Insurance Deductibles… and why it’s illegal for us to “cover them”

In an effort to help educate our potential customers, we decided to provide you with the following information- based on the incredible number of times we were asked this question after Hurricane IKE and 2010 hail storms. “Will you work with my deductible?”

The Roofing (or other) Contractor wants your business so badly they tell you, “don’t worry about your deductible, we’ll take care of it”. Seems harmless right? Seems like just a “discount”, right? WRONG! Here are some things we remind our customers:

1. Your insurance company is going to send out an adjuster who is going to prepare an estimate and issue you a check. It is possible, and well within their right under your policy to withhold a portion of the payout as “recoverable depreciation”. The only way the homeowner recovers the remaining portion of the claim is if the work is completed and it exceed the amount of the first check issued and the deductible responsibility.

In order for a Roofing or other contractor to “absorb” your deductible cost and still get paid the remainder of the claim, they need to prepare and submit a fraudulent invoice. The invoice will have to charge the total cost of the roof/project to exceed the first check and deductible responsibility for the claim. Once the carrier issues the depreciation check and it is received by the homeowner, the contractor prepares a second invoice that reflects the cost of the job without the deductible cost for the homeowner. That is the fraud. Once you become a party to the fraud you are as responsible as the perpetuator of it.

2. Under the Insurance Fraud Chapter (35) of the Texas Penal Code “Offenses Against Property”, if you are a party to the fraud listed above then, you have committed an offense under this section. Specifically, under 35.02, Section B, number 3 or 4:

“(3) A Class A misdemeanor if the value of the claim is $500 or more but less than $1,500.00; or

(4) a state jail felony if the value of the claim is $1,500.00 or more but less than $20,000.00.”

Aside from the serious legal ramifications if your claim or your contractor is ever investigated and fraud is discovered, what about the moral questions:

1. If the contractor is willing to lie to the insurance company in order to get a job, what makes you think he/she won’t lie to you?

2. If all contractors in the area follow market costs for supplies and labor and your contractor is charging significantly less for the job- where is the discount coming from?

a) Unqualified estimator making a measurement or calculation mistake? If that is the case, you can bet they will come back to you and the insurance company for the additional amount they missed. This is a tactic often used to secure a contract!!

b) Substandard Materials

c) Day Labor- you know who they are. You pick them up on specific sites in Houston and pay them cash to work for the day. Many of them are not legal residents. The same person is not usually picked up if there is a second day of work.

d) No Insurance. Many roofing contractors will tell you they are self- insured or they have insurance. First of all, the State of Texas requires at least $50,000.00 of General Liability coverage for a Roofing Contractor. The Better Business Bureau and Roofing Associations require the coverage to be a minimum of $1,000,000. If you are self insured, you are required to have over one million dollars in liquid assets (bank accounts). You will want that guarantee in writing from a bank, no?

Members of the Houston Chapter of the Roofing Contractors Association and Roofing Contractors Association of Texas have been trying to lobby the State of Texas to regulate roofing contractors to have a license. The state has not agreed to date, which puts us in a position to self regulate. You will find some inconsistency in the market place about companies willing to commit fraud. The truth is, most companies willing to perpetuate it either don’t have any idea they are doing it, or they don’t care. Either way, it should be pretty scary as a consumer to do business with a company willing to commit fraud.

The Fraudulent and Unlawful practice of absorbing deductibles:

The two references quoted are:

The State of Texas Penal Code, “Offenses Against Property”
Chapter 35 Insurance Fraud, Chapter 35 Insurance Fraud Section 35.02(7)(B)

Business & Commerce Code: Chapter 27. Fraud

The State of Texas Business and Commerce Code
Section 27.02 Certain Insurance Claims For Excessive Charges

(a) a person who sells goods or services (this is your contractor) commits an offense if:
(1) The person advertises or promises to provide the good or service and to pay;
(A) all or part of any applicable insurance deductible; or
(B) a rebate in an amount equal to all or part of any applicable insurance deductible;
(2) the good or service is paid for by the consumer from proceeds of a property or casualty insurance policy; and
(3) the person (contractor) knowingly charges an amount for the good, or service that exceeds the usual and customary charge by the person for the good or service by an amount equal to or greater than all or part of the applicable insurance deductible paid by the person to an insurer on behalf of an insured or remitted to an insured by the person as a rebate.
(b) A person (Homeowner/ Property owner) who is insured under a property or casualty insurance policy commits an offense if the person:
(1) submits a claim under the policy based on charges that are in violation of subsection (a) of this section; or
knowingly allows a claim in violation of subsection (a) of this section to be submitted unless the person promptly notifies the insurer of the excessive charges.

§ 35.02. INSURANCE FRAUD. (a) A person commits an offense if, with intent to defraud or deceive an insurer, the person, in support of a claim for payment under an insurance policy:
(1) prepares or causes to be prepared a statement that:
(A) the person knows contains false or misleading material information; and
(B) is presented to an insurer; or
(2) presents or causes to be presented to an insurer a statement that the person knows contains false or misleading material information.
(a-1) A person commits an offense if the person, with intent to defraud or deceive an insurer and in support of an application for an insurance policy:
(1) prepares or causes to be prepared a statement that:
(A) the person knows contains false or misleading material information; and
(B) is presented to an insurer; or
(2) presents or causes to be presented to an insurer a statement that the person knows contains false or misleading material information.
(b) A person commits an offense if, with intent to defraud or deceive an insurer, the person solicits, offers, pays, or receives a benefit in connection with the furnishing of goods or services for which a claim for payment is submitted under an insurance policy.
(c) An offense under Subsection (a) or (b) is:
(1) a Class C misdemeanor if the value of the claim is less than $50;
(2) a Class B misdemeanor if the value of the claim is $50 or more but less than $500;
(3) a Class A misdemeanor if the value of the claim is $500 or more but less than $1,500;
(4) a state jail felony if the value of the claim is $1,500 or more but less than $20,000;
(5) a felony of the third degree if the value of the claim is $20,000 or more but less than $100,000;
(6) a felony of the second degree if the value of the claim is $100,000 or more but less than $200,000; or
(7) a felony of the first degree if:
(A) the value of the claim is $200,000 or more; or
(B) an act committed in connection with the commission of the offense places a person at risk of death or serious bodily injury.
(d) An offense under Subsection (a-1) is a state jail felony.
(e) The court shall order a defendant convicted of an offense under this section to pay restitution, including court costs and attorney’s fees, to an affected insurer.
(f) If conduct that constitutes an offense under this section also constitutes an offense under any other law, the actor may be prosecuted under this section, the other law, or both.
(g) For purposes of this section, if the actor proves by a preponderance of the evidence that a portion of the claim for payment under an insurance policy resulted from a valid loss,
injury, expense, or service covered by the policy, the value of the claim is equal to the difference between the total claim amount and the amount of the valid portion of the claim.
(h) If it is shown on the trial of an offense under this section that the actor submitted a bill for goods or services in support of a claim for payment under an insurance policy to the
insurer issuing the policy, a rebuttable presumption exists that the actor caused the claim for payment to be prepared or presented.

 
Acts 2005, 79th Leg., Ch. 1162, § 4, eff. September 1, 2005.