Contractors Association of Minnesota Policy and Regulatory Update

HF 2696 (Rep. Tim Mahoney – D) and SF 2660 (Senator Jeff Howe – R)

This bill requires mortgage banks and lenders (banks) to sign a check over to homeowners within a timely period after work required to repair a storm occurrence has been completed.

Banks, on occasion, are a signatory on an insurance proceed for a storm occurrence. The issue is they will hold on to the proceed check, sometimes up to six months, before signing it over to the homeowner. This puts the homeowner and the contractor repairing the storm occurrence in a bad position. In most cases, the homeowner doesn’t have funds available to pay for damages and costs to repair their home and the contractor cannot float the money while waiting to be paid for a job that has been performed.

As expected, the banks have several problems with the bill. CAM will be sitting down with to start discussing how this issue can best be resolved in the near future.

You can follow a link to the bill by clicking the HF 2696 above.

HF 1596 (Rep. Nick Zerwas and SF 1349 (Senator Mark Johnson – R)

Tim Johnson, partner at Smith, Jadin and Johnson, and CAM met with Senator Mark Johnson last week to discuss legislation that would effectively take away the ability for a homeowner to receive interest on an appraisal award when an insurance company makes a bad faith offer on property that has been damaged due to a storm occurrence.

While this is not directly related to important issues that CAM works on, it is important to CAM’s clients. It simply slows done the process for homeowners who may have an insurance adjuster lowball a claim to get their home repaired when it has been damaged.

The number of claims going to appraisal has trickled due to a 2017 Minnesota Supreme Court decision allowing interest a claim if the insurance companies were found to have made a low offer to homeowners on a storm occurrence. CAM wants the best results for the homeowners to get relief by means of having their home repaired.

CAM will continue to monitor this since it is important for contractor to assist homeowners in repairing their damaged homes.

You can follow a link to the bill by clicking HF 1596 above.

Insurance Companies Denying Claims where the Building Code is not Enforced.

CAM met with the Association of Minnesota Building Officials (AMBO) to discuss resolving the problem of insurance companies denying claims where the Minnesota Statewide Building Code is not enforced.

CAM and AMBO will be meeting with DOLI and the Department of Commerce on April 11th to learn what can be done to stop the insurance companies from denying claims in areas of Minnesota where there is no official statewide building code enforcement.

Important Reminder!

It’s illegal for contractors to pay homeowners’ insurance deductibles

Spring has sprung and due to the severe winter weather it looks as though exterior contractors will have a busy spring and summer. This is great news for the industry but contractors should be aware of a new state law requiring contractors to disclose on the contract that they are NOT ALLOWED to offer and/or pay for a homeowner’s insurance deductible.

CAM advocated for this legation last year citing contractors who have complied with the law that prohibits paying deductibles have lost business to contractors who illegally offer to pay deductibles or offer rebates or upgrades. Homeowners are unclear about this law and some still expect their contractor to help with insurance deductible costs. This new law provides contractors with solid information to show that this practice is illegal.

In short, state law prohibits contractors from offering to pay homeowners’ insurance deductibles or offering anything of value as encouragement to enter into a contract to repair damage covered by an insurance claim. A newer law (effective since Aug. 1, 2018) requires that contractors include a written notification about the law in their “initial estimate.” The “initial estimate” also includes price agreeable contracts. Insurance companies are required to provide a similar written notice to homeowners in their initial correspondence about a claim.

If your company performs insurance repair work, you will need to update your contracts to include a written notification about the law that prohibits paying deductibles. To stay on the safe side, CAM encourages contractors to update their all of their Icontracts to include this notification.

The law does not require specific language on a contract , but one example is:

State law (Minn. Stat. § 325E.66) prohibits contractors from offering to pay a customer’s insurance deductible or offering anything of value as an inducement to enter into a contract for home repairs that are to be paid for as a part of an insurance claim. Contractors who make such an offer are subject to public enforcement action by the Minnesota Department of Labor and Industry, including fines of up to $10,000 per violation. Contact DOLI at 651-284-5069 or dli.contractor@state.mn.us. if you have further questions.

New law affects contractors who perform storm repairs

What changed?

• State law  prohibits contractors from offering to pay homeowners’ insurance deductibles or offering anything of value as encouragement to enter into a contract to repair damage covered by an insurance claim.
• A new law (effective since Aug. 1, 2018) requires that contractors include a written notification about the law in their “initial estimate.” The “initial estimate” also includes price agreeable contracts.
• The new law also requires insurance companies to provide a similar written notification to homeowners in their initial correspondence about a claim.

Why the change?

• Many contractors who have complied with the law that prohibits paying deductibles have lost business to contractors who illegally offer to pay deductibles or offer rebates or upgrades that are barred.
• Homeowners are unclear about this law and some still expect their contractor to help with insurance deductible costs. This new law provides contractors with solid information to show that this practice is simply illegal.

What do I need to do?

• If your company does not perform insurance repair to homes, you do not need to do anything as this law does not affect your business.
• If you do perform insurance repair work, you will need to update your contracts to include a written notification of the law that prohibits covering deductibles.
• The notification can be included in the contract document or provided to the customer as a separate document.

What should the notification say?

The law does not provide specific language to be included, but we suggest the following:

State law (Minn. Stat. § 325E.66) prohibits contractors from offering to pay a customer’s insurance deductible or offering anything of value as an inducement to enter into a contract for home repairs that are to be paid for as a part of an insurance claim. Contractors who make such an offer are subject to public enforcement action by the Minnesota Department of Labor and Industry, including fines of up to $10,000 per violation.

 Where can I ask questions?

Contact us at 651-284-5069 or dli.contractor@state.mn.us.

Legislative Update 2017

In a more unusual twist of events than the past six years, the final days of the 2017 Legislative session and special session between Governor Dayton and the Legislature took another strange turn. Unable to balance the budget by the constitutional deadline, Governor Dayton and the Legislature came to a global agreement on spending bills half an hour before adjourning sine die with the caveat that all would come back in the morning to start passing the spending bills…by 7 am the next day.

As special session began it became clear that seven of the eleven bills would not be brokered, reviewed, and sent to each body for passage off the floor by 7 am the next day. Consequently, the special session lasted three more days. The result was each side crying foul. Governor Dayton decried “poison pill” language was snuck into the State Government Finance bill shutting down the Department of Revenue and sending pink slips to all 1,300 employees if the Tax bill wasn’t signed into law. In what can only be described about as turnabout is fair play, the Governor turned around and line item vetoed all appropriations for the House of Representatives and the Senate effectively shutting down the legislature. Again, the threat of pink slips to state employees.Hence, the impending constitutional crisis. Does the Governor have the authority to funding to the legislature? Each side has drawn its proverbial sword and to Court they are a headed.

For the past few years, the Contractors Association of MN (CAM) has been moving legislation that would hold insurance companies more accountable to homeowners and contractors during an occurrence related event. This year, the Association was hopeful that Republicans (who are typically business friendly) would assist in advancing the CAM agenda. Rep. Tama Theis (R – St. Cloud), who owns a contracting business in the St. Cloud area, authored the legislation with several other legislators willing to move the legislation through the process. Unfortunately, once again, we were stalled by Commerce Committee Chairs in the House and the Senate (Republicans to boot) who wouldn’t hear our legislation because the insurance companies opposed it. We were, however, able to pique curiosity in the House Commerce Committee when Rep. Greg Davids (R – Preston) offered an amendment to a related bill that would have required insurance adjusters to have better Minnesota code education. The amendment was eventually withdrawn but as previously noted, legislators took note. CAM will be meeting with these and other legislators during the interim to continue educating them on the difficulties of properly repairing a home that has had a storm occurrence related event.

CAM was able to kill a significant piece of legislation that would have allowed insurance companies to continue winnowing away at contractors duty to help a customer in an occurrence related event. This bill was introduced on a Monday and heard Wednesday of the same week. The issue was brought forward by the insurance industry to clarify a MN Supreme Court decision – Wilcox vs State Farm Fire and Casualty. The crux of the issue was whether an insurance provider could depreciate labor costs when arriving at the Actual Cash Value of an insurance claim. The insurance industry subsequently introduced a bill that would allow them to file a form with the Commerce Department to depreciate labor costs. Surprisingly, the Commerce Department was not willing to accept the bill and strongly opposed it.

CAM had strong objections to the meat of the legislation allowing for labor expense depreciation applicable when determining the value of a damaged property in insurance policies. The insurance industry reiterated the intent of the legislation was not to take away benefits from policyholders, but simply to follow the Wilcox decision. Nevertheless, CAM began building consensus objection to the bill; however, the bill moved through the Senate Commerce committee with an amendment to the “good faith statute” that would have allowed for

the depreciation costs of goods, material, labor and services necessary to replace, repair, or rebuild damaged property.

The success came when CAM spoke with Rep. Tama Theis and the House Commerce committee members along with other interested parties to stop this legislation from moving any further.

CAM fully expects a continued assault on the industry due to the influence of the insurance companies up at the Capitol. It is important as a member of the industry to make sure that you contract your legislator when a call to action comes across your email. Also, we had a successful CAM Day on the Hill. Please stay tuned next legislative session for the Day on the Hill. Legislators need to hear first hand from their constituents!

The Minnesota Legislature adjourned in May after an extremely abbreviated session. This year’s legislative agenda focused on taxes, bonding and a supplemental budget. All of the bills were passed with bipartisan support; however, Governor Dayton ending up pocket vetoing both the tax bill and the bonding bill. A pocket veto essentially means he refused to sign the legislation so it “died on his desk.” The tax bill was meant to provide relief to business owners, veterans and students with college loans among.. The bonding bill was one of the most significant ever for transportation and water infrastructure – think Flint, Michigan.

The MNAES has growing support for legislation they introduced during the 2015 – 2016 legislative session. The bill required insurance companies to offer:

• supplement insurance options to a policy;
• require insurance companies to discuss a claim with a contractor;
• require an insurance adjuster (with an insurance company) to have continuing education on Minnesota construction codes; and
• would have allowed for certain findings e.g., Commerce Department findings to be admitted as evidence in a court case.

The MNAES was able to obtain signatures in both the House and the Senate to introduce the bill. While it didn’t receive a hearing in either body, it received substantial positive feedback and an informational meeting with legislators, staff, the MNAES and the insurance federation.

Several bills adverse to the industry were also introduced. The MNAES lobbied legislators on the detriments of these pieces of legislation and none of them received a hearing.

• Contractors would have been required to pay attorney’s fees if they lost a court case on the home warranty statute (MN Statutes 327A);
• Insurance policy limits would have been established for building code requirements; and
• Clarifying in law that a public adjuster could not negotiate claims if the public

adjuster was in anyway affiliated with a business that performs loss on repairs or storm damage.

The MNAES has been working to build relationships with the Departments of Commerce and Labor and Industry (DOLI). This last month a meeting commenced with Commerce and DOLI to discuss several issues that have made it difficult for contractors to perform a high quality job for their customer. Issues discussed including insurance companies requiring:

• Unreacted to receive operating and profit;
• A guidance memo on code requirements the insurance industry must pay on a claim;
• Insurance company policy endorsements; and
• Insurance companies directing consumers to preferred contractors.

The Departments will be working on a guidance memo for required building codes for storm repair damage. If you would like to submit codes you feel should be part of the guidance memo to assist a customer in getting their home repaired, please send them to Lisa Frenette at frenettela@gmail.com

Commerce was very interested that insurance companies have been changing policy endorsements. They have assigned insurance investigators to go over policies to look for other unfair changes in policy endorsements.

The MNAES will be scheduling in early September to continue working on these issues. Please contact Lisa Frenette if you have questions or comments at frenettela@gmail.com.