Are Homeowner Insurers Liable for Faulty Work of Their “Preferred” Vendors?

Many insurance companies have "preferred" vendor programs where they recommend to homeowners certain contractors or other professionals who can perform repair work after a covered loss. Well, what happens if the vendor does substandard work and further damages the property? In most cases, insurers who recommend "preferred" vendors also guarantee the work supposedly. But how effective is this "guarantee" and can you hold the insurer liable for all potential consequential damage caused by faulty workmanship?

These questions were answered by a California court in Rattan v. United Services Automobile Association.¹ In Rattan, the homeowners agreed to use the insurer’s "preferred" contractor who work the insurer agreed to guarantee. After the contractor made repairs to address fire damage, the homeowners discovered that the contractor:

[C]overed up a burned stud in the master bedroom with foam and drywall instead of removing it; allowed [the contractor’s] employees to live in the home; allowed [the contractor’s] employees to make long distance calls from the [homeowners’] telephone; did a poor job of painting; left a smell of smoke in the home; left baseboards missing; and frequently had no workmen at the site.²

Needless to say, the insurer pulled the contractor off the job and with the homeowners’ consent, another contractor was hired to remedy the defects at the insurer’s expense. Afterwards, the homeowners not satisfied sued the insurer in tort for compensation for all potential consequential damage that might have been caused by faulty workmanship. The court in Rattan found that the guarantees made by the insurance company "were not themselves contracts of insurance or part of the insurance policy" it issued to the homeowners. Moreover, according to the court, protection for all consequential damage caused by the contractors would in effect make an insurance company the liability insurer for the contractor. Therefore, the court determined that absent any evidence that the insurer took on more responsibility for its preferred contractors other than acting as a guarantor of workmanship, the insurer cannot be held liable in tort for the omissions or errors of contractors engaged to provide repair services.³

The court in Rattan astutely pointed out that many homeowner insurers recommend "preferred" vendors "no doubt for their own convenience and as a means of limiting their claim costs."⁴ The takeaway from all of this is that homeowners who rely on "preferred" vendors recommended by the insurance company should be aware of their rights. Also, homeowners can’t assume that just because they hired a "preferred" vendor that the repair process will be problem free.

---

¹ Rattan v. United Services Automobile Ass’n. (2000) 84 Cal. App. 4th 715.
² Id. at 718.
³ Id. at 723.
⁴ Id. at 717.