Residential Contractors Who Are Hungry For Work Must Avoid Eating Deductibles
It is a beautiful spring night in Omaha, Nebraska, when the sky slowly morphs from gorgeous shades of blue to ominous shades of gray. As clouds begin to cover the sky, the temperature suddenly drops and what starts out as rain quickly turns into golf ball sized hail. The roofs, siding and gutters of home after home in every neighborhood in the path of the storm suffer significant hail damage.
The damage is so significant contractors from all over the country rush to mobilize offices in Omaha in an effort to gobble up as many of these jobs as they possibly can. The competition for the work will be fierce since the vast majority of this damage will be covered by a homeowner’s insurance proceeds. Those homeowners will inevitably attempt to pit the competition against each other by demanding more work for less money or asking what else the contractor can offer.
As is generally the case, the insurance policy that will provide coverage for the repairs requires that the homeowner pay a deductible related to the claim. Unfortunately, the homeowner did not plan for a new roof and also did not budget for paying the cost of the deductible. Consequently, the homeowner wants the contractors to cover the cost of the deductible. Is it ok to give a little discount, just to help out? After all, the insurance company doesn’t need to know and will be paying most of the cost anyway. So all good, right? Wrong.
Nebraska recently became the latest state to expressly prohibit residential contractors from rebating any portion of an insurance deductible. In this regard, the Insured Homeowners Protection Act states, in part, that the contractor may not pay an insured, or a person directly or indirectly associated with the real estate, any form of compensation, except for an item of nominal value. The law also requires that the contract, repair estimate, or work order contain a lengthy specific notice advising the homeowner of the prohibition against rebating deductibles. This notice must be signed by the insured and sent to the insurer prior to payment of proceeds from the insurance policy. If a residential contractor fails to include this notice in its required form, the entire contract is void.
Since the law is relatively new, this issue has not yet been litigated to the Nebraska Supreme Court. However, based on the express language of the statute Koley Jessen anticipates, that the Court would likely find that actions such as paying a homeowner for placing a sign in their yard, paying marketing rebates, or providing any cash payments would violate the provisions of the Act. The ramifications for violating the Act are severe. In fact, the contract will be void. So if the contractor completes the work and it is later determined that the contractor violated the Act, by, for example, paying the insured for putting a sign in their yard, the contractor would not be entitled to any payment for the work performed. Given that this is the new reality in Nebraska, residential contractors need to be very careful when competing for work this storm season as covering a deductible in any way or providing any sort of monetary payment to the homeowner no matter what it is called could render the contract with the homeowner void and may provide the homeowner with grounds to avoid payment in the event of a future payment dispute.