The Deductible Dilemma and other Insurance Horrors – Part 1

By Thea Dudley.

Insurance companies are cracking down on waived deductibles.

My husband and I recently had the joy of revisiting the home buying process.  Endless paperwork, countless back and forth and finally the home inspection report.  Among the assorted list of issues was noted: “needs new roof.”  Ok, I am in this industry, so it should be no problem getting the house reroofed quickly and for a reasonable price.

I should mention it’s a beautiful house with lovely variances in roof elevations.  In other words, a roofer’s nightmare with its multiple pitches, steep elevations and many dormers.  We requested the owners put the claim through their insurance (it happened on their watch) and we would pay the deductible.  Problem solved. 

Or so I thought. They had to admit they had already put a claim through their insurance and spent the money elsewhere.  No real explanation and frankly it sounds like a “they” problem and not a “me” problem. 

I pointed out that equaled insurance fraud, regardless of the reason so how were they going to make it right.  Before you think me heartless, I understand life doesn't always go the way it should, and circumstances come up but making your problems someone else’s doesn't make it go away.  Listing your house for sale and pretending you didn’t know there was an issue is at the very least a lie by omission.   If you did the crime, pay the fine.  Put “needs new roof” in your listing and price accordingly or list a roof allowance in the price.  Double-dipping is not going to fly. 

While we are discussing fraud, let’s talk about deductibles.  If I, as a homeowner, reap the benefits of a reduced policy rate in exchange for a higher deductible it is up to me to pay the piper when I have to use the policy.  People have found creative ways around deductible payments, often with a little help from their friendly neighborhood roofing company. 

Which is the slippery slope of committing fraud in the form of the insurance deductible?  Here is how it has evolved:  Roofer quotes the homeowner a price for the roof.  Homeowner turns the quote into their insurance carrier.  Insurance company cuts check to homeowner (or roofing company or mortgage company) less the deductible.  All good so far?  That is until the roofer issues a “credit or concession” to the homeowner’s account which happens to be in the exact same amount as the deductible.  Coincidence?  Unlikely. 

As insurance companies wised up, the slope got a little slicker.  Insurance companies often ask for proof of deductible payment before issuing the check for the remainder.  The roofer has the homeowner issue two checks, one for the deductible amount -with the word “deductible” noted on the check and one for the balance of the reduced rate, thereby reflecting the “reduced rate.”  Now there is proof to the insurance company if the roofing company ever gets audited. 

As mentioned, life happens and the average homeowner often does not have an extra $1,500.00 - $3,000.00 or more to shell out for a new roof.  They may forego getting the roof replaced or take the money and run.  Roofing companies not wanting to see a sale slip through got creative and somewhere between the roofing company and the homeowner came up with some creative ways to “help” each other. 

The slippery slope continues.  Colorado, Florida, Texas and Missouri all have legislation on the books with varying degrees of repercussions – all holding the contractor, specifically roofing contractors, accountable.  Florida made it a felony.  Texas (who has had a law on the books for 20 years - HB2102 clarified the language as it was previously ambiguous).  It has strong advocacy supporting and pursuing it and is now a class B misdemeanor with possible jail time and fines.  Missouri listed it “an unfair business practice” which means we will all be watching to see how this plays out in the courts.

For you super creative types out there, “credit” for the deductible is described in almost all versions of this law as “an allowance, rebate, gift, prize, bonus, coupon, referral fee, or other monetary value for any reason.”  So, there is no playing fast and loose with the meaning of that.

Where does that leave a roofing company that is ethical, working to stay within the law and still keep business?  The choices of upholding the law and losing jobs because homeowners don't have the cash or losing the job to a less scrupulous company are not attractive.     

Join us for part two – solving the dilemma. 

Thea Dudley is an expert credit and collections officer, having spent 30 years in the construction field working for contractors and distributors. See her full bio here.