MNAES Newsletter – 2nd Quarter 2015

MNAES News: Volume 7, Issue #2

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MNAES News                                                                Vol. 7, Issue #2

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Another win for the MNAES!

Submitted by: Lisa Frenette – MNAES Lobbyist

The Senate Health & Human Services added language into their Omnibus Bill this week that would have required a new certificate for lead abatement, as well as a hefty increase in fees.

The MNAES successfully lobbied the House Health & Human Services committee to keep the language out of the bill. The MNAES will continue to work with members of both the House and Senate to keep this language out of the bill as it moves forward to conference committee.

We argued that contractors currently have to take lead renovation classes as part of their continuing education. We also argued that with a budget surplus, an increase in lead renovation fees unnecessarily fills the coffers of state government.

Lisa Frenette
Frenette Legislative Advisors


Overhead & Profit

Submitted by: Edward Beckmann – Hellmuth & Johnson, PLLC

Perhaps the number one, most common dispute in Minnesota insurance adjustments is insurer refusal to pay O&P.  As many know, Colorado and Texas have law right on-point from a state agency that clearly shows O&P must be paid.  Minnesota is not so fortunate.  But that does not mean the cause is lost in Minnesota.   The O&P battle can be fought and won.  The following is ammunition for the O&P battle.

O&P Ammo
There are three common advocates for homeowners and O&P:  the contractor, the public adjuster, and the attorney.  The contractor can only say so much given Department of Labor and Industry rules and regulations on the boundaries between contractors and public adjusters.  Here is what contractors can argue:

  • Adm. Work.  Contractors can describe the need to select qualified subcontractors, and the need to coordinate scheduling and permitting.  Contractors should describe the time, and therefore the expense, of coordinating the schedule of the subcontractors, property owners, building officials, and anyone involved in the project.  A contractor’s time coordinating all of this is what the O in O&P is all about.
  • Oversight of The Work.  The more complex the project, the more oversight is required.   The general contractor is charged with quality control.  If the project has significant complexity the contractor can describe it and the resulting overhead in managing it.  Homes, townhomes, and large developments often have unique features that require enhanced oversight.  A building with a lot of corners, and thus a lot of siding to miter, requires more oversight because more can go wrong.  Again, that’s the O in O&P.
  • Local Building Code and Inspections.  Municipalities often have unique code or interpretations of code.  Some inspectors are more vigorous than others.  If a municipality has unique code and/or officials that are vigilant in their oversight, the general has more time for the project.  More O in O&P.
  • Three Trades Rule.  I don’t like the three trades “rule”.  This is an insurance company standard, not a contractor’s standard.  And yet – if that’s an insurance company’s policy, and there are three or more trades, there is no harm in writing an estimate that shows three trades and O&P.  Contractors can’t take this argument too far because any interpretation of an insurance company standard can be construed as an interpretation of policy.  However, contractors can and should itemize O&P in their estimate where there are more than three trades and state that in the contractor’s world (industry standard), clearly three trades demands O&P.
  • Xactimate Expertise.  Contractors should be an expert in Xactimate.  Contractors should know how it functions, who created it, and whether it really matches the true cost of labor and materials in Minnesota.  This will arm the contractor if the insurance company argues O&P is buried in some line item, and it isn’t.

Here are some of the arguments public adjusters and attorneys can advance:

  • The cost of repair always includes the oversight and quality control mentioned above, and that can never be borne by the property owner.The cost of repair is what is insured.Managing multiple subcontractors is not an expense the homeowner should bear.Time is money, even for a homeowner, so the homeowner should not have to pay for, or perform, a general contractor’s obligation to find qualified subcontractors, coordinate their schedules, oversee their work, and all that a general contractor must do.
  • The policy is often written by state statute, not just the insurer.Minn. Stat. § 65A.01 subd. 3 has a valuation clause in it, and insurers are not allowed to diminish the valuation clause for policies governed by the statute.The valuation clause is simple and does not exclude O&P.All the labor I mention above is a cost of repair that ought to be covered by the statute.
  • Use the flyers some insurance companies give property owners after a claim.State Farm and American Family have issued flyers on when they pay O&P.Use the flyers if the shoe fits.
  • Minnesota’s still new bad faith statute is substantively the same as Arizona’s standard for holding an insurer in bad faith.In Arizona, it is bad faith for an insurer to refuse to pay O&P.If that is true in Arizona, it ought to be true in Minnesota.

These are but some of the arguments to be made in the O&P battle.



Insurance Appraisals 101
Submitted by: Tim Johnson, Roeder Smith Jadin, PLLCEver since the Minnesota Supreme Court’s decision in Cedar Bluff v. American Family, our firm has received many questions about insurance appraisals. The insurance appraisal is an alternative dispute resolution process that allows insurance companies and their policyholders to resolve certain claim disputes.  Insurance appraisals have been a part of Minnesota insurance law for over 100 years.Today, Minnesota Statute requires every residential homeowner’s policy to contain an appraisal provision.  In the event an insurance company and its policyholder cannot agree on the price and scope of an insurance claim, either can request an insurance appraisal by making a demand in writing to the other and naming its own appraiser.  The responding party then has 20 days to name its own appraiser, or it risks waiving its right to participate in the appraisal hearing.  Together, the selected appraisers pick a neutral umpire to form the “appraisal panel.”  The umpire’s role is to cast the deciding vote on issues where the appraisers cannot agree.The appraisal panel’s job is to inspect the loss, review evidence presented by both parties, and arrive at the scope and price to repair the loss.  In Minnesota, the appraisal panel can determine a wide variety of issues ranging from the cost of repair, the cause of loss, and some fact questions incidental to the loss (for example, whether a reasonable match exists).  Appraisal panels cannot, however, determine coverage questions such as whether a policy provides for code upgrades or whether a coverage exclusion applies.

The contractor’s role at an appraisal is often critical.  Arguably, the most important piece of any appraisal is the contractor’s estimate.  Repair estimates that contain line item and per elevation breakdown of the repair help the appraisal panel navigate issues more clearly.  Contractors are also frequently asked to apply their expertise and testify about necessary repairs and material costs.  A well-researched claim—especially when supported by photographs, invoices, city inspector requirements, etc.—is central to a policyholders’ success at an appraisal hearing.
It is important to remember that contractors in Minnesota cannot discuss insurance coverage with their customers.  Doing so puts the contractor at risk for fines and penalties from the Departments of Commerce and Labor and Industry for “acting as a public adjuster.”

Similarly, contractors may not request appraisal on behalf of a homeowner.  On claims where an agreed upon price and scope cannot be reached, the homeowner or the homeowner’s agent (such as an attorney or public adjuster) must make the written appraisal demand to the insurance company.
The insurance appraisal is a valuable resource for policyholders to resolve insurance claim disputes without the expense and time of going to court.  If an agreed upon scope and price cannot be reached, it is usually best to refer the homeowner to a licensed public adjuster or attorney to assess whether an appraisal is appropriate. While contractors may not demand appraisal for policyholders or discuss coverage, their role is significant to ensure the policyholder gets a fair result.