How Insurance Claim Contractor Scams Work: Everything You Need to Know About Insurance Scams
When you file an insurance claim for property damage, you expect repairs to be completed on-time at a reasonable level of quality.
Unfortunately, some insurance claim contractors take advantage of unsuspecting homeowners. They take the insurance money and leave town, for example, or complete the job to a poor level of quality while still taking the full insurance payout. This often happens after a big storm in an area bringing an influx of storm chasing contractor scams.
Today, we’re explaining everything you need to know about insurance claim contractor scams, roofer and roofing scams, public adjuster scams, and other insurance scams.
How Do Insurance Claim Contractor Scams Work?
Insurance claim contractor scams are shockingly common in every state.
Two contractors were recently arrested in Florida after participating in a roofing contractor scheme. A seemingly-legitimate roofing company called NBRC Construction approached homeowners who needed a new roof. The company collected insurance money to repair roof damage, then fled town, never repairing the roofs for homeowners. The scam was wildly successful: the two contractors scammed over 100 victims across six counties in the Tampa Bay area before being caught.
Many insurance claim contractor scams work in a similar way. Contractors approach unsuspecting homeowners acting like a Good Samaritan: the contractor claims the homeowner’s roof needs to be replaced after a storm, for example. Better yet – insurance will cover the damages!
The contractor offers to handle the claim on behalf of the homeowner. The contractor promises to deal with the insurance company and payment, for example, which is a normal thing requested by legitimate contractors. The homeowner agrees, trusting the contractor and wanting to avoid insurance headaches.
Be advised, in some states, such as Texas, it is illegal for a contractor to handle or negotiate your insurance claim on your behalf.
Then, the homeowner never hears from the contractor again. The paperwork authorizes the contractor to receive the insurance payout. Then, the contractor leaves town.
A scam like this – where the contractor simply leaves town – is the most obvious type of insurance claim contractor scam.
A less obvious type of insurance claim contractor scam occurs when the contractor performs substandard work on a property. The contractor might accept a job, take the insurance money, then repair only half the roof, for example.
Or, the contractor might use lower-quality roofing materials when the insurance claim really covered higher-quality materials.
What Are Storm Chasing Contractor Scams? How Do Storm Chasers Work?
Storm chasing contractor scams are very common. Here’s how the scam works:
- The contractor watches for severe weather to strike a region. This severe weather can be a minor event like a hailstorm or thunderstorm. Or, it could be more serious like a tornado or hurricane.
- After the storm strikes, the contractor gathers a crew and travels to the affected area.
- The team of contractors uses various tactics to persuade homeowners to repair their roofs. The contractor might play the ‘good cop’ role, offering to perform an estimate at no cost whatsoever while being overly friendly with the homeowner. Or, the contractor might take a more aggressive approach, claiming that the homeowner needs to repair the roof immediately or risk further damage.
- Ultimately, the storm chasing contractor will offer to repair the homeowner’s roof at little to no cost to the homeowner. How is this possible? The homeowner simply needs to make an insurance claim to get the payout.
- Some storm chasing contractors will even offer to pay the homeowner’s deductible or refund the deductible.
- The storm chaser then completes a rush job on the roof, performing, say, $5,000 of repairs for a $30,000 job. Or, the storm chaser might simply leave town.
The problem with storm chaser scams is that the repairs may seem adequate to the untrained eye. As far as the homeowner knows, the roofer has done a good job. Unfortunately, the roof might start to fail within a few months, a few years, or by the next storm – long after the contractor has left town.
How Do Public Adjuster Scams Work?
Public adjusters are licensed insurance industry professionals dedicated to helping policyholders like you through the claims process.
A good public adjuster is on your side throughout the insurance claims process. A bad public adjuster, however, may try to scam you.
Just like contractors, there are storm chasing public adjusters that attempt to scam policyholders.
One of the most common types of public adjuster scams is called a claim mill.
How a Claim Mill Public Adjuster Scam Works
A claim mill scam involves one public adjuster or public adjuster company taking on an excessive number of customers, then selling customer referrals at an inflated cost to lawyers.
One of the most notorious claim mill scams in recent Texas history involved a company called Correct Claim. Correct Claim allegedly created a web of interconnected companies, then approached homeowners with offers to serve as a public adjuster for an upcoming claim.
First, Correct Claim offered to complete an appraisal on the home. Unfortunately, the appraisal company used by Correct Claim was owned by a family member. Investigators believed the home appraisals were not completed in an impartial manner. The appraisal company sold the estimates to Correct Claim for $350.
Correct Claim immediately sold the impartial home repair estimates to lawyers for $2,000 apiece. Correct Claim referred homeowners to these law firms, and the lawyers passed the $2,000 charge onto homeowners as a litigation expense.
Public Adjusters in Texas, as well as most states that license Public Adjusters have a duty to represent the policyholder and actually work the claim, cannot receive referral kick-backs, and have to adhere to a code of ethical practices.
In a related case, Correct Claim also sold 770 appraisals to a single appraisal company. That appraisal company was also connected to Correct Claim. The appraisal company could not handle 770 appraisals demanded at the same time. Ultimately, only five appraisals were ever completed.
Later, in court documents, Correct Claim revealed it had over 2,600 clients:
“Correct Claim stated in one of its filings that it had over 2,600 clients. Obviously, it is impossible for a public adjuster to adequately represent 2,600 clients,” explained Dallas attorney Steve Badger, who investigated Correct Claim’s business dealings.
While a company is engaged in all of these shady business dealings, the homeowner is still waiting for repairs to be completed on the home. The homeowner is caught in a ‘claim mill’.
How to Avoid Being Scammed by Contractors or Public Adjusters
The best way to avoid being scammed when dealing with an insurance claim is to ask smart questions. Below, you’ll find questions to ask contractors and public adjusters before hiring them:
Questions You Need to Ask Before Hiring a Contractor
Most contractors are good, hardworking people. Most contractors aren’t trying to scam you. Unfortunately, some low-quality contractors will try to scam you.
To separate good contractors from bad contractors, we recommend asking the following questions:
- Can you provide three referrals?
- Are you local? Where are you based?
- How long have you been in business?
- What’s your experience level for my type of project? Have you successfully completed similar projects in the past?
Questions to Ask Before Hiring a Public Adjuster
Public adjusters provide a valuable service to homeowners in need. To separate good public adjusters from bad ones, we recommend asking the following questions:
- What percentage of claims do you close successfully without needing an attorney?
- Can you provide three referrals?
- How much experience do you have with my type of claim?
- How many clients can you handle at one time while still devoting proper attention to each claim?
- How long have you been an adjuster?
- Do you require payment upfront? What is your fee structure? (If a Public Adjuster asks for any payment up front, be careful. Public Adjusters typically work on a contingency basis and in most states it is illegal for them to charge a fee before the insurance claim has been settled.)
Asking the questions above does two things. First, it gives you valuable information about the public adjuster. And second, it shows the public adjuster that you’re informed. You know how the public adjuster industry works.
Complete a Background Check
We recommend completing a background check when hiring a public adjuster or a contractor.
At the very least, conduct a thorough internet search for the contractor or public adjuster. Check the company’s website and Better Business Bureau page, if possible. Read any available reviews from previous customers.
If you want to take things a step further, then we recommend checking the adjuster’s license to ensure it’s valid.
Every state has some type of licensing search system. The Texas Department of Insurance has a license lookup tool here, for example. All you need is a last name to verify the public adjuster’s license is active.
If someone approaches your house after a disaster, you should be wary. It’s possible that the person is a legitimate contractor or public adjuster seeking new business. In many cases, however, this person is trying to take advantage of a homeowner in a vulnerable situation.
Ask the questions above to separate good and bad contractors or adjusters, and never be pressured into making an immediate decision.