliminating the “free roof” competition forcing Homeowners to pay their HUGE deductible. 2. Then it’s stupid because wouldn’t the Contractors just have make a Money Order for the deductible made out to themselves with the Homeowner’s name on the receipt. Absolutely Pointless Bill. Am I right or wrong?

          • David

            It would benefit the contractors in the event the deductibles are paid and insurance covered what they were supposed too! However, some of these folks have very high deductibles and cannot afford to pay it to get the work done. You pay a ton of money on these premiums and then when you need to use it, it is going to cost you a lot out of pocket. The good companies would try to offset the cost with discounts taken out of their profit so people could afford to put a roof on. I have worked in the industry and we never discounted anything for people trying to ask for a “cash price” and then pay out of insurance and keep the rest, that is illegal and has been! If we have a cash price that was it and the customers paid. However, if we could get all the items repaired and offset their expense for $500-$1000 we would try and help out. I think this will just help insurance companies in the long run unless they get competitive in the market and lower some of these terrible deductibles.

          • Jim Mski

            I hope you are right this “law” is just another example of the insurance lobby having the Texas Legislators in their hip pocket. Disgusting example of laws that only benefit insurance companies. I guess it is nieve to think that elected officials would actually work to better the lives of their constituents.

          • Rick Lawson

            If the contractor did as you describe, they’d be committing insurance fraud with a paper trail. If the homeowner knew about the practice, they’d be complicit. If they didn’t and the insurance company were to ask the homeowner if they gave the contractor a money order to release depreciation and they said no, then again – exposure for the contractor for an insurance fraud charge. Likely a worse crime too. The only absolutely safe thing to do is to write up an installment agreement. Nobody says that can’t be forgiven, but then the IRS would become interested in that. It’s a mess. LOTS of great companies have helped “pay deductibles”. Most homeowners don’t seem to have the cash to pay them and are over leveraged as it is.

        • Jake

          Problem is people in general do not care what their insurance policy effectively covers. All they look at is yearly (or monthly) premium. If law makers are banking on the public to take the initiative to actually educate themselves…. they are going the wrong direction. This is a ridiculous law. If they want to end insurance fraud or the need to commit insurance fraud… stop holding depreciation. If there is a total loss estimate the roof and any other damage, subtract the deductible and cut a check. If people don’t get the work done that’s on them and they will pay the consequences later.

      • RollinRed

        That is exactly how it works with any kind of provider! I’m in the business and have worked for a provider! They have a cash price and an insurance price! Really? What’s right about that?
        I’m sick of insurance companies and the way they treat people and control things, totally to their advantage! ALWAYS!

  • Castlewater

    What if a contractor only does the job as a cash bid and only invoices the homeowner? How does insurance handle the deductible then if they have a claim?

    • Very Good Accounts

      Insurance companies give “estimates” for the work to be completed. If you get an estimate that is less then their estimate, then legally they only need to issue you the amount of the lesser estimate. So if the insurance estimate is $10,000, and your deductible is $2000, they give you $8,000 to get the work done. If you get a cash bid for the work at $8000, legally you still owe your deductible, so in reality the insurance will only pay you $6,000. That $6,000 and your $2,000 deductible meets the cash bid price. Congrats, you saved your insurance money. The house always wins.

  • Steven Webb

    The deductible can be applied to any part of the loss.

    Tell me how the roofer will not be harmed by a homeowner that is applying the deductible to their personal property, siding, windows, and or fence that was storm damaged but the roofer is not hired to do anything but the roof. The roof alot of times gets replaced pretty quick but the work on the siding is held up by shortage of workers or materials, same with gutters, or any of the other damages on the loss.

    Looks like lawsuits towards homeowners and by contractors and from homeowners to the insurance company to me. It is interesting now that i say it like that. The Attorneys that wrote this legislation just made their craft more lucrative…lol.

    • Chris Mortimer

      It is not illegal to use the first check, ACV money towards your out-of-pocket expense. It becomes fraud when you invoice for depreciation on items you did not do. The only other entity that would have interest in a homeowner doing this practice is their mortgage company which usually requires a homeowner to complete everything on their scope.

  • Radion Corlateanu

    I would like to say thank you for the article Kay Morgan, I will use it as a simplified version on law change in our company training meeting for sales people. Thank for you time and effort.

  • Chip Merlin

    Thanks for the comment.

    I have no idea where you found the rule the the “lowest estimate wins.”
    Read the policy.

    The most common policy form says, that the insurance company owes the amount to repair or replace subject to the amount actually spent to repair or the policy limit—whichever is less. The payment is for that less the deductible.

    The policyholder could pay $100k for a $50k reasonable repair cost job with five estimates ranging between $75k to $25k. Theoretically, the amount owed is $50k less the deductible. Same, facts but the policyholder pays $40k for the $50k reasonable job, the policyholder gets $40k less the deductible.

    Read the policy as a start. Estimates are just opinions of cost. The quality of the contractor and many other things are often not included in that estimated opinion of the construction.

  • Monte Tucker

    So so stupid. I don’t have a problem with the law, but if the carriers want the deductibles paid, that only benefits the contractor ultimately if WE all played by the rules. Why not discuss the scope of the insurance claim. On every claim, the carrier ‘skims’ from the homeowner by not paying tear off removal costs on the ‘waste’. 10 to 15% of the claim goes into the insurance pocket right off the top. Insurance is a legalized criminal outfit. Period. Not just in the construction industry.

  • Katie Kinman

    It isn’t enough that we have to pay high insurance premiums and pray that we don’t have to use them and be punished for filing a claim, now we have to pay out more because of the high deductibles. Insurance companies are in the business because it is a high money making business and yes now they can refuse to pay anything if you haven’t paid your deductible. I am disappointed in the Governor for signing this bill. It hurts seniors that are too old to do their own work. It only helps the insurance companies. Why should we have to pay out more to make the insurance people richer.

  • Dion Harris

    Your insurance policy is a contract. That contract states that for a specific loss, your portion is the deductible. By attempting to get out of paying that deductible, you are violating your contract. This isn’t about bad insurance companies. If you have a $3,000 deductible and a roofing contractor says he’s going to waive that, do you really think he’s going to eat $3,000? How do you think he’s able to “waive” the deductible? It’s by having the insurance company pay for things he’s not going to do. You know what that leads to? Higher premiums. I had a roofer tell my mother he’d simply have the insurance company pay for the fence but not replace it because it was just hail. So if the fence gets blown over in 6 months, guess what? The insurance company isn’t going to pay for the fence again. Waiving deductibles might be good for an individual, but it’s bad for the big picture.

  • bondgirl42

    Not really accurate. The insurance is going to pay their covered amount, less the deductible. Whether the reputable roofer charges the homeowner that exact total amount (meaning you pay the deductible to them), or whether the roofer takes only what the insurance pays. The insurance company will never be out any additional money either way. Deductibles are ridiculous, and if roofers give a discount for various things (seniors, veterans, signs in the yard, referrals), then why is that anyone’s business.

  • Jeff

    The real travesty is that the % for the deductable is on the value of the property not of the repair. If the repair is $1000 you would probably have to pay it completely out of pocket so you don’t fix it and it then becomes a $40000 problem and then you fix it because the insurance covers it. If the % would be based on the actual repair people would not wait until there is significant damage.

  • Terry Williams

    This is totally allowing all insurance companies guaranteeing
    the roofing contractor a unjustified extra profit.

    This is totally giving a contractor a guaranteed 30 % profit for insurance claims.

    This makes it time to have a means for homeowners to contest the deductible amount.
    It allows the insurance company to ditate price they we will pay because now the home owner is required to use a roofer who is not licensed in the State of Texas.

    This is only trade that now prohibits the home owner from doing his own work at a price he can afford. This violates many contractor laws in Texas.

    Travelers insurance told me, I being a licensed contractor, I can not put on my roof on my own home or they would not pay claim. Wrong Law must be stopped!!!!!

  • John Baker

    Perhaps I’m missing something but someone please help me with the math here. An insurance company settles a claim at RCV value for $30,000, withholds $5000 in recoverable depreciation, and $2500 for the homeowners policy deductible. The Insured gets a check from the Carrier for $22,500. Based on this hasn’t the homeowner already “paid” the deductible by the Carrier deducting that amount from the settlement proceeds? While I understand the need to keep the fly by night roofers at bay, isn’t this issue moot simply by the Contractor showing an executed contract/check from the Insured for $30,000 worth of work? Some Contractor’s are stating that Carriers are making them show a payment for the exact amount of the deductible. Lastly, unless I’m reading it wrong, this requirement only applies to when the recoverable depreciation is being sought, so in reality a fly by night roofer who will do the $30,000 worth of work for the $22,500 is still in business, yes?

  • Jim Mski

    This is about helping the insurance companies only. For some people the only way they could afford to get a new roof is to to have the deductible reduced or waived altogether. The insurance lobby is very powerful and influential, they are driven by greed and profits and could care less about the people who pay their premiums INSURANCE COMPANIES SUCK!

  • MEF

    There has to be a situation where the policyholder cannot afford the deductible, has notified the insurer, insurer denies betterment depreciation holdback recoverable depreciation claim. Could it be argued that the insurer would still owe the recoverable depreciation to the extent that the policyholder paid the contractor less a deductible, or is payment of the deductible the only trigger to any depreciation holdback benefit being paid to a policyholder?