Remember how home owners are pressured into assigning their right to file a claim to the contractor? While this may seem like a good move, to save the home owner time and hassle, what ends up actually happening brings minimal benefit to the individual home owner and disaster for the wider insurance market and all the innocent home owners who won’t get access to affordable home insurance.
Here’s what happens after a homeowner assigns their right to file a claim to a contractor:
1. The contractor files an inflated claim amount for replacing the entire roof or other structural element at or above its replacement cost.
2. The insurance company sends a claims adjuster to inspect the damage, and typically finds either minimal or no damage, and thus rejects the claim.
3. The contractor sues the insurance company for the full amount of their original quote. They don’t need permission from the homeowner to bring about legal action due to the assignment of rights. Furthermore, many lawyers offer their litigation services for free, only collecting a percentage of the payoff if they win.
4. The insurance company then either has to spend money to fight the litigation, with legal costs that easily might exceed the amount of the claim, or they can choose to settle out of court. Either way, the insurance company loses and has to spend money defending against a fraudulent claim. The contractor has only upside, because if they lose, they don’t have to pay legal fees anyway due to the incentive structure of many of these trial lawyers. If they win, even if they have to pay a percentage of the winnings to their lawyer, they still get a new job and often a check for much more than the actual cost of any repairs.