Phillip Lane, Agent, Insurance Office of America and Sean Savage, Co-owner, International Risk Resources
Undoubtedly as a roofing contractor, you have been the recipient of Notices of Claim and Opportunity to Repair correspondence, referencing FL Statutes Chapter §558.004.
You may have received more of these documents than you ever thought possible. Perhaps you have received so many that your General Liability loss runs are littered with them and they have driven up your premiums. Fortunately, there is a way to combat these notices that are built right into the statute being used against you, so consider fighting back.
First, most claims come to the prime contractor. When they get a Notice of Claim and Opportunity to Repair demand, they are required in most cases to report the alleged claim to their insurance carrier. The builders' insurance carrier then opens a General Liability claim and responds to both the prime contractor and the sender of the Notice. The response to the prime contractor will include an acknowledgment of the claim, confirmation they will begin their investigation and requests for a laundry list of documents and information, including a list of their subcontractors, and copies of the actual subcontracts.
This is usually followed, in due course, by a Reservation of Rights Letter authored by the insurance company, in which they alert the prime contractor to the exclusions that are part of their insurance policy. The insurance carrier will also instruct the prime contractor to place all their subcontractors on notice of the claim by sending a Notice of Claim and Opportunity to Repair to each of the subcontractors.
Most often, it is a requirement of the prime contractor's insurance carrier to place ALL subcontractors on notice. As one of potentially many subcontractors, you receive a Notice of Claim and Opportunity to Repair Statute letter even if the damage was completely unrelated to your work. The insurance company will also author a letter to the sender of the notice (the claimants or plaintiff firm}, which will likely also ask for a bucket-load of documents and information from the claimants and their attorneys.
It is important to conduct a careful review of the Notice of Claim and Opportunity to Repair demand to ensure the demand adheres to the Statute requirements. The notice requires the alleged defects be described in enough detail to allow you to identify the work or product you furnished. It also requires that the location of the claimed defect be provided to allow you to locate the area easily. We have found compliance with this statute's requirements to be missing entirely in the vast majority of Notice of Claim and Opportunity to Repair documents.
Since the Notice of Claim and Opportunity to Repair document is based in state law, the receipt of the document starts certain timelines and requirements to which you must comply. Therefore, if the document is not in compliance with the state statute, it is very important that you place the prime contractor and/or the prime contractor's law firm on notice that you do not accept their Notice of Claim within the requirements of the statute. This may assist in providing the groundwork to protect you in staying any subsequent litigation that may be filed. This will require compliance and give you the intended amount of time to inspect the actual area alleged as damaged by your alleged deficiency or defect.
Additionally, your rejection of the Notice of Claim and Opportunity to Repair document should also contain your demand, under the Opportunity to Repair portion of the statute, for a site inspection of the alleged damages to occur within the timeline of the statute. So what you will be saying is, we don't accept your notice as compliant with the statute and hereby demand you provide sufficient description of the alleged defect and the location of the alleged defect in
sufficient detail to allow us to easily locate the area for the purpose of inspection and, if we deem it necessary, to offer to effect repair of the alleged defect.
This letter can be separate from any documentation being requested and/or furnished by your insurance carrier. While you should keep your carrier informed, and perhaps even allow them some input in the response you will be sending, it is ultimately your work that is being claimed as defective.
And often, very often, your insurance carrier will be alleging coverage may not apply for claims related to "your work" due to a common exclusion in the policy that excludes damages to "your work."
We also suggest you carefully review the work of your subcontractors, if any, to identify those whose work is actually related in some manner to the damages being alleged prior to placing them on notice under the Notice of Claim and Opportunity to Repair Statute.
One of the more frustrating aspects of these notices is that every time the prime contractor's attorney sends a demand letter or files suit against one of the prime contractor's subcontractors, they charge the prime contractor and/or the prime contractor's insurance carrier legal fees. Also, the subcontractor that does not believe they should be involved will be propounding discovery to prove their case that they were improperly named or noticed. Again, this results in billing hours payable by the prime contractor and/or the prime contractor's insurance company.
Why then, you ask, do the prime contractors and their insurance carriers allow these apparently frivolous claims to be directed at the tile installers, roofing contractors and others? Because the insurance carriers for the tile installer, roofing contractor and others pay settlements to get out of these claims. And again, as you know, they are paying with your deductible money.
The recent movement in the subcontractor business model is to switch from a deductible to self-insured Retention on General Liability Insurance Policies. This does several things that help put you in control of what your response to these notices look like.
First, deductibles are controlled by the insurance carrier and they decide when to offer a settlement and how much of your deductible to pay in order to get out of a case. Self-Insured Retention (SIR}, on the other hand, is generally administered by a Third-Party Administrator (TPA) that you hire, who works only for you.
With an SIR policy, you and your TPA make all claim decisions on all matters below the SIR reporting threshold of the policy (usually 50 percent of the SIR amount). SI R's are best when they are $25,000 and above in order to place sufficient control in the hands of you and your TPA. It is important to mention that your choice of TPA should be one that works only for you and not for any insurance company. Your insurance agent is your best source for information on switching to a SIR and identifying a good TPA.
Finally, do not forget the Opportunity to Repair portion of the statute. While the plaintiff's firm will likely not want to negotiate repairs early in the process, it is your right under the statute to make the offer to repair. We recommend
to our clients that they demand the homeowner(s) be at the site inspections, just to allow them to be present when you review the work. Then if you see something that can be fixed or repaired at a reasonable cost to you in time and money, they will hear you make that offer, to be followed by a written offer to repair. If you have placed any of your own subcontractors on proper notice and they are at the site inspection with you, you can sometimes work closely with them to point out work they could undertake to bring the claim to an early conclusion. It may surprise you to learn just how effective this can be in resolving claims early in the notice period. Sadly, the opportunity to repair is a rarely used option of the statute. While roofers are seldom a responsible party in these claims (right now the most likely cause of claims being alleged is improperly installed stucco), it takes aggressive responses to these notices to get out with as little risk as possible.
Phillip Lane, Commercial Insurance Agent and Partner at Insurance Office of America, specializes in designing risk management and insurance programs for roofing contractors. He is an FRSA and FRSA Credit Union Director and handles commercial insurance programs for FRSA and FRSA-SIF. Phillip can be reached directly at 321-698-5094 or by email at phillip.lane@ioausa.com. Sean Savage is co-owner and Manager of International Risk Resources, a specialty third-party administrator focusing on claim management strategies for Florida contractors. He and his firm employ methods aimed to reduce construction defect and Florida Chapter 558 claim activity for their contractor clients.
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