Is it legal to profit from an insurance claim?

condoprez · Post by **condoprez** » Thu Jun 08, 2006 10:23 pm

If the insurance company pays me $100,000 to replace my roof of clay tile, but I replace it with asphalt shingles for $25,000, is that legal? Can I keep the money? If my whole claim is for $200,000...Can I get the work done for $50,000 and keep the rest? What if I don't get the work done at all? Is that legal? What are the ramifications? My company does not withold the recoverable depreciation, so I have got it all upfront. Just trying to find out the law.

bindscott · Post by **bindscott** » Fri Jun 09, 2006 12:03 am

You may use any material, any contractor you wish, or may even do the work yourself if you feel able. If you're serious about pocketing more $$$, just go on vacation with the $$$ and leave your roof open but I don't think you will be able to claim another or continue your policy.

You got it up front? Any appraisal? Estimates from contractors? Be careful, the claims adjuster might invoke the appraisal clause.

My questions is why would you want to use a cheaper, less attractive material on your own roof after a claim? Aren't you concerned about the value of your property?

condoprez · Post by **condoprez** » Fri Jun 09, 2006 12:46 am

Materials were just an example, but what I am trying to figure out is the legality. If I replace the roof with a different less expensive material, can the insurance come back to me later and demand their money back? Basically, is it legal to profit from the claim?

Big Dog · Post by **Big Dog** » Fri Jun 09, 2006 6:33 am

Is it legal? No. The purpose of insurance is to make you whole, not a whole lot richer.

The insurance company may want evidence that the work was completed, and if they discover that you pocketed that much, they may take legal action to get it back. Re-read your homeowners policy.

condoprez · Post by **condoprez** » Fri Jun 09, 2006 9:24 am

I kind of thought that was the case, but all my friends say that it is common for people to get an amount from their insurance settlement and then have the work done for less. Can they come back at me for the money in that case? Big Dog, I have the Homeowner's Special Form. Can you tell me where I should be reading to get more information about this?

Porter · Post by **Porter** » Fri Jun 09, 2006 9:51 am

The insurance company will only pay a portion of your claim up front or the actual cash value. Once the work is complete then they will pay the rest or the replacement cost. You are really not profiting. The insurance company will try to do its best by paying for the damages or loss. Example: if you have an Aston Martin value $175K and it gets stolen. The insurance company will pay the replacement cost of the car (assuming you have replacement coverage). If you choose to buy a Hyundai and keep the rest, that is up to you. As long as you are not committing fraud you should be ok.

Big Dog · Post by **Big Dog** » Fri Jun 09, 2006 11:01 am

A carrier won't write YOU a lump sum check for $100,000. They'll work with a licensed contractor and pay them direct. In a case where the amount of damage is smaller (usually under $5,000) they will want you to get three estimates and may write you a check based on those estimates. And it's possible that the work can be done for less. But there's no way an insurance company is going to write you a check for $100,000. If you're "friends" are telling an insurance company will do this (write you a check for $100k) they're full of crap.

d's insurance store · Post by **d's insurance store** » Fri Jun 09, 2006 1:23 pm

I'll share this little store from about 15 years ago.

A homeowner client has an SPPE rider for a piece of jewelry where the insured value was $17K. They decided to sell the item...advertised it and transacted the sale at $11K.

The buyer presented a cashier's check that proved to be a counterfeit and the check was charged back to the insured's account after about 3 weeks. The filed a claim for the loss of jewelry item. I guess, without doing a whole lot of investigation, the carrier paid the $17K per the schedule. When I got involved and pointed out the loss was for the bogus $11K check, that amount was the ACV for the item at the time of the loss. The insurance carrier asked for a partial refund and was refused. A legal letter threatening litigation went out and the insured refunded the difference.

So, it's not likely one can profit from an insurance claim.

yoyowordup · Post by **yoyowordup** » Fri Jun 09, 2006 1:41 pm

I think your ONLY question is - is it LEGAL to profit from a claim.

I don't think it is illegal, but it depends on the situation. I think if you don't lie or mislead the carrier, you should be OK.

If you replace a roof with less valuable material, you don't really profit because the value of the property is now reduced. You may have more cash, but your overall assets are not greater.

Good luck!

mhutch69 · Post by **mhutch69** » Fri Jun 09, 2006 4:08 pm

Or course, you can. If you are insured by Chubb or another fine insurer that has a policy form which does not require you to re-build or replace your contents, the carrier will issue you a check for the replacement cost of the contents or the actual current cost to re-build and you ONLY have to deposit the check.

If you NEVER re-build or replace your contents, Chubb does not care. That is a REAL insurance policy.

Hutchman

92builder · Post by **92builder** » Fri Jun 09, 2006 8:25 pm

I'm not real sure if this is a question of legality or ethics. I think you could take the money in some cases dependent upon the company, but then you would have to readjust your policy for the type of shingles that are now on the roof. If you can sleep at night and do this, by all means go ahead. I don't think I'd be relating this story to anyone anytime soon.

A friend of mine had an '82 Accord into which it was burglarized and the radio stolen. He turned the claim in to his agent and asked what to do. The agent told him to go find out what stereo was in an '82 Accord, and go buy one of comparable value, due to replacement cost. This event happened, however, in '88 when Accord stereos were more refined and more expensive. Did either of them break any laws? Probably not. Did they break any ethics codes? Probably.

I really ever doubt that your situation would really happen, but if your screen name is any indication of your real life job, how do you want your friends to see you? Respectable and honest, or out to make some money? Rebuild what you have and get some sleep.

sanddog1 · Post by **sanddog1** » Sun Jun 11, 2006 9:15 pm

That's exactly why insurance companies pay the claim directly to the contractor. They also pay off the final invoice, if large they inspect. It's pretty tough to cheat and insurance carrier.

sanddog1 · Post by **sanddog1** » Sun Jun 11, 2006 9:20 pm

mhutch69
I write for Chubb they issue checks based on invoice's received and if large eough they audit. I don't know about small claim under 5000.

kevinraz · Post by **kevinraz** » Mon Jun 12, 2006 6:24 am

Of course you can - and frequently do - profit from an insurance claim.

A hailstorm beats up your ten year old roof. InsureCo pays to replace it. You have profited because you now have a new roof. Might not seem like a big deal but instead of looking at roofing it in the next 5 years you now have 15 years and the money you would have spent is in your pocket, less the deductible. Home value increases with new roof as well.

As for the question that started all this: condo owner gets check for $200k for roof loss. Instead of tile roof with 100 year life estimate they decide on another material that costs much less but only has a 30 year life. They profit, in a sense, for now, however the building value is lowered and they will replace the roof 3 times before the tile roof is replaced.

My story: early in my insurance career my house got drilled by hail. InsureCo paid for new roof and siding. I did all the work myself and pocketed several dollars, money that would have gone to a contractor. I profited but also did the work and my time is worth $$.

VAAcctMgr · Post by **VAAcctMgr** » Mon Jun 12, 2006 11:11 am

Condoprez.............read your specific policy language with regard to claim settlement. It should outline your rights, responsibilities and any ramifications for not following their instructions after a loss.