Claims Adjusters Should State and Provide the Reasons and Evidence for Partial or Entire Claim Denial


Following up on Matt Stalcup’s post, “Is an Insurance Policy Non-Shareable Work Product?” I kept thinking about the crucial role all insurance adjusters play in the claims process.

Company and independent adjusters are the bridge between policyholders and treasuries of insurance companies. The policyholder surplus monies are there for the policyholders so that claims can be promptly and fully paid. The adjusters play a crucial role in determining the speed and amount taken out of the policyholder surplus and sent to the policyholders. Their responsibilities include investigating claims, evaluating the loss, and determining the amount of compensation that policyholders are entitled to receive under the policy terms. However, the transparency by insurance adjusters communicating facts and evidence, especially in cases of claim denial or payment for amounts less than claimed, is paramount. This transparency is not only a matter of ethical practice but also a regulatory legal requirement.

Transparency in Claim Denials and Underpayments

Insurance adjusters should be transparent with policyholders about the reasons for claim denials or underpayments. This involves providing a clear and detailed explanation of the decision, including referencing specific policy provisions that justify the denial or underpayment. Adjusters should also inform policyholders about the evidence or lack thereof that led to their decision. This level of transparency helps policyholders understand the outcome of their claim and assess their options, whether it be to accept the decision, provide additional information, or contest the decision through appraisal or possibly litigation.

What Does ‘The Work of Adjusting Insurance Claims Engages the Public Trust’ Mean?” discussed the importance of transparency in terms of an insurer being fair with its customer:

Honest Treatment: The concept refers to the practice of being truthful, transparent, and sincere in an adjuster’s interactions with the claimant. This concept is not limited to merely stating facts but encompasses a broader commitment to authenticity, fairness, and respect in dealings with the claimant and others during the adjustment process. Honest treatment by an adjuster means that the adjuster must conduct their work with integrity, providing truthful and transparent services to the claimant.

Truthfulness is essential to honesty. It means communicating information accurately and without deception. This includes avoiding lies of omission or any attempts to mislead or manipulate others. It means that adjusters must engage with others in a way that is reflective of their true thoughts and intentions.

Honesty requires transparency. It means that adjusters should openly share relevant information and be clear about their actions, decisions, and motivations. Transparency helps build trust and facilitates informed decision-making by all parties involved with an insurance claim.

Transparency from insurance adjusters concerning the specifics of claim denials or underpayments is paramount for numerous reasons, impacting both the relationship between policyholders and insurers and the overall claims process. First, transparency is instrumental in building trust. When policyholders are privy to the rationale behind the decisions on their claims, including the evidence and criteria used, it enhances their trust in both the process and the insurance company. This openness is beneficial for policyholder satisfaction and fundamental in fostering a positive and transparent relationship between insurers and their clients.

Moreover, transparency is key to ensuring accountability within the insurance industry. It encourages a more diligent and fair assessment of claims by obligating adjusters to provide a clear and comprehensive explanation for their decisions, including the evidence supporting claim denials or underpayments. This accountability ensures that decisions are made based on accurate information and a thorough investigation, which can significantly reduce disputes.

Having access to detailed information about their claim allows policyholders to make well-informed decisions about how to proceed, whether it be accepting the decision, seeking further clarification, or disputing the claim. This level of insight is crucial for policyholders to understand their position and evaluate their options effectively. For most policyholders trying to get paid what they think they are owed, the details about why the claim is not fully paid are crucial. How are they going to think that they have not been wrongfully treated without providing the details and backup for the reasons?

Finally, transparency plays a crucial role in alternative dispute resolution. When both parties have access to the same information and understand the reasoning behind claim decisions, it lays a foundation for open dialogue and negotiation. This environment can lead to more amicable resolutions, potentially avoiding the time, expense, and stress associated with litigation. Therefore, transparency by adjusters handling the claim and making claims decisions not only benefits policyholders by providing clarity and building trust but also supports a more efficient and equitable claims process without having to resort to regulatory or legal action in determining and resolving a disputed claim decision.

State Requirements of Good Faith and Fair Dealing Require Turning Over Relevant Claims File Materials

The obligation of good faith and fair dealing is recognized by everybody in the insurance industry, and regulations require insurers to abide by that concept in all states. “Should All States Require Insurance Companies to Turn Claims Files Over to Policyholders?” questioned whether all states should follow California’s lead and pass a statute with penalties when those materials are not turned over:

Property insurance companies are required to turn over claims materials to policyholders in California. Why shouldn’t all states have this requirement?

Within 15 days of a request, these documents must be turned over in California:

All documents that relate to the evaluation of damages, including, but not limited to, repair and replacement estimates and bids, appraisals, scopes of loss, drawings, plans, reports, third-party findings on the amount of loss, covered damages, and cost of repairs, and all other valuation, measurement, and loss adjustment calculations of the amount of loss, covered damage, and cost of repairs.

The United Policyholders website notes the following obligation by representatives of an insurance company:

All representatives of your insurance company are legally required to tell you the truth. This includes in-person conversations and all communication by phone, letters, emails and all advertising and printed materials. This means they must be honest about what they sell you, what you’ve paid for, and what you’re entitled to if you file a claim.

You are entitled to prompt, timely communications from your insurer. The company (and all its representatives) must respond to your communications ‘immediately, but in no event more than 15 calendar days’ with ‘a complete response based on the facts then known.’ Any question you ask, and any request you make must be responded to by the insurer within 15 calendar days.

You should get in the habit of sending your insurer letters or emails, so there is a record of who said what and when. That doesn’t mean you should stop talking to your adjuster, but if you discuss something important on the phone, immediately follow up with an email confirming the conversation. If you request copies of your current policy and policy history, including previous policies, policy upgrades, notices of changes, etc.

You have a right to receive a copy of certain claim-related documents contained in your file. An insurer shall ‘notify every claimant that they may obtain, upon request, copies of claim-related documents…’ including construction estimates, photographs and the documentation backing up their estimates and ‘all other valuation’. This includes information about how your contents and construction estimates may have been depreciated. …The only thing you are not entitled to receive is attorney-client privileged communications and their attorney’s work. This means valuations, photographs, measurements, adjustor notes and reports, contents depreciation schedules, construction depreciation schedules, materials estimates, etc. are all part of your claims process, and you are entitled to receive complete copies of these so you can review them.

How can an insurance company be fair and honest if it will not turn over the backup evidence for denial or refusal to pay a claim?

Transparency in the communication of facts and evidence related to claim denials and underpayments is essential for a fair and trustworthy insurance claims process. The principle of good faith and fair dealing requires that transparency remains a cornerstone of ethical and effective claims handling. Policyholders should be aware of their rights to access claims file materials and the importance of clear communication from insurance adjusters throughout the claims process. This includes promptly providing and showing all the reasons for complete or partial denial of a claim. The assertion of “work product” may be relevant in a third-party claim scenario because the insurance company is protecting its policyholder. However, it is not an excuse to avoid providing the details and evidence for the reasons why a claim by its own customer was denied.

Thought For The Day

The single most important ingredient in the recipe for success is transparency because transparency builds trust.
—Denise Morrison


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Delay sign

How Profitable Is It To Not Pay Claims? An Example of Why Insurers Want To Make Bad Faith, Penalties For Delay, Payment of Prejudgment Interest, and Attorney Fees Extinct

Think of what the cost would be for somebody to pay for a five-year legal battle with an insurance company, knowing that the matter would have to obtain a trial court order and then win again on appeal. How much money does the insurance industry wrongfully pocket because its wrongful payment decisions go unchallenged? I’ll submit that it is probably far greater than the crazy fraud statistics made by the insurance industry. Of course, there is no insurance industry “Coalition Against Unfair Claims Denial,” which monitors its own bad actors. These issues are important when thinking about the size of a typical loss and the insurance industry’s incessant lobbying to reduce penalties and accountability for good faith claims obligations.

I was thinking about this while reading a State Farm case, which stands for the longstanding proposition that “incur” means a policyholder only has to have a contract so that the expense is “incurred” versus “payment,” which may mean that the money has been paid.1 The case was over a dispute involving around $40,000. The water loss happened in August 2018. After State Farm refused to pay for the water loss, the policyholder filed a lawsuit in February 2019. State Farm then demanded appraisal. State Farm’s appointed appraiser and the Umpire signed the award in March 2020.  State Farm then only paid a little more than $1 thousand.

State Farm made the following losing argument, which the appellate court did not accept:

State Farm’s primary argument is that the meaning of ‘incur’ in its policy includes an implicit, unwritten requirement that an insured must sign a repair contract that contains no opportunity for cancellation. State Farm concedes that this gloss on the meaning of ‘incur’ is not specifically set out in its policy. Indeed, an insured would have no warning that such a requirement exists until the denial of its claim on this basis. As such, the plain meaning of ‘incur’ as used in State Farm’s policy does not contain even a hint that an insured’s contract must be non-voidable before payment will be allowed. State Farm’s interpretation simply adds an undisclosed requirement that the policy language does not support.

The problem is that this type of claims culture is now prevalent in many insurance companies. Anybody can easily start to argue a multitude of reasons for non-payment or lowering payment of every loss. Most of the insurance companies with these claims cultures have claims management goals, leakage goals, and other incentive-structured management metrics to support the incessant nitpicking denials and culture to pay as little as possible. These same companies also have large lobbying and propaganda budgets to prevent laws that protect policyholders from such a claims culture.

Let’s go one step further—how many water loss “tear out” claims does State Farm have every year? It must be hundreds of thousands. Suppose this loss happened in a state with no bad faith, no attorney’s fees, and no prejudgment interest. How profitable is it for State Farm to take the same losing position, knowing just about nobody would be able to hire an attorney to take the matter on because the cost to do so would equal the amount to be gained? How many policyholders just walk away?

I also read the policyholder appellate brief and noted that other trial court judges throughout Florida had already ruled the same way that the appellate court did on what the word “incur” means:

In cases throughout the state, State Farm has invoked appraisal and then refused to pay the Tear Out amount awarded to insureds during appraisal even after the insureds entered into contracts with a general contractor to perform the Tear Out. Like in this case, trial courts have denied nearly identical arguments that State Farm does not owe the Tear Out amount and entered summary judgment in favor of insureds requiring State Farm to pay the appraisal award amount for Tear Out:

  • Burns v. State Farm Insurance Co., 2018-CA-004156 (Polk County, Judge Steven L. Selph) (March 1, 2021);
  • Gant v State Farm Insurance Co., 2D22-2590, 19-CA-004299 (Hillsborough County, Judge Rex M. Barbas) (July 15, 2022);
  • Hester v. State Farm Insurance Co., 6D23-1022, 19-CA-001129 (Polk County, Judge James A. Yancey) (October 26, 2022);
  • Gordon v State Farm Insurance Co., 2019-CA-000714 (Duval County, Judge Virginia Norton) (November 4, 2022);
  • McClendon v. State Farm, 1D22-4099, 16-2019-CA-002324 (Duval County, Judge Katie Dearing) (November 18, 2022).

How profitable is it to not fully and promptly pay claims? The competitive insurance industry knows it is very profitable or even required now. The problem is that “bad actors” who advertise on price are driving this type of conduct. Once enough competitors are paying less based on a culture of claims severity reduction with no consequence, the otherwise good actors have to keep up or lose market share. This concept is not complex economics.

For policyholders and those interested in protecting the rights of policyholders, we need to demand measures to prevent this systemic bad faith claims culture. I will write much more about this issue because it is the major overreaching issue of the day that needs fixing before the insurance product loses all legitimacy.

Thought For The Day                            

Reducing claims frequency and severity can lead to reduced insurance premiums. It is essential to check how you are doing today concerning claims frequency and severity data.

—Bryson Insurance Blog

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Have the Courage to Be Disliked

A few days ago, as I was scrolling through my LinkedIn feed, a thought-provoking image caught my eye. It was a simple post, but its message resonated with me deeply.

Have the Courage to Be Disliked.

It made me reflect on our innate desire to be liked by everyone and how this craving for universal approval often permeates various aspects of our lives, including our careers.

In the restoration industry, the pursuit of approval is no different. Many professionals in this field go to great lengths to ensure that their clients and adjusters like them. They fear the disapproval of adjusters, even though these adjusters hold no legal obligations in the transaction between the restoration company and its clients. This fear of disapproval often leads to shortcuts and compromises in the restoration process, putting the most crucial stakeholders at risk – the clients and the employees.

Regardless of external pressure, maintaining honesty, integrity, and the highest industry standards should be the unwavering norm.

The importance of having the courage to stand up for what is right, for your company, your employees, and most importantly, for the customer is crucial. Failing to do so not only jeopardizes health and safety but also tarnishes your reputation.

In business, as in life, maintaining a certain standard is essential. If a company declares honesty and integrity as core values, then those values must be upheld, no matter the circumstances. The restoration industry, like any other, has its standards and protocols in place for a reason – to ensure safety and quality.

When someone attempts to persuade you to deviate from these standards, it raises a fundamental question:

Are honesty and integrity genuinely core values for your company?

It takes courage to stand firm and uphold these values, especially when it might not be the popular choice.

Courage is an essential trait, both in business and in comedy. I recently listened to a podcast featuring comedians John Crist and Matt Rife, where they discussed cancel culture and pushing social boundaries through their comedy. Comedians often navigate a fine line, pushing boundaries to make people laugh while knowing that their content might offend some.

Interestingly, those who are offended by their content are often not the subjects of their humor. It’s ironic that those who cry foul and express disapproval are often unrelated to the roastings and jokes. The comedians understand this irony, and it fuels their humor.

Those who protest the loudest about your invoices or protocols are usually NOT the ones who have to live in the structures you are restoring.

They may have the financial means to afford luxury corporate complexes and celebrity endorsements, like Patrick Mahomes and Andy Reid in TV commercials. The realization that you can’t please everyone, more should you try, is liberating.

Embracing disapproval from the right parties can be a catalyst for positive change in your business and personal life.

Here is the List of Groups that ardently strive to be catalysts for change, echoing the sentiment expressed in The All American Rejects’ lyrics: “I hope they give you hell.”

  1. Insurance Adjusters: Using insurance adjusters as an example, it’s crucial to prioritize your commitment to safety and quality over their potential disapproval. Remember that they are not the end-users of the restored structures, and their disapproval should not sway you from doing what’s right. We have a free e-book that might help you gain traction in this.
  2. Referral Partners: In many industries, referral partners play a vital role. However, not all referral partners will align with your values and standards. It’s okay to prioritize those who share your commitment to excellence and safety.
  3. Other Restoration Companies: Collaboration can be beneficial, but not all restoration companies in your market may be willing to cooperate. Instead of compromising your standards to win them over, focus on serving your clients and maintaining your integrity.
  4. Vendors: Your relationship with vendors can impact the quality of your services. Choose vendors who align with your values and standards, even if it means losing favor with others.
  5. Your Own Employees: Setting systems and processes in place will help you prioritize what matters to your employees identity within your company. This will keep the standards high, and the output of each individual validated.

In a world where the quest for universal approval can be all-consuming, it’s essential to step back and reevaluate our priorities. Whether in business or comedy, there will always be those who disapprove, often for reasons unrelated to the core issue.

Embracing disapproval from the right parties allows you to refocus your time and energy on what truly matters – maintaining honesty, integrity, and industry standards.

So, have the courage to stand up for yourself, your company, your employees, and your customers. Uphold the standard, even if it means being disliked by some. In the end, your commitment to excellence will speak volumes, and the right people will recognize and appreciate it.\

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Allstate Pays Contractor $335,000 to Settle Dispute Over $33,000 Restoration Invoice – C&R

  • Contractor with a long history of collecting overhead and profit for mitigation and contents is denied 10 & 10 for subcontracted contents work.
  • Allstate adjuster writes: “Allstate does not cover OH&P for mitigation or contents work so unfortunately your request for OH&P for any contents work or packing will not be approved.”
  • Contractor uses Assignment of Insurance Rights to sue the carrier directly for overhead, profit, and attorneys’ fees.
  • Retired Allstate Property Claim Manager testifies that Allstate acted in bad faith for refusing to pay overhead and profit for contents.

SANTA ANA, CA – Allstate Insurance Company has paid $335,000 to settle an insurance bad faith lawsuit filed by an Orange County, California property damage restoration contractor with an Assignment of Insurance Rights (AOR) that included an assignment of benefits.

The case arose from a $250,000 insurance claim for a fire that burned part of the garage of a home insured by Allstate in the upscale community of Aliso Viejo, California. The homeowner engaged the services of a restoration contractor with a general contractor’s license to remediate and repair the damage to the real and personal property. The contractor was not part of a network and no TPA was involved in the claim. The contractor reported to Allstate that smoke contaminated the interior of the home and its contents. Allstate paid approximately $100,000 for mitigation and structural repairs.

The two-story, 4,000 square foot, six-bedroom home was occupied by a husband, a wife, and their children. It was heavily loaded with contents. The contents of the entire home were packed out to facilitate the carpet replacement, restoration of the floors, and painting of the walls and ceilings. Allstate agreed to the packout.

To expedite the processing of the contents, the contractor notified Allstate that it subcontracted the packout and contents restoration work to a specialty vendor. The contractor billed $149,574.21 for the contents portion of the project, which included a markup of $24,929.14 for overhead and profit.

The contents adjuster responded: “Remove O&P. O&P is not warranted for contents. It doesn’t require a high level of coordination.” It was notable that the statement did not say that this particular contents project did not require a high level of coordination. The contractor interpreted it as a universal statement that contents restoration never requires a high level of coordination, which is false. The contractor was frustrated because Allstate did not inquire with the contractor about its coordination efforts.

“Remove O&P” is an instruction. The Restoration Industry Association published a Position Statement entitled Adjusters Dictating Restoration Charges. It is a valuable tool to help restorers make the case that for work that is not performed under a managed repair program, adjusters cannot dictate restoration charges. The Statement says the adjuster “must not instruct or require restoration contractors to remove items from their invoices.” In the Aliso Viejo case, the contractor (which was assigned rights to the claim) took the position that it was bad faith for Allstate to universally declare that contents restoration does not require a high level of coordination without actually investigating the contractor’s coordination efforts for this particular project.

Carrier’s Duty to Pay O&P

Insurance companies are required to pay a reasonable cost to repair damage that occurs in covered losses. They are required to pay overhead and profit if those charges are reasonable. “Reasonable” is broadly defined in dictionaries as “fair and sensible.” The reasonable price is not necessarily the price set forth in a generic price guide. Restorers are not required to match each other’s prices; in fact, it is illegal.

Every claim is different, and every residence is different. Some restoration billing models include overhead and profit and some do not. Restorers may be able to collect overhead and profit for certain types of work even if others in their market do not charge for it. The question here was not “what is the lowest price in town?” The question was whether it was fair and sensible to charge for overhead and profit based on the unique circumstances of the project.

On non-program jobs, insurance companies are not allowed to set the prices, or dictate billing models, including the determination of whether overhead and profit is owed. The reasonable cost and billing model is that which is fair and sensible in the marketplace based on what willing buyers pay willing sellers in a competitive marketplace. Insurance companies are third parties to restoration contracts and must not interfere with those contracts. Interference may subject them to liability for damages. The insurance industry must adapt to the way the restoration industry charges for its work. It’s not the other way around.

In 2022, a claims manager for American Reliable Insurance Company testified that “the rule” is that overhead and profit is paid to a general contractor when three or more trades are involved. That approach is imperfect, but it is predictable.

Most insurance companies have moved away from counting trades and instead, they focus on complexity and “high levels” of coordination. Concepts like “complexity” and “high levels” are subjective and difficult to define. They lead to considerable confusion and conflict, to the ultimate detriment of the policyholder.

The purpose of this article is not to promote any particular billing model. To comply with antitrust laws, restoration companies must not coordinate pricing or billing models with their competitors.

Bad Faith Denial Alleged

Allstate refused to pay $8,292.66 in various charges for the contents restoration and refused to pay the $24,929.14 charged for overhead and profit, leaving an unpaid balance of $33,321.80. Several adjusters worked on the claim. Adjuster 1 wrote “Allstate does not cover OH&P for mitigation or contents.” However, the Policy contains no such language. Like most states, California’s Fair Claims Settlement Practices Regulations state: “No insurer shall misrepresent or conceal benefits [or] coverages.”[1]

The allegation that Allstate “does not cover” overhead and profit for mitigation or contents was not accurate. In fact, Allstate paid overhead and profit for mitigation on this claim. The contractor responded to the allegation with a list of 15 Allstate claims for which the contractor believed that Allstate had, in fact, paid the contractor overhead and profit for contents work. Allstate agreed that it paid overhead and profit for contents on 11 of those 15 claims, but still refused to pay any portion of the remaining balance of $33,321.80.

The Allstate Policy included personal property coverage for “sudden and accidental direct physical loss to property…caused by…smoke.” The Policy contained no explicit exclusion for “overhead and profit,” nor has the author of this article ever seen a policy that contains such an exclusion.

The laws of every state require insurance companies to handle claims promptly, fairly, and in good faith. Insurance companies face liability exposure when and if they apply blanket rules to restoration charges that should be individually investigated, including overhead and profit. Nearly every state allows policyholders or a contractor holding a properly-drafted assignment of the policyholder’s legal rights under the policy may prosecute a legal claim against an insurer for bad faith if the insurer has violated the terms of the policy and breached the duty of good faith.

The overhead and profit issue with Allstate was not isolated to the Aliso Viejo claim. Adjuster 2 on the Aliso Viejo claim wrote the following in regard to another claim that was underway while the Aliso Viejo claim was pending:

“As stated on all claims previously- remove overhead and profit. This is my third claim with you this week where I have had to ask you to remove overhead and profit for a packout/testing invoice. Please note moving forward on Allstate claims not to include this or they will be rejected.” (Emphasis added.)

Adjuster 3 wrote that he “had to remove O&P because O&P is not warranted on a pack out and clean. This does not require a high level of coordination.” The contractor interpreted these as blanket statements, rather than decisions made about this individual claim. At this point, it appeared to the contractor that Allstate was intending to implement an institutional practice to reject all claims for overhead and profit for contents restoration.

The contractor engaged the Law Offices of Edward H. Cross, which sent a settlement demand to Allstate, with a copy of the Assignment of Insurance Rights. The demand explained that the contractor stepped into the shoes of the policyholder by virtue of the Assignment. The demand explained how a restoration contractor with a properly-drafted assignment of insurance rights can prosecute a civil claim for insurance bad faith against a customer’s insurance carrier and collect attorneys’ fees and interest on the unpaid balance. The contractor did not want a lawsuit. He just wanted to get paid, so the demand included a compromise to forgo collection of attorneys’ fees and interest if Allstate would simply pay the $33,321.80 invoice.

Allstate, through its lawyer, rejected the demand outright, stating that “Allstate believes that overhead and profit is limited…to the repair of a structure.” It appeared that Allstate, as an institution, had adopted a new practice of denying overhead and profit for all contents restoration without investigation. Allstate offered no compromise, despite the fact that the contractor had already agreed to substantial adjustments on other portions of the claim.

Cross filed suit on behalf of the restorer against Allstate for insurance bad faith and breach of the contract of insurance. The suit included a claim for legal expenses and attorneys’ fees pursuant to the law of California, which, like many other states, allows recovery of attorneys’ fees when insurance bad faith is proven. Litigation is expensive, but the ability to recover attorneys’ fees enables policyholders and their assignees to seek justice. The right to attorneys’ fees is assignable in most states.

Among other things, the suit alleged:

  • Bad Faith.  Allstate’s handling of the claim was incomplete and objectively unreasonable. It failed to diligently pursue a thorough, fair and objective investigation and failed to pay benefits rightly due under the Policy. It failed to fully or properly explain or document its coverage decisions.
  • Overhead and Profit. Allstate foreclosed any possibility that overhead and profit could ever be considered for mitigation or contents. Allstate is obligated to judge each claim on its merits and unless an exclusion applies, it must pay the costs reasonably incurred to address the unique circumstances of each loss. By falsely claiming it does not cover overhead and profit for mitigation and contents, it misrepresented the terms of the Policy, in violation of Insurance Code section 790.03.
  • Splintering. This six figure loss was complex and it involved the management of a large number of trades by the contractor, including, without limitation, electrical, flooring, cabinetry, drywall, painting, demolition, and contents. Hence, the project required extensive coordination, oversight and financing. In an effort to avoid paying overhead and profit for the contractor’s work on personal property (contents), Allstate engaged in the bad faith tactic of “splintering” the project into small pieces in order to minimize the significance of the pieces, while ignoring the magnitude of the project as a whole. Allstate ignored the fact that the contractor had to coordinate and sequence this work amidst at least seven other trades.

Cross designated claims expert Jeffrey Taxier as an expert witness for trial. Mr. Taxier had worked in the Allstate Claims Department for 35 years. He began as a property claims adjuster and worked his way up to the role of Property Claims Manager of Allstate’s Southern California Claims Department, a position he held for seven years. He then moved to Allstate’s Home Office where he was primarily responsible for the training of Allstate’s property adjusters. After he retired from Allstate, he worked as the Education and Training Manager for ATI Restoration for eight years.

Mr. Taxier prepared a report which stated that a reasonable markup should be paid on portions of restoration work that are managed and/or coordinated by the contractor, regardless of who does the work, and should not be denied unless:

  • The basis for the markup has been thoroughly investigated on a case-by-case basis; and
  • The results of the investigation are well documented; and
  • The decision to deny payment of the markup flows logically from the documentary evidence, careful application of the controlling law, and the governing policy provisions; and
  • The bases for the denial are thoroughly explained in writing to the policyholder or the policyholder’s assignee.

The report also states that with rare exceptions, the magnitude of a loss may influence the level of complexity. It also points out that Xactware (for example) does not publish research about overhead and profit, nor does it recommend ten percent or any other percentage, and that contractors in a competitive market may elect to charge more than ten percent. It quotes the Xactware White Paper which states that the amount of overhead and profit, as well as how and where it is accounted for within the estimate is left to the discretion of the estimator based on the conditions of the job.

Adjusters sometimes refuse to pay overhead and profit for contents because they do not consider it to be a construction trade. However, the coordination of the contents portion of a project can be a complex and time-consuming process, particularly in a larger residence with a large volume of contents.

Allstate took Mr. Taxier’s deposition in the Aliso Viejo case. Taxier testified that he does not look at contents in isolation for purposes of deciding whether to pay overhead and profit. Instead, he believes contents should be treated like any other construction trade.

Taxier also testified that:

  • The decision to pay overhead and profit is not necessarily dependent on the level of coordination performed by the general contractor. Other factors may warrant payment of overhead and profit.
  • Complexity of a project is a factor that should be taken into account by an insurance company in deciding whether to pay overhead and profit, but “complexity” is not necessarily determined by the number of trades needed to complete the project.
  • Complexity is determined by the type of work, the amount of time it takes to perform the work, the degree of difficulty of the work, the difficulty of access to jobsite, the risk assumed by a general contractor when subcontracting parts of the project, and many other potential factors.

He testified that Allstate paid overhead and profit on the vast majority of the fire losses he managed during his 35-year tenure with the insurer. He testified that Allstate acted in bad faith by refusing to pay the overhead and profit to the contractor for the contents work on the Aliso Viejo claim.


The lawsuit asserted a claim for the $33,321.80, plus interest and attorneys’ fees. Without admitting liability, Allstate paid $335,000.00 to settle the dispute before trial.

Do You Have Evidence to Support Your Price and Billing Method?

The restoration contractor was empowered by a detailed report that listed hundreds of claims in which the restorer had been repeatedly paid overhead and profit for mitigation and/or contents by dozens major insurance companies. This was powerful evidence of the reasonableness of overhead and profit for mitigation and contents.

Each accounts receivable record should include the name of each insurance company and the amount it paid. The more often a restorer is paid a certain price or a certain category of charges such as overhead and profit, the easier it will be to make the case that those charges are reasonable and should be paid by insurance in the future. Track the payment history!

Parting Thoughts

The contractor in the Aliso Viejo case complained about a history of inconsistency in Allstate’s handling of overhead and profit. It urged Allstate to add clarity to its claims handling guidelines and practices. Restorers should be able to find some reasonable degree of predictability about what carriers will pay. This is an important factor to help restorers decide which projects to accept. Unfortunately, unnecessary friction between the restoration and insurance industries will continue and policyholders will suffer as long as carriers decide big ticket items like overhead and profit using amorphous and vague theories that are not based on policy language. The policy controls.

Ed Cross, “The Restoration Lawyer,” represents restoration contractors from offices in California, Hawaii, and Texas. His firm drafts restoration contracts, collects money for restorers, and represents them in litigation, including insurance bad faith. He is the principal of the Restoration CrossCheck LLC, a consulting firm for restorers. He can be reached at (760) 773-4002 or by email at For more information, please visit and

Disclaimer: This article is general information and is not intended to be legal advice. Settlements are compromises that are not binding on other courts.

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