I know that insurance companies unfairly rip off and take advantage of their customers on a regular basis, but a rash of lawsuits against companies providing home owners insurance to Texans has put the issue in the regional spotlight.
Multiple property owners have filed lawsuits against various insurance companies alleging that they were short changed when it came to recovering full and fair compensation to cover the cost of repairs to their damaged buildings. In most cases, the shortfall was hundreds or even thousands of dollars – the average amount totaling 20 percent of what the insured was actually entitled to recover.
Central to these lawsuits is the concept of “overhead and profit,” which is typically money paid to general contractors above and beyond the normal cost of doing repairs. If a consumer were to hire a professional general contractor to do work for them under normal circumstances, then they would pay these costs, so it follows that insurance companies should pay these costs too.
It is also worth noting that the amount of overhead and profits due (usually around 20 percent of the overall claim value) is actually owned to the insured property owner regardless of whether they hire a professional generally contractor or not. Although there is no law in Texas which specifies this, a federal court decision in the Texas case of Ghoman Vs. New Hampshire Insurance found that even if a consumer rebuilt his home himself, he was still entitled to collect overhead and profits from his insurance provider.
However, a bunch of insurance companies are systematically failing to pay out overhead and profits money regardless of who does the repair work – and they are outright refusing to pay up when confronted on the issue. Hence the need for attorneys to step in and protect the rights of Joe Public.
This is despite the fact the Texas Department of Insurance has repeatedly instructed insurance companies to pay overhead and profit or face penalties, and that a lawsuit centered on the same issue in Oklahoma recently passed a $130 million verdict against Farmers Insurance for their failure to pay overhead and profits to consumers in that state.
The law is quite clear on this issue. It is just a shame that the only way consumers who diligently pay their property insurance premiums can actually recover the damages they are owed is by hiring a lawyer. The Texas Department of Insurance needs to step up and start enforcing this issue – not just be content issuing warnings every so often.