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Do Managed Repair Programs Violate the Unfair Claims Act? | Property Insurance Protection Law Blog



Public adjuster Corey Locke followed up on yesterday’s post, All insurance companies have written claim processeswith the following question:

If a TPA program requires providers to reduce their reasonable and necessary estimated costs to participate in insurer referral programs, how is the insured fully compensated for his loss under California Code 2051.5?

Insurance companies have tripped over themselves to get the best deals they can from managed repair programs in various forms. Instead of letting contractors determine the correct methodology for repair, they dictate how the repairs will be performed and what will be paid for through various managed repair methods. So the title of this post and Corey̵

7;s question seem reasonable for analysis.

Insurance departments and those working on market conduct studies should also study this. Many insurance companies are now doing in the property insurance industry similar to what they have been doing in the auto repair industry for decades.

Corey Locke followed up his question with the following analysis:

(b) Under an open policy requiring payment of the actual cash value, the measure of the actual recovery of the cash value, in whole or in part settlement of the claim, for either a total or partial loss of the structure or its contents, shall be the amount that it would cost the insured to repair, rebuild or replace what was lost or damaged less a fair and reasonable deduction for physical diminution in value based on its condition at the time of the damage or the policy limit, whichever is lower.

The language states that the cost is determined based on an insured going to the open market of providers and choosing anyone—not a preferred provider with a reduced price matrix.

A preferred provider program is immediately noncompliant with Code section 2051 and also with 2695.7(g)(5)

(g) No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. The commissioner shall consider all admissible evidence offered regarding the following factors in determining whether or not a settlement offer is unreasonably low:
….

(5) the procedures used by the insurer to determine the dollar amount of property damage;

And finally, Preferred Provider programs do not comply with the additional standards applicable to residential and commercial first-party insurance under 2695.9:

(b) No insurer shall require the insured to have the property repaired by a specific individual or entity.

(c) No insurer shall suggest or recommend that the insured have the property repaired by a specific individual or entity unless:

(1) the referral is expressly requested by the claimant; or
(2) the claimant has been informed in writing of the right to select a repair person or entity and, if the claimant accepts the proposal or recommendation, the insurer shall have the damaged property restored to at least its pre-loss condition and repaired in a manner that meets accepted industry standards of good and workmanship construction at no additional cost to the claimant other than as provided in the policy or as otherwise permitted by these rules.

(d) If losses are settled on the basis of a written scope and/or estimate prepared by or for the insurer, the insurer shall provide the injured party with a copy of each document on which the settlement is based. The estimate prepared by or for the insurer shall be in accordance with applicable insurance regulations, in an amount which will restore the damaged property to at least its condition prior to the loss and which will enable repairs to be made in a manner that meets accepted trade standards of good and artisanal construction. The Insurer shall take reasonable steps to verify that the repair or rebuilding costs used by the Insurer or its claims representative are accurate and representative of the costs in the local market area.

The insurer warrants under a direct supplier program that the repairs are made in a manner that meets accepted standards of good workmanship and workmanship.

The estimate must stand up to scrutiny and meet accepted trading standards in the local market.

However, because the squeezed cost under a preferred supplier program (Contractor Connection, Code Blue, Alacrity) is an artificial market cost, and the discounted costs of estimated repairs do not meet accepted trade standards of good and workmanlike construction, such programs are unfair claims Practice in California .

Such programs do not restore an insured to pre-loss condition, as the costs are not representative in the local market to repair the risk of encountering good and skilled construction.

I agree with most of it until the last sentence. The physical condition before the loss can be restored regardless of whether the costs are lower and not representative of the market. Lower payments from insurance companies that are below local rates raises the question of whether contractors will perform to the standard of meeting legal, proper, and skilled construction at lower costs rather than trying to hide illegal, improper, and biased construction—and is definitely the policyholder’s concern .

If you missed yesterday’s post, I would suggest reading the Entrepreneur Connection Guidelines we attached to that post. This is what led to Corey Locke’s valid concerns.

In my opinion, these instructions should be provided by the insurance companies to their policyholders, so that everyone is transparent with what is required of how the home or commercial structure is to be rebuilt. Why wouldn’t the insurance companies be honest and show these directives to their customers if they are honest and in good faith?

Today’s thought

There can be no faith in government if our highest offices are excused from scrutiny – they should lead by example of transparency.
-Edward Snowden


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