Insurers Face Class Action Over Isabel Claims
East News • May 12, 2004
Today a class action lawsuit against various insurance companies was filed in United States District Court, Baltimore, Maryland alleging that the insurance companies failed to deliver the promised ...
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Subject: Insurers Underpayment Schemes
Posted On: May 30, 2004, 4:14 pm CDT
Posted By: Public Issues
Comment:
5-30-2004
8:21 AM CST
In Texas Allstate, USAA, TWIA (Texas Windstorm Insurance Association)and Safeco, and certain claims adjusting services and adjusters, are knowingly underpaying claims (en massse) also.
One method in particular, that slides right past most homeowners, is where the primary-general contractors 10% overhead and 10% profit cost factor lines are showing in the insurers estimates, but are not truly 10% and 10%.
Here's some reasons why...
Some "insurers" have an unwritten "rule" that [states] 'only when 2 or more trades are needed for a reconstruction project is a primary-general contractor "allowed" to be the homeowners contractor-of-choice'.
That "rule" not only defies recognizing the appropriate primary-general contractor construction business / full replacement values already factored into a premium...it also defies fair-competive market trade practice.
In short, certain insurers do not want consumers to call a general contractor for single trade reconstruction issues even though premiums (paid) have full replacement costs of the home already factored in. They claim that a homeowner should contract the single trade scenario on their own.
But is that what consumers have pre-paid for? Carefully consider the inherent value of a premium by reading the following TDI bulletin...
http://www.tdi.state.tx.us/commish/bulletins/b-0045-8.html
Full replacement of a structure and construction products, processes and pricing is actuarially based on "Cost plus 10%" type construction business economics math in a particular region. (10% equaling a reasonable (pretax) profit on the whole investment "cost").
Since FULL replacement of the structure has been anticipated in the premium, and primary-general contractors place new (and replace) structures, than an insurer should have no problem with a homeowner hiring a general contractor for a single or multiple trade reconstruction issue.
FULL replacement (primary-general construction business processes/ costs) are woven into the structure, and are proportionally indemnified. A general contractor is afforded by the premium no matter if FULL or PARTIAL reconstruction issues come up that an insurer has to pay for.
Remember the TDI bulletin points...
1. "The DEDUCTION of prospective contractors' overhead and profit and sales tax in determining the ACTUAL
cash value under a REPLACEMENT cost policy is improper, is not a reasonable interpretation of the policy language, and is UNFAIR to insureds".
2."--Premiums charged must not be excessive for the risks to which they apply".
3. "Under a replacement cost policy, the liability limits of the policy and the premium paid by the insured are determined on the basis of the replacement cost of the structure".
*(Replacement costs are based / determined, in part, on primary-general construction business products, processes and pricing. Construction business investment costs plus 10% profit is part of ALL of the replacement costs the structure built into the premium).
4. "The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium."
*(Primary-general contractors, and their subcontractor cost VALUES, are already actuarially factored into the TOTAL VALUE of the premiums "limit of liability").
5. "If the insurer in determining actual cash value excludes costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an illegal windfall because the insurer receives premium on insurable values for which loss may never be paid".
*(Insurers who "exclude" primary-general contractors from single trade (ie; roofing or painting or carpet, etc.) work have "excluded costs" already included in the determination of the liability of limits the consumer / premium has proportionally paid for. Not including those values in a claim payment results in too much premium being charged.)
With the above said, insurers who precharge for construction business values, and do not proportionally repay them, are, according to TDI, acting in an illegal manner.
Also, insurers who preach-practice the '2 or more trades are needed before general contractor oversight is warranted' philosophy are also consistantly-simultaniously defying their own "rule-of-thumb"...
How so...?
When a property becomes (hail, wind, rain, fire, etc.) damaged, and needs roofing, painting, siding, window, doors, guttering, etc. repair or replacement, insurers are EXCLUDING roofing costs from primary-general contractor (2-3 or more trades needed) quantified estimates.
Subsequently, the primary-general contractor overhead and profit lines appear on an insurers estimate, BUT, (after having manipulated their estimating software), have been reduced or eliminated all together. Most consumers, who are not construction business estimators, are deceived and fooled by that one underpayment scheme alone.
Visually the insurer underpaid claim estimating scheme looks like the following abbreviated construction estimates...
Typical-Basic "Costs plus 10% profit" Primary-General Contractor Estimate; (For Addressing Hail, Wind, Rain Storm Damage)
Roofing Sub--------$5,500.00
Guttering Sub---------$840.00
Windows Sub---------$485.00
Garage Door Sub ---$900.00
Sheet Rock Sub---$1,400.00
Cabinetry Sub-------$3,400.00
Painting Sub---------$1,200.00
Total Sub Trades-$13,725.00
Materials Tax----------$442.00
Sub-total------------$14,167.00
10% Overhead------$1,416.70
Sub-total------------$15,583.70
10% Profit-------------$1,558.37
Contractor Total---$17,142.07
NOW compare an exact "fair and reasonable" / "competitive" [Allstate, Safeco, TWIA] type "Costs plus 10% profit" construction business estimating-claim settlement practice...
Roofing Sub--------$5,500.00
Guttering Sub---------$840.00
Windows Sub---------$485.00
Garage Door Sub ---$900.00
Sheet Rock Sub---$1,400.00
Cabinetry Sub-------$3,400.00
Painting Sub---------$1,200.00
Total Sub Trades-$13,725.00 (So far, the Contractor-Insurer-Adjuster estimates are equal)
Materials Tax----------$000.00 (Uh-Oh...Materials tax investment dollars moved)
Sub-total------------$13,725.00
10% Overhead---------$822.50 (How-why is this figure 10% of $13,725.00?)*
Sub-total-------------$14,547.50 (Materials & Roofing sub-trade costs are not included.)
10% Profit---------------$822.50 (How-why is this figure the same as the 10% Overhead sum?)**
Materials Tax-----------$442.00 (These orphaned investment dollars have $92.82 O&P unaccounted for.)***
Allstate Total-------$15,812.00
Contractor Total---$17,142.07
Allstate Total-------$15,812.00
Allstate "Savings"--$1,330.07
Double Check---Contractor O&P totals equal $2,975.07 minus Allstate O+P totals of $1,645.00 = $1,330.07 kept by Allstate.
*By using some construction business estimating software slight-of-hand trickery the roofing sub-trade costs and materials tax are ZEROED OUT of the Allstates Primary-General Contractors estimate totals so the Overhead "Savings" (coupled with materials tax-O&P NOT factored into the sub-sub-total) equals...
* Allstate Primary-General Contractor 10% Overhead is $501.38 short.
** Allstate Primary-General Contractor 10% Profit is $735.87 short.
*** Materials tax dollar investment is $92.82 O&P short.
Participating insurers (Allstate, Safeco, TWIA, etc.) explanation to consumers is that 'the (roofing, carpet) contractors overhead and profit is already included in the estimate, so the general contractor overhead and profit should be reduced proportionatly'.
Such non-sensical double speak will get by, (or be meekly accepted by), most stressed out policyholders who just want the whole claims "process" to end.
*(Just do the math. If the final (primary-general) contractors' 10% profit line is NOT 10% of the insurers estimate, the claim has been underpaid).
Allstate, Safeco, USAA, TWIA are invited to contact us if they feel they are being slighted or feel their estimating-claim settlement schemes / practices will be defendable in front of 12 educated people.
These are just a couple of examples how some insurers in Texas are estimating-conducting their daily and catastophic claim settlements. Their estimating methods are being exposed, just like Hurricane Isabel estimating practices are being exposed, except that much, much larger claim settlement numbers are at stake in Texas...
Feel free to call us for further details.
(956)-969-4454
Subject: Insurers Underpayment Schemes
8:21 AM CST
In Texas Allstate, USAA, TWIA (Texas Windstorm Insurance Association)and Safeco, and certain claims adjusting services and adjusters, are knowingly underpaying claims (en massse) also.
One method in particular, that slides right past most homeowners, is where the primary-general contractors 10% overhead and 10% profit cost factor lines are showing in the insurers estimates, but are not truly 10% and 10%.
Here's some reasons why...
Some "insurers" have an unwritten "rule" that [states] 'only when 2 or more trades are needed for a reconstruction project is a primary-general contractor "allowed" to be the homeowners contractor-of-choice'.
That "rule" not only defies recognizing the appropriate primary-general contractor construction business / full replacement values already factored into a premium...it also defies fair-competive market trade practice.
In short, certain insurers do not want consumers to call a general contractor for single trade reconstruction issues even though premiums (paid) have full replacement costs of the home already factored in. They claim that a homeowner should contract the single trade scenario on their own.
But is that what consumers have pre-paid for? Carefully consider the inherent value of a premium by reading the following TDI bulletin...
http://www.tdi.state.tx.us/commish/bulletins/b-0045-8.html
Full replacement of a structure and construction products, processes and pricing is actuarially based on "Cost plus 10%" type construction business economics math in a particular region. (10% equaling a reasonable (pretax) profit on the whole investment "cost").
Since FULL replacement of the structure has been anticipated in the premium, and primary-general contractors place new (and replace) structures, than an insurer should have no problem with a homeowner hiring a general contractor for a single or multiple trade reconstruction issue.
FULL replacement (primary-general construction business processes/ costs) are woven into the structure, and are proportionally indemnified. A general contractor is afforded by the premium no matter if FULL or PARTIAL reconstruction issues come up that an insurer has to pay for.
Remember the TDI bulletin points...
1. "The DEDUCTION of prospective contractors' overhead and profit and sales tax in determining the ACTUAL
cash value under a REPLACEMENT cost policy is improper, is not a reasonable interpretation of the policy language, and is UNFAIR to insureds".
2."--Premiums charged must not be excessive for the risks to which they apply".
3. "Under a replacement cost policy, the liability limits of the policy and the premium paid by the insured are determined on the basis of the replacement cost of the structure".
*(Replacement costs are based / determined, in part, on primary-general construction business products, processes and pricing. Construction business investment costs plus 10% profit is part of ALL of the replacement costs the structure built into the premium).
4. "The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium."
*(Primary-general contractors, and their subcontractor cost VALUES, are already actuarially factored into the TOTAL VALUE of the premiums "limit of liability").
5. "If the insurer in determining actual cash value excludes costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an illegal windfall because the insurer receives premium on insurable values for which loss may never be paid".
*(Insurers who "exclude" primary-general contractors from single trade (ie; roofing or painting or carpet, etc.) work have "excluded costs" already included in the determination of the liability of limits the consumer / premium has proportionally paid for. Not including those values in a claim payment results in too much premium being charged.)
With the above said, insurers who precharge for construction business values, and do not proportionally repay them, are, according to TDI, acting in an illegal manner.
Also, insurers who preach-practice the '2 or more trades are needed before general contractor oversight is warranted' philosophy are also consistantly-simultaniously defying their own "rule-of-thumb"...
How so...?
When a property becomes (hail, wind, rain, fire, etc.) damaged, and needs roofing, painting, siding, window, doors, guttering, etc. repair or replacement, insurers are EXCLUDING roofing costs from primary-general contractor (2-3 or more trades needed) quantified estimates.
Subsequently, the primary-general contractor overhead and profit lines appear on an insurers estimate, BUT, (after having manipulated their estimating software), have been reduced or eliminated all together. Most consumers, who are not construction business estimators, are deceived and fooled by that one underpayment scheme alone.
Visually the insurer underpaid claim estimating scheme looks like the following abbreviated construction estimates...
Typical-Basic "Costs plus 10% profit" Primary-General Contractor Estimate; (For Addressing Hail, Wind, Rain Storm Damage)
Roofing Sub--------$5,500.00
Guttering Sub---------$840.00
Windows Sub---------$485.00
Garage Door Sub ---$900.00
Sheet Rock Sub---$1,400.00
Cabinetry Sub-------$3,400.00
Painting Sub---------$1,200.00
Total Sub Trades-$13,725.00
Materials Tax----------$442.00
Sub-total------------$14,167.00
10% Overhead------$1,416.70
Sub-total------------$15,583.70
10% Profit-------------$1,558.37
Contractor Total---$17,142.07
NOW compare an exact "fair and reasonable" / "competitive" [Allstate, Safeco, TWIA] type "Costs plus 10% profit" construction business estimating-claim settlement practice...
Roofing Sub--------$5,500.00
Guttering Sub---------$840.00
Windows Sub---------$485.00
Garage Door Sub ---$900.00
Sheet Rock Sub---$1,400.00
Cabinetry Sub-------$3,400.00
Painting Sub---------$1,200.00
Total Sub Trades-$13,725.00 (So far, the Contractor-Insurer-Adjuster estimates are equal)
Materials Tax----------$000.00 (Uh-Oh...Materials tax investment dollars moved)
Sub-total------------$13,725.00
10% Overhead---------$822.50 (How-why is this figure 10% of $13,725.00?)*
Sub-total-------------$14,547.50 (Materials & Roofing sub-trade costs are not included.)
10% Profit---------------$822.50 (How-why is this figure the same as the 10% Overhead sum?)**
Materials Tax-----------$442.00 (These orphaned investment dollars have $92.82 O&P unaccounted for.)***
Allstate Total-------$15,812.00
Contractor Total---$17,142.07
Allstate Total-------$15,812.00
Allstate "Savings"--$1,330.07
Double Check---Contractor O&P totals equal $2,975.07 minus Allstate O+P totals of $1,645.00 = $1,330.07 kept by Allstate.
*By using some construction business estimating software slight-of-hand trickery the roofing sub-trade costs and materials tax are ZEROED OUT of the Allstates Primary-General Contractors estimate totals so the Overhead "Savings" (coupled with materials tax-O&P NOT factored into the sub-sub-total) equals...
* Allstate Primary-General Contractor 10% Overhead is $501.38 short.
** Allstate Primary-General Contractor 10% Profit is $735.87 short.
*** Materials tax dollar investment is $92.82 O&P short.
Participating insurers (Allstate, Safeco, TWIA, etc.) explanation to consumers is that 'the (roofing, carpet) contractors overhead and profit is already included in the estimate, so the general contractor overhead and profit should be reduced proportionatly'.
Such non-sensical double speak will get by, (or be meekly accepted by), most stressed out policyholders who just want the whole claims "process" to end.
*(Just do the math. If the final (primary-general) contractors' 10% profit line is NOT 10% of the insurers estimate, the claim has been underpaid).
Allstate, Safeco, USAA, TWIA are invited to contact us if they feel they are being slighted or feel their estimating-claim settlement schemes / practices will be defendable in front of 12 educated people.
These are just a couple of examples how some insurers in Texas are estimating-conducting their daily and catastophic claim settlements. Their estimating methods are being exposed, just like Hurricane Isabel estimating practices are being exposed, except that much, much larger claim settlement numbers are at stake in Texas...
Feel free to call us for further details.
(956)-969-4454