A recent Florida appellate case upheld an endorsement, which I call a “managed repair” endorsement.1 Here is the endorsement at issue:
SECTION I – PROPERTY COVERAGES
E. Additional Coverages2. Reasonable Repairs is deleted and replaced by the following for losses other than sinkhole:
a. If a peril causing a loss and related damage are covered . . . and repairs are necessary to protect covered property from further damage, ‘you’ must notify us before authorizing or commencing repairs so ‘we’, at our option, may select Rapid Response Team, LLCTM to make the covered Reasonable Repairs.
b. If ‘you’ do not notify ‘us’ and allow ‘us’, at our option, to select Rapid Response Team, LLCTM for the covered Reasonable Repairs, ‘our’ obligation for repairs made to protect the covered property from further damage is limited to the lesser of the following:
(1) The reasonable cost ‘you’ incur for necessary repairs made solely to protect the property from further damage; or
(2) The amount ‘we’ would have paid to Rapid Response Team, LLCTM for necessary repairs made solely to protect the covered property from further damage.
The court paraphrased the operation of this endorsement:
The endorsement thus required notice to insurer of the occurrence of a loss or damages before emergency services began to allow insurer to elect its chosen vendor, RRT, to perform the reasonable repairs. In the event insureds did not notify insurer of the loss, then insurer’s payment obligation was limited to the lessor of the reasonable cost incurred for necessary mitigation or the amount which insurer would have paid RRT to perform those emergency services.
The “kicker,” which is unbelievable to those of us with experience in property insurance restoration costs, is that the insurer has a bona fide contract to do each such claim for only $2000. I do not believe that this restoration company can comply with OSHA requirements, pay full insurance limits, including workers compensation, and do work to required specifications and standards for only $2000 on every single job. They may do it illegally. They may do it by cutting corners. They may get supplements or other side agreement contracts. But I beg for this contractor and insurer to sue me for defamation when they say they will do a first-rate and legal job every single time for no other consideration other than $2000.
This case is not over. It is important for hard-working and law-abiding restoration contractors to pay attention to this case. Policyholders are going to get second-rate service at this price, and the Florida Office of Insurance Regulation should be concerned about this obvious “not at arm’s length” alleged good faith $2000 contract.
While the case has been sent back to the trial court for further review and hopefully discovery, the court upheld the policy and $2000 limit at this stage of the case:
Assignee contends that the service agreement between insurer and RRT effectively amends the policy to limit the payment for water mitigation to $2,000, and insureds should have been notified of that fact. The service agreement does not amend the policy. It does not create a different policy limit for coverage. Nor did the service agreement need to be incorporated into the policy, where it was simply offered to prove how much insurer would have paid RRT for the work. No policy provision prevents RRT from providing what may be a volume discount to insurer through its service agreement.
Insureds could have rejected the preferred contractor endorsement, but instead opted for a very modest discount on price in return for being bound to use RRT to mitigate and repair any property loss. That choice may have been a bad bargain, but it was agreed to by insureds.
Thought For The Day
Fake news is cheap to produce. Genuine journalism is expensive.
—Toomas Hendrik Ilves
1 People’s Trust Ins. Co. v. Restoration Genie Inc., No. 4D21-628 (Fla. 4th DCA Mar. 30, 2022).
