Clarity Market

Did You Know?

A contract of adhesion is a standardized "take-it-or-leave-it" contract drafted by a party with superior bargaining power, which is then presented to a party with weaker bargaining power on a non-negotiable basis. These contracts are common in consumer transactions, such as software licenses, insurance policies, and mortgages, where the weaker party has no realistic opportunity to negotiate terms. While generally legal and efficient, courts scrutinize adhesion contracts for unfairly one-sided or unconscionable terms, potentially modifying or voiding specific clauses or the entire agreement if they are overly harsh or contrary to reasonable expectations.

In insurance, indemnification is the insurer's agreement to restore the policyholder to their pre-loss financial position by covering specified losses, damages, or liability resulting from a covered event. It's the core concept of an indemnity policy, where the insurer essentially "makes you whole" by paying for losses so you are not left with a financial burden from the incident.

When a contractor bills an insurance carrier, "reasonable" refers to the costs, time, and equipment that are necessary, justifiable, and consistent with industry standards for the specific work performed. Unreasonable charges that are inflated or unnecessary can lead to a dispute or denial of the claim.

Reasonable tools and equipment

A contractor's charges for tools and equipment are considered reasonable if they are directly necessary for the repair and replacement of the covered damage.

What's included:

• Specialized equipment: This includes unique items, such as large water extraction fans, dehumidifiers, or thermal imaging cameras used for water damage restoration.

• Heavy machinery: For large-scale projects, charges for heavy equipment like excavators or bulldozers are typically accepted if they are needed for the repair. In some cases, expensive items may require specific coverage under an inland marine policy.

• Hand and power tools: Day-to-day items like saws, drills, and other power and hand tools are necessary for most construction and repair jobs.

• Equipment rental: If a contractor must rent specialized equipment to complete the job, the rental cost is considered reasonable.

• Protective gear: Safety equipment, such as harnesses, hard hats, respirators, and scaffolding, is a necessary cost for worker safety.

What's typically not included:

• Normal wear and tear: Standard damage from regular use is generally not covered.

• Pre-existing damage: Costs to repair or replace older items that were already damaged are often excluded.

• Unnecessary equipment: Equipment that is not essential for the specific repair work would likely not be considered a reasonable expense.

Reasonable time

The time a contractor bills must be appropriate for the scope and scale of the work being performed. This includes not only the time spent on the physical repairs but also related tasks.

What's included:

• Direct labor: Time spent by crew members physically performing the repairs or replacement.

• Project management: Time for the project manager to oversee the work, coordinate with subcontractors, and manage the project timeline.

• Administrative tasks: Time for preparing estimates, communicating with the insurance company, and creating documentation.

• Cleanup and setup: Time spent preparing the work area, cleaning up debris, and demobilizing equipment.

• Industry standards: Insurers will compare the billed time against industry benchmarks and labor costs for the specific type of work.

What's typically not included:

• Inflated hours: Billing for more hours than the work reasonably required is considered fraudulent.

• Time padding: Charging for non-work-related time, such as extended lunch breaks, is not acceptable.

• Inefficiencies: Delays caused by poor planning, lack of materials, or inefficient work processes should not be billed to the insurer.

Reasonable billing practices

To ensure all charges are deemed reasonable, contractors must follow specific billing protocols when invoicing an insurance carrier.

Best practices include:

• Maintain detailed records: Keep meticulous records of all work performed, including labor hours, materials used, and equipment deployed.

• Use standardized forms: Using standardized invoice forms helps ensure all necessary information is included.

• Provide supporting documentation: Attach any supporting documents, such as receipts for materials, equipment rental invoices, and timesheets.

• Itemize everything: A breakdown of costs, rather than a single lump sum, makes it easy for the insurer to evaluate the claim.

• Communicate clearly: Descriptions of work must be clear and detailed to avoid misunderstandings or disputes.

• Bill promptly: Submitting invoices in a timely manner helps avoid delays in the claims process.