Can adjuster deduct "Overhead" & "Profit&

Posted: Fri Oct 09, 2009 06:23 am Post Subject:

I do understand the deduction in terms of 'overhead' and 'profit'. But you should get an explanation of how he's arrived at this 10k thing. You should ask him regarding a written explanation if you don't find anything mentioned in your insurance paper works.

Posted: Fri Oct 09, 2009 01:27 pm Post Subject:

First of all, thanks for your reply.

Let me give a few more details.
Following the fire, I was personally able to obtain three bids which I supplied to the adjuster, bids of 90k, 83k and 77k. The adjuster had a contractor he "had worked with before" that he called to come prepare a bid. A few days later, he calls and says that he's been working with that contractor and "they've got everything worked out. His bid came in at 66k, 11k less than the lowest I could obtain of my 3.

Three of the 4 are all detailed contractor bids of several pages each prepared with a program called Exactimate (sp?) and at the very last page, after totaling labor and materials and sales tax, there are 2 final items listed - Overhead - 10% and Profit - 10%, each $5,543.00, totaling about 11k that are added in last.

Adjuster keeps reminding me "low man wins" and phrases to this effect. He had asked me if I was thinking about doing the repairs myself. I am not without some knowledge of home repair and so I honestly (though probably naively I see now) answered I was thinking about it.

Even though his contractor's estimate may have the smell of home cooking, I was leaning toward accepting the 66k just to get on with the repair process and get another tenant back in the house.

So after four weeks, he calls and says he wants to come to the house so he can write the check and "close the file." Well, this is when he springs the "we don't pay the Overhead and Profit unless a contractor does the repairs" "you don't have the overhead that a contractor does" and "you're not allowed to profit on a claim" argument to justify the deductions. What the ....?
So he only offers me $55,431, subtracting the P&O line items from the contractors' estimates.

He also adds that they'll ONLY pay those two items if a signed contract with a contractor is submitted to them!
What?

I've only been involved in 2 or 3 insurance claims in 30 years and never had to declare who I would use for repairs, or even if I was going to make repairs, for that matter.

I got the name of his supervisor at the company and told him of my dismay and the above information. He replies with the same arguments (I'm sure when I asked for his supervisor's name, he called him and they had a cram session). He finally says he'll call the adjuster and see if there's any "wiggle room in there somewhere."

Predictably, the adjuster calls me back in 1 hour and says the supervisor would pay the "Overhead" (5.5k) but not the "Profit" (5.5k) line item. I told him I would get back with him. He replies "well, there's nothing to think about, we're closing the file."

This thing has been rocking on now for over a month.

Any help and guidance y'all can give will be greatly appreciated! Many thanks in advance.

Posted: Fri Oct 09, 2009 01:57 pm Post Subject:

I've not been handling 1st party property claims for a long time so I can't speak for what the norm is nor do I know how some adjusters might handle this but I'll add my 2 cents.

Insurance companies don't typically pay O&P unless it's being added onto actual contracting work. We typically see companies add this charge in to their entire bill when only a very small portion was contracted out. So it's a touchy area with carriers.

If you do the work then you are going to make money on the repairs. A contractor is going to hire a company who is going to make a profit. In this case _you_ are that company. You are not going to make the extra 20% that the contractor makes but you are going to make the profit of the company who actually does the work. You don't have the overhead that the contractor does as you don't need to secure insurance, you don't need to be responsible for the people doing the work, you don't need to pay people before you get paid, etc.

The "profit" is not profit made on the job itself... it's just the money the _contractor_ makes. There is profit for each portion of work built into the rest of the bill. If drywalling cost $500 to do then it cost the drywall company $400 to do the work and they make $100. The contractor is responsible for their work, he secures his own insurance, he has to spend his time to make sure everything is done correctly, that the drywall company shows up, etc. For this, the contractor makes 20%, or $100 off that portion of the job. If you did the work it would cost you $300, you'd pay yourself $100 for the labor and you'd make $100 in profit... just as the drywall company would. You did not perform the service that a contractor work so you don't get paid for that.

With that said, it seems in this case that the adjuster is really going the extra distance to insure that they don't pay O&P if you do the work. Though, 20% of that loss is a lot of money (again, if you did the work you'd still be making money). I'd say that the insurance company has a valid point. I think some carriers would just pay the lowest bid amount and call it a day but I don't think what your carrier is doing is wrong.

If you did the work would you hire anyone to do any portion of the work? If so, you should be able to argue that you should be paid O&P for that portion. I still don't think you'd be entitled to O&P for that work but it's worth asking for.

Have you showed the lowest bid to the other companies that bid on the job? Perhaps they would be willing to point out if any of the repairs this person is doing would not be appropriate and perhaps this is why his bid is lower.

Posted: Fri Oct 09, 2009 04:25 pm Post Subject:

That's a good idea also.
At least now I know this is somewhat standard and not a "fast one" being run by me.

Thanks for the help!

Posted: Fri Oct 09, 2009 05:45 pm Post Subject:

Yeah, I don't think they are giving you a hard time. I can see where they are coming from. I handle claims a little different then most in that I need to get claims paid and closed asap. I don't ask a lot of questions. If I get a bill with O&P and its from a contractor, i just pay it to the owner. I they then do the work, fine with me. But technically I would say that they have the right not to pay it if you do the work.

But I'd certainly make sure the estimate from the unknown contractor is good.

Posted: Sun Oct 11, 2009 12:48 pm Post Subject:

I agree with T. This is not an uncommon practice amoung these types of claims.

Posted: Sun Oct 11, 2009 02:22 pm Post Subject:

All right everything is on the up and up then.

One more question.
Whether I fix it myself or use a contractor, once I agree to the settlement amount, am I in store for another surprise from the adjuster affecting the amount of the check from a term I've read on here called "depreciation" for this fire loss?

Posted: Sun Oct 11, 2009 06:48 pm Post Subject:

Once you accept the settlement, you release the carrier. The depreciation should have already been discussed with the settlement.

Posted: Sun Nov 01, 2009 06:46 am Post Subject: P+0 loss of rent

P+O is in most of the insurer estimates.you mentioned tennant, if it is a rental you are to recieve loss of rents from the DOL up to the date of lease.

Posted: Mon Dec 14, 2009 11:12 pm Post Subject:

They aren't pulling anything...I have to do this on claims too..(as you know) you can't 'profit' from a claim, and you have no 'overhead' so that's moot..

As to the depreciation...is it 'recoverable' depreciation?