For a crash course in right to repair issues, one need only perform a brief search of cases involving People’s Trust Insurance Company (“People’s Trust”). When it comes to policies issued by People’s Trust, there seems to be only one thing that people can trust—a Preferred Contractor Endorsement will be included in exchange for a “premium discount.” For various reasons, the Preferred Contractor Endorsement issued by People’s Trust has been labeled a “trap for many homeowners” (see Beaujeaux de Lapouyade’s blog post, Declaratory Judgment Action May Be Forthcoming If An Insurer Invokes Its Right To Repair). In fact, I challenge Florida homeowners to ask their insurance agent to procure a People’s Trust policy that does not have the Preferred Contractor Endorsement—do not be surprised if your agent cannot find such a policy.
In a recent blog post, Has Your Insurer Elected to Repair Your Damage? It Needs to Do the Work In a Reasonable Time and Correctly, Chip Merlin posed a question that homeowners must ask themselves when an insurance carrier has invoked its right to repair—did the insurance company actually invoke its right to repair, or is it just trying to leverage a smaller claims payment without taking the much more onerous route of electing to repair the structure? There are a few factors that help answer this question when applied to People’s Trust’s Preferred Contractor Endorsement: 1) People’s Trust adamantly seeks to enforce the “right to repair” issue through litigation against its insureds; 2) People’s Trust seemingly does not offer a policy without the trap that is the Preferred Contractor Endorsement; and 3) multiple individuals that manage People’s Trust also manage People’s Trust’s “preferred contractor,” Rapid Response Team. The unfortunate result of People’s Trust invoking its right to repair is that policyholders have little to no control over their own claim and property—they must either accept the initial amount assessed by People’s Trust for their claim or dispute the amount of the claim while their home sits in disrepair.
People’s Trust can use the Preferred Contractor Endorsement to place a homeowner over a barrel even when it knows that it is obligated to pay a claim. Consider the following scenario:
An insured property suffers a loss as a result of a fire. People’s Trust sends out an adjuster to estimate the loss, but ultimately prepares an estimate for damages to the dwelling that is insufficient to restore the insured property back to its pre-loss condition. People’s Trust then notifies the policyholder that it is extending coverage in the amount of the estimate and that it is invoking its right to repair under the Preferred Contractor Endorsement.
The policyholder advises People’s Trust that he or she does not agree with the amount of the loss. People’s Trust then requests a Sworn Proof of Loss and invokes the policy’s appraisal provision shortly after. The policyholder submits an executed Sworn Proof of Loss and supporting estimate, but People’s Trust rejects the Sworn Proof of Loss and informs the policyholder that any valuation dispute will be addressed through the appraisal process.
The party’s appraisers ultimately enter an appraisal award for more than twice the amount People’s Trust initially paid on the claim. People’s Trust then sends the policyholder a “work authorization” form that authorizes the “preferred contractor,” Rapid Response Team, to perform repairs according to the amount of the appraisal award. The policyholder then signs the work authorization and complies with all other conditions stated in the policy in order for the loss to be paid and repairs to begin.
In the meantime, the policyholder salvages whatever personal property can be salvaged from the loss. Due to the extensive damage at the home, People’s Trust issues policy limits for the personal property under Coverage C.
After a few weeks, the policyholder begins to wonder why repairs have not commenced after going through the appraisal process, agreeing on an amount with People’s Trust, and signing the requested “work authorization” form. The policyholder asks People’s Trust to advise why repairs have not begun. The adjuster responds that the non-salvageable contents need to be removed before Rapid Response Team can begin repairs. Furthermore, the adjuster tells the policyholder that People’s Trust will not pay for the removal of the non-salvageable contents because it had already paid Coverage C policy limits.
The policyholder does not agree with People’s Trust’s refusal to cover the expense of removing the non-salvageable contents after having agreed on an amount through appraisal and signing the “work authorization” form but also does not want to delay commencing repairs to the home any longer.
Does the policyholder, who has been displaced from the home during the two-month-long appraisal process, come out of pocket and pay the amount necessary to remove the non-salvageable contents just so repairs can begin?
Does the answer to the question above change if the policy does, in fact, provide coverage for the removal of the non-salvageable contents?
The issue is the Preferred Contractor Endorsement does not allow the policyholder to dispute the claim or even figure out what People’s Trust is actually obligated to pay under the policy. Instead, a policyholder is placed in a situation where going along with whatever People’s Trust demands is the only option if he or she ever wants the home to be repaired.
If the policyholder were not put in that situation, the policyholder might be able to take the time to figure out that the policy does in fact provide coverage for the loss in question above.
Specifically, the policy’s “Preferred Contractor Endorsement” states that the “amount of loss and scope of repairs agreed upon” by each parties’ appraisers will conclusively establish “the amount of the loss and scope of repairs.” Any amount beyond the amount of the appraisal award required to perform the repairs is People’s Trust’s responsibility. The “Preferred Contractor Endorsement” states:
The scope of repairs shall establish the work to be performed and completed by Rapid Response Team, LLC™. Such repair is in lieu of issuing any loss payment to ‘you’ that otherwise would be due under the policy. The amount of loss shall establish only the initial amount paid to Rapid Response Team, LLC™ by ‘us’, and any additional amounts required to complete repairs shall be ‘our’ responsibility and will be paid to Rapid Response Team, LLC™ without regard to policy limits or the amount of initial payments.
PTIC E023 0119, Page 4 of 5.
In addition to the language of the Preferred Contractor Endorsement itself, coverage for the removal of non-salvageable contents in the scenario mentioned above is potentially available through the policy’s Additional Coverage for Debris Removal. An example of the type of language found in People’s Trust’s policies related to Debris Removal is provided below:
E. Additional Coverages
1. Debris Removal
a. We will pay your reasonable expense for the
(1) Debris of covered property if a Peril Insured
Against that applies to the damaged property
causes the loss; or
(2) Ash, dust or particles from a volcanic
eruption that has caused direct loss to a
building or property contained in a building.
This expense is included in the limit of liability that
applies to the damaged property. If the amount to
be paid for the actual damage to the property plus
the debris removal expense is more than the limit
of liability for the damaged property, an additional
five percent (5%) of that limit is available for
Simply stated, a homeowners insurance policy is a contract in which an insurance carrier receives the benefit of premiums, and a policyholder gets the benefit of homeowners insurance coverage. When viewed in this light, it is easy to see why People’s Trust adamantly seeks to enforce its Preferred Contractor Endorsement—it can argue that policyholders gave up certain benefits of insurance coverage in exchange for a “premium credit.” If People’s Trust could offer policies with its Preferred Contractor Endorsement without providing a “premium credit,” it would. By discounting the premiums, People’s Trust is able to get away with what it otherwise could not.