In early March 2013, Mr. B’s rented house, located in a pleasant country village 100 miles northeast of Los Angeles., caught fire. The fire was caused from a short circuit, destroying one bedroom and the surrounding area. Mr. B filed a claim right away and the insurance company outsourced an independent adjuster who then visited the site. One day the construction repair contractor (hereinafter “the contractor”) visited Mr. B unexpectedly and Mr. B thought the insurance company had send the contractor, so he signed the document prepared by the contractor. The contractor told Mr. B that he would receive the expected compensation of about $110,000.00 from the insurance company and would then restore the damage to its original state. The document Mr. B signed was a Work Authorization Form (a document where the homeowner allows a contractor to do unlimited fire-related repairs). Then the contractor closed the property off and changed the locks so that nobody but the contractor could enter the site, not even Mr. B.
Nearly one month passed after the date of the loss insurance company inspected the site, but there was still no contact from the insurance company regarding settlement of the claim. Mr. B was becoming impatient and asked the contractor about the progress of the compensation process several times, but the contractor repeated his answer – that the insurance company was still processing the claim. Since the contractor assured Mr. B that he would take care of the adjustment of the claim, Mr. B only contacted the contractor. However, as time passed, Mr. B told his frustrations to a close friend who was once a client of mine Mr. B contacted me in early April.
Immediately after accepting this case, I advised Mr. B to break the contract with the contractor and change the locks to prevent the contractor from accessing the site. Then, through the rapid process with the insurance company, Mr. B received compensation of about $80,000.00 one month after I accepted the case, and this case was concluded.
I would like the readers to pay attention to my detailed explanation below. From my experience, I know that Mr. B could have faced serious problems in the future due to the document that he signed with the contractor. If the contractor demolished the site where the fire took place as well as its surrounding areas before compensation was received, the following problems could occur:
- The insurance company, which tries to reduce the amount of compensation handled by net loss, may believe that the insured person deliberately extended the site’s damage to increase compensation. For this reason, there could be serious arguments between the insurance company and the insured. I believes that wise readers will know what kind of position the insured will be placed in if such an argument occurs.
- In the document prepared by the contractor, there was no information specifying that the contractor would receive compensation from the insurance company on behalf of Mr. B. Mr. B only received a verbal commitment for $110,000 compensation. He cannot then blame the contractor, even if the insurance company does not pay the compensation owed. According to the relevant laws and Insurance Department Code of State of California, the contractor is not allowed to adjust claim behalf of insured.
- If the contractor already carried out the advanced work, such as removing rubble caused by the fire and site cleaning, before the insurance company finalized the compensation amount, the contractor can demand payment for construction completed based on the document signed by Mr.B even if the insurance company denies the claim.