The Missouri Attorney General recently launched an investigation of contractors who offer to represent homeowners in negotiations with insurance companies with regard to storm damage losses. I’m delighted to see that our commissioner of insurance has made it abundantly clear that parties outside the contract of insurance cannot negotiate insurance claims.
Three Options
Just like auto policies, homeowners’ policies are known as cash value policies, where the insurer has the duty to take one of three options to indemnify the policyholder for their losses:
1) The insurer may pay for the loss in money, wherein the policyholder chooses their contractor and must authorize the repairs.
2) The insurer may act as the policyholder and authorize the repairs themselves by naming the contractor, controlling the cost of repair and accepting the liability for those repairs.
3) The insurer may replace the lost, stolen or damaged property.
In a interview with KOAM TV, Travis Ford of the Missouri Department of Insurance said, “Anyone who offers to negotiate with your insurance company is most likely a public adjuster. And under Missouri law, unless they fall under an exemption such as being a lawyer, that requires a state license from the department of insurance.”
No Legal Standing
Collision business owners are routinely and institutionally told by insurers that they must negotiate with them to an agreed price on repairs on property they don’t own, even though they have no legal standing or credentials to do so. Since it’s patently illegal for repairers to do this type of negotiating, I’m urging our commissioner to address insurers who routinely tell property and vehicle owners, “Your repair shop refuses to negotiate with us.”
Just as the insurer has a contract of insurance exclusive to the policyholder, the contractor or repairer and vehicle/homeowner have an exclusive contract with each other that the insurer is forbidden to interfere with – unless the insurer hires the contractor and accepts full liability for the services rendered.
Insurers do not want to bear any liability for repairs; this is why they elect to pay for losses in money. They’ve been allowed to muddy the language in most policies, making it appear that they are the sole determiners of the value of the loss. If you examine the language in most policies, insurers have been given the ability to determine the amount of damage and the costs to repair, as well as to make the claim that “this is all we owe.”
Final Invoice
Recent court decisions have found that if the insurer did not make the distinction or invoke its right to repair in lieu of paying for the loss in money, their estimate of record should not be considered the actual cost to repair and that the final invoice of repair serves as proof of the loss by the policyholder. Unless the insurer can prove the charges by the contractor are unreasonable and claim the contractor has committed fraud, they should have to pay for the costs above the policyholders’ deductibles.
There are some states such as New York and Massachusetts where the policyholder can name their representative in a negotiation on the loss, and the insurer has the duty to act in good faith to pay the loss and negotiate with the repairer. Missouri has no such law, so any time a repairer claims they’re negotiating the loss and they’re not an attorney, they’re guilty of the unauthorized practicing of law.
I’ve been told twice this week that I must negotiate with the insurer on behalf of a policyholder, and when I refused, I was painted as the bad guy. This is all about insurers attempting to coerce policyholders into accepting what they determine the amount of the loss to be instead of relying on expert auto repairers and expert home contractors.
In order to prove your loss as a policyholder, you must have a final invoice or cost of repair to present to your insurer, and the contractor cannot negotiate this even though we’re told we must.
Removal of Appraisal Clause
Another recent development is that insurers have been allowed to remove the appraisal clauses from Missouri policies. In the appraisal process, if the policyholder and their insurer disagree on the amount of the loss, both must submit to the appraisal process and elect their own appraiser. Each appraiser then submits their disputed items before an umpire elected by the appraisers in advance.
Most policyholders weren’t aware of this option, and insurers were able to convince the Department of Insurance that they could be trusted to pay for the losses in the amount that would restore the damage to pre-loss condition. Isn’t that a little like the fox guarding the henhouse?
Self Regulation
Any time you allow an industry to regulate itself, things run afoul and the consumer loses. Insurers shout the mantra, “We’re saving you from unscrupulous repairers and contractors! We must have this ability to control costs!” What they’re doing, by nefarious means, is controlling an industry that is not in the business of insurance and telling that industry not only what they can charge for their services but how those services are to be delivered. They justify this interference by saying that they’re the ones who are “paying the bill.” Clearly, the actions taken violate the law and are a detriment to consumers.
What insurance companies should be doing is indemnifying policyholders and paying third-party claimants’ settlements due to the negligence of their insureds. They are not the contractor of services to your home or vehicle unless they elect that option, so why are they allowed to interfere with free competition, manipulate market share by steering, and state the price they’ll pay when they are not the consumer or property owner?
The McCarran-Ferguson Act, under which insurers claim an exemption from anti-trust, provides that exemption for “the business of insurance.” This exemption allows them only to share information that aids in setting the rates they charge insureds.
The only remedy today is for a policyholder to file a complaint with the Department of Insurance, only on first-party claims for investigations of first-party bad faith and breach of contract. Again, I refer to the fox guarding the henhouse. The policyholders’ last resort is to sue their own insurer in court, where they’re not well-versed in their rights and there is not enough low-hanging fruit for attorneys to be compelled to represent policyholders.
Mike Orton is a collision repair contractor and consultant who lives in Missouri. He can be reached at (417) 624-8253.
