Auto-Owners has begun a sad trend of suing its insureds and alleging that the insured’s contractors and/or public adjusters are fraudulently inflating prices. Auto-Owners is levying these accusations even though its insureds’ contractors and/or public adjusters are also using Xactimate to estimate the costs of repair to reach a lump sum agreement. In taking this drastic step, Auto-Owners and its attorneys confusingly assert Xactimate results is fair and reasonable pricing for them, but results in fraud when its insureds’ contractors and/or public adjusters produce an estimate utilizing the same software. This trend is both shocking and concerning for Auto-Owners’ insureds.

Like many other insurance carriers, Auto-Owners uses Xactimate to provide estimates to repair damages resulting from a covered loss. Xactimate is the standard cost estimating software used by adjusters in the insurance industry to calculate the anticipated cost of repair to damaged property.1 Xactimate is an estimating software that provides price lists for the cost of repairs based on region and date.2 Users input the zip code, date of loss, and items of work that need to be completed and Xactimate estimates the line-by-line costs for the repairs input into the software. Pricing for labor and materials is updated monthly in Xactimate to ensure that it is current, fair, and reasonable. One of the greatest benefits of utilizing programs like Xactimate is that it can allow for a more efficient claim adjustment process as insurance carriers and their insureds can exchange estimates which have “apples to apples” pricing.

Recently, my colleague Larry Bache took the deposition of Auto-Owners adjuster Lloyd Hoagenson and asked him about Auto-Owners use of Xactimate. When asked, “What is Xactimate”, Mr. Hoagenson responded it is the software Auto-Owners uses:

Question: What is Xactimate?
Answer: Xactimate is an automated estimating program that we
use to do estimates on all of our claims.

When asked if Auto-Owners relies on Xactimate for pricing for labor and materials, he answered affirmatively:

Question: Does Auto-Owners rely on Xactimate for pricing for
labor and materials?
Answer: Yes.

When asked if Xactimate pricing was fair and reasonable, Mr. Hoagenson simply responded, “yes.”

Question: In your experience, isn’t Xactimate line item pricing
fair and reasonable?
Answer: Yes.

As any competent Xactimate user understands, the software allows users to correctly identify and/or attribute the proper retail labor rate for a line-item through the use of programmed drop-down menus. For example, if a line-item involves replacement of an HVAC condenser, Xactimate allows the user to select HVAC laborer from a drop-down menu. If the scope of work includes removing a roofing system, Xactimate again provides the appropriate labor rate in the drop-down menu, “Roofing” or “RFG,” not “Demolition” or “DMO.” The HVAC labor and “RFG” options in the drop-down menu were preset by Xactimate, not the user. My firm has spoken to several Xactimate certified trainers on this issue to confirm these actions are the intended use of the program. Unanimously, they all agree. However, if a user makes a true “alteration,” Xactimate identifies alterations by marking the line-item with an asterisk (*). If there is no asterisk, there has been no “alteration” of the pricing or line-item description. However, by a misunderstanding of how the program works or otherwise, insurers and their attorneys are confusing the use of “drop-down menus” as a labor rate “alteration” even when no asterisk is provided by the line item. Notwithstanding, insurers are now suing contractors and policyholders based on their own misunderstanding of the Xactimate software.

The decision by Auto-Owners to sue its insureds stands in contradiction to its own claims adjusting practice of estimating costs to repair with Xactimate. If Xactimate pricing is fair and reasonable for auto-Owners, Xactimate pricing is fair and reasonable for contractors and public adjusters as well. While Auto-Owners is not alone in trying to leverage fraud claims against contractors and policyholders in effort to force lower settlements, it appears to be filing more fraud actions in Colorado than all of the other insurers combined. A legal strategy or a coincidence?
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1 Mason v. Texas Farmers Ins. Co., 2011 WL 10845765, at *2 (S.D. Tex. Dec. 1, 2011).
2 Xactware Pricing Research Methodology; Banta Properties, Inc. v. Arch Specialty Ins. Co., 2011 WL 13096477, *4 fn. 3 (S.D. Fla. Dec. 12, 2011).