In California, the moment an insured obtains a repair estimate that exceeds the insurer’s estimate, the insurer must either pay the difference or adjust its original estimate. This rule is set forth in the Fair Claims Settlement Practices Act, 10 Cal. Code Regs. § 2695.9(d). Generally, whenever anyone makes an insurance claim, the insurance company will create a scope of work to repair the damaged property and an estimate of what that cost to repair is. The insurer’s estimate does not atomically mean that is the amount of the claim. An insured has the right to get his or her own estimate and the insurer is required to consider that estimate.

The Fair Claims Settlement Practices Act states:

If the claimant subsequently contends, based upon a written estimate which he or she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall:

(1) pay the difference between its written estimate and a higher estimate obtained by the claimant; or,

(2) if requested by the claimant, promptly provide the claimant with the name of at least one repair individual or entity that will make the repairs for the amount of the written estimate. The insurer shall cause the damaged property to be restored to no less than its condition prior to the loss and which will allow for repairs in a manner which meets accepted trade standards for good and workmanlike construction at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations; or,

(3) reasonably adjust any written estimates prepared by the repair individual or entity of the insured’s choice and provide a copy of the adjusted estimate to the claimant.

The insurer has three options: (1) pay the insured’s estimate; (2) negotiate with the insured to rectify the insurer’s and the insured’s estimate or (3) provide a vendor that will make repairs for the amount of the insurer’s estimate. It is important to note that if the insurer recommends a vendor to perform the repairs, it essentially must guaranty that vendor’s work. Thus, the insurance company will undertake an obligation above and beyond its original policy duties.

Whenever an insurer prepares its own estimate there are additional rules imposed on the insurer:

  • The insurer shall supply the claimant with a copy of each document upon which the settlement is based.
  • The estimate prepared by or for the insurer shall be in accordance with applicable policy provisions, of an amount which will restore the damaged property to no less than its condition prior to the loss
  • The estimate must allow for repairs to be made in a manner which meets accepted trade standards for good and workmanlike construction.

It is important to remember all these insurer’s obligations when adjusting a clam. If an insurer does not comply with any of these duties, it should immediately be brought to the insurer’s attention. When bringing a Fair Claims Settlement Practices Act violation to an insurer’s attention, always make sure to state the regulation number. This immediately puts the insurer on notice of their bad faith behavior.