by rmccrae » Wed Jul 21, 2010 02:53 pm
I am a contractor - recently I have had instances where the insured has spent the money recieved from their insurance claim - and I am left with no other choice but to go through the tedious process of fileing liens - I never accept money for a project until we are 100% complete - and never charge more than what our signed contract states - however I feel it is criminal for the insured to be able to spend the money recieved from their carrier for the project and not pay the contractor - is their any laws for this and is this fraud as well?
Posted: Wed Jul 21, 2010 03:25 pm Post Subject:
I feel it is criminal for the insured to be able to spend the money recieved from their carrier for the project and not pay the contractor - is their any laws for this and is this fraud as well?
Easy to understand your feelings, easy to provide a response. It's not going to be the response you were hoping to get.
By definition, fraud is "an intentional act designed to gain an advantage". That is not what occurs in instances such as you describe: there is a loss, the insurance company pays the loss, the insured hires a contractor to repair the damage, and the insured spends the money for some other purpose, and now the insured doesn't have the money to pay the contractor.
What you have is BREACH OF CONTRACT -- failure to pay (it would be a good thing if you actually have a properly written contract). That is enforceable in any court "of competent jurisdiction". It is not fraud.
When the insurance company pays money to any person by name, it is their money, and they may do with it as they please. If they chose not to pay it to you, the best you can do is file a complaint with the court, go to court, get a judgment against the party that owes you the money, and then, when they don't pay voluntarily, go back to court and get an order to garnish their wages or seize their property to satisfy the debt/judgment.
At least the timely filing the lien (usually requires the preparation and timely delivery of a "preliminary notice of lien") protects your interest by preventing the sale of the real property until the lien is cleared. Is it a hassle? Of course it is.
You can hire an attorney to do the work for you, and you'll have to pay him/her to do that. The eventual judgment, if in your favor, will award the attorney fees and court costs on top of your damage award. But until they pay, it's your dime.
Can you do it on your own. That's always a possibility too, but many people feel intimidated by the process, the judge, the attorneys. And, unfortunately, the court will generally not compensate you for your lost time to handle all these matters.
Judges are lawyers, and so they protect their own.
I never accept money for a project until we are 100% complete
Although very laudable -- says a lot about your character -- you may need to reevaluate this business practice. Kind of like the business that accepts checks, until they get hit with a really big, bad check. Then they stop taking checks.
In California, licensed contractors are allowed to charge 10% of the contract price (up to $1,000) as a down payment, and generally provide for incremental payments throughout the course of construction, with a final payment of 5%-30% due at completion. Probably similar in most states.
Posted: Wed Jul 21, 2010 03:36 pm Post Subject:
It's not fraud as the insured can do whatever he/she wants with the payment from the insurance company. That is a separate matter from the contract you have with the insured (to pay for the work done).
However, the check from the insurance company should protect the mortgage company in some way... if they have one. Usually the insurance company will only issue the payment to the insured if the amount is very low... probably under $1500. If this person owns the home, then there is no mortgage company to protect. If you know who the insurance company is you may want to call them and see if they are interested to know that you are not getting paid for your work. Keep in mind that you are a 3rd party and they have no obligation to tell you anything or do anything for you. But perhaps the adjuster might want to ask their insured what is going on.
I'm no attorney but your contract should include wording that allows you to collect expenses as well as the max interest allowed by the state. If it's in the contract then it's very easy for you to collect these amounts as the customer agreed to it in writing. a lien on a home is a pretty good investment.
Posted: Thu Jul 22, 2010 01:26 pm Post Subject:
Another strategic alternative would be to have an assignment of proceeds in your contract of repairs whereby the insurer pays you direct. Many collision repair contractors have recently been successfully using this practice to ensure full payment. Recent court cases in several states have stressed that the insured has every right to assign the proceeds which is not an assignment of the benefits. The contractor can also step into the policy holder's shoes and sue the insurer for failure to pay for full repairs as the insurer is usually not taking the option to take control of the repairs and take the liability fully but paying for repairs which is an entirely different option afforded to them. Check with an attorney in your state before implementing this practice or adding it to your repair contract.
Posted: Thu Jul 22, 2010 01:52 pm Post Subject:
Mike raises an interesting possibility.
His "strategic alternative" has been commonly employed in the health care arena for years. Doctors, hospitals, therapists, and other providers have used an assignment of benefits provision in their patient agreements to effectively allow them to become the "agent" of the insured and file claims directly with the insurer. With the rise of HMOs and PPOs and their contractual payments and electronic claims reporting systems, the need for the assignment has been significantly reduced, but they all still have the patient sign the agreement anyway.
An advantage to the patient is that if the provider fails to file the claim on a timely basis, or otherwise errs in the processing of the claim, the patient may be off the hook with regard to the portion of the bill the insurer would have paid if not for the failure of the "agent" -- an E&O kind of thing.
It could work for a contractor, but the agreement might have to be in place before the initial insurance claim is filed on behalf of the insured.
Interesting approach nevertheless.
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