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Multiple line items on insurance claim ignored or completed poorly

TexasConstruction ContractDefectsLawsuitPayment Disputes

Water leak damaged 1st floor kitchen, living room, breakfast room, entryway, and formal dining room. Damages include tile in kitchen and entry, engineered wood floor in living room and formal fining room, drywall in all rooms, wallpaper in formal dining room, floor cabinets in kitchen, granite countertops because they cracked upon removal, and baseboards in all rooms. Contractor gave an estimate that was $20k above adjusters estimate. Contractor and adjuster met in the middle at $30k. Repairs were being completed based off adjusters $30k estimate. Repairs were to begin on set date and end one month later contingent upon the receival of insurance payment. Insurance payment was received 1 month after estimate start date. After receival of payment, work did not begin until two weeks later and 2 months after payment was received by contractor, work is still incomplete. Contractor had not appeared at job site since the beginning of work, drywall, paint, wood floor, and tile had been installed and contractor had not seen the performance. Specific line items that insurance paid for were not used. These line items total an estimated $3k and include, but are not limited to plastic barriers, air scubbers, HEPA filters, and floor leveling cement. The insurance claim has an included overhead and profit seperate from the RCV of each item, this overhead and profit totals roughly $4600. For the replacement of granite countertops, insurwnce paid $73.75 pernsquare foot for materials and labor. Contractor set granite material budget at $42-48 per square foot and recommended two granite fabrication conpanies. I decided on a granite counter from one of the recommended companies and was told by the contractor that it was $25 over budget. I contacted the granite company personally and requeated a price for the granite slab and a per square price for materials and install of said granite slab. The slab cost $1128.01 and the per square foot of the slab including install was $72, $1.75 per square foot below the insurance estimate. Base kitchen cabinets (floor level) were paid to be removed and fully replaced with new cabinets, $5600 RCV. Contractor initially stated that new cabinets would be installed because the labor hours to rebuild boxes would cost more than new cabinets, cabinet fabricator arrives and says cabinet boxes are being rebuilt. Contractor later tells me that new cabinets and rebuilt boxes are the same price except insurwnce did not cover stain matching of new cabinets, so he opted for rebuilt boxes instead, without my approval. Keep in mind these are a common wood stain base level cabinets. Cabinets were installed, the base of each cabinet was rebuilt, one complete box was rebuilt, and the side of two cabinet sections were rebuilt. The rest of the cabintry was recycled from the water damage, i.e., pieces of the cabinet boxes were removed and installed elsewhere or not removed at all. The level of work has given me cabinets with chips, swollen water stains, dirt/debris, and large cracks. It appears as thoight the contractor is limiting the budget of materials and install to create a larger profit margin and purposely excluding items from the insurance claim to create even more profit. Is this a breach of contract? Minor or Major? How should I attack this issue? The owner of the company has been contacted which sped up the process as my cabinets were installed 2 days later, but the quality is still lacking and money is still unaccounted for.

1 reply

Dec 19, 2019
It's hard to say what, exactly, constitutes a material breach of contract - ultimately, that determination would be made by the court (if things came to that), and there are all sorts of variables that could push a dispute in one direction or another. With that being said, if a contractor has repeatedly performed work out of line with the contract (i.e. project specifications, project schedule, budget) and it's gotten to the point where the project can no longer be salvaged, then there's a strong chance the breach is material and may constitute grounds for terminating the contract. Granted, if the contract has termination provisions, then those should certainly be followed before any decision is made on that front. Further, note that since the insurance company is the one making payments to the contractor, they'd likely need to be involved on that front, too. And finally, note that if there are any sunk costs already paid to a contractor, an owner terminating the contractor and hiring another contractor could certainly result in additional out of pocket costs.

How to rein in a contractor on a restoration job

Generally, the first step should be collecting and organizing the relevant documentation and claims. That way, if there is a pattern of unacceptable performance, it will be easy to illustrate that. Further, sharing your concerns with the insurer should be helpful, too. Insurance companies can be particularly stingy with claims, so they may be interested to know if a contractor has been pulling one over on them and pocketing claims at a higher margin. What's more, sharing concerns with the company's president could be helpful too. If there's indisputable evidence showing that the project is being improperly managed, then they may be inclined to step in and do something about that. Further, threatening to make a claim on the contractor's license bond, to report them to the state licensing board, or to leave negative reviews about their business online (i.e. with the Better Business Bureau, Angie's List, Google Reviews, Facebook, etc.) could all move the dispute in the right direction too. Finally, if nothing seems to move the needle, bringing concerns to a local construction attorney can be helpful. They'd be able to review all of the relevant documentation and advise on how to proceed in your particular circumstances.
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