Actual Cash Value and the Delay/Denial of Contractor’s Overhead and Profit

If you own property you likely have a property owners insurance policy. The policy likely contains a replacement cost clause. The policy will also likely define what is a covered loss and how replacement costs are calculated. Examples of typical covered losses are hail damage, fire, and other perils.

Pursuant to the Colorado Division of Insurance Bulletin No. B-5.1, the actual cost value of replacing a dwelling or portion of a dwelling (i.e. roof), when a contractor is used to perform the work, is the full cost of replacement including overhead and profit less appropriate deductions for depreciation. It is important to realize, bulletins are the Division’s interpretation of existing insurance law or general statements of Division policy but these bulletins are neither binding nor final determinations of issues or rights. However, these bulletins are persuasive and can be indicative of rights under an insurance policy.

Typically, these insurance policies will contain language similar to “Insurer will pay the actual cash value of the damage to the dwelling, up to the policy limit, until actual repair or replacement is completed.” Based on a simple reading of this policy clause an owner may assume, for example, a hail damaged roof should be covered under the policy and entitling the owner to have the roof replaced. (Additionally, a property owner would need to hire a contractor to perform the work.) A contractor would provide a bid to replace the roof and the bid would include overhead and profit (generally a 20% markup is customary). The work performed by the contractor will be paid for by the Insurer under the property owner’s insurance policy.

However, some Insurers interpret the very same policy clause very differently and use a different calculation to determine the actual cash value to replace the roof. This interpretation has led to many property owners being denied coverage for the actual cash value of their claims. Insurers have interpreted such language to exclude contractor’s overhead and profit, as well as depreciation from replacement cost when calculating the actual cash value. Essentially, Insurers would pay for the construction repairs excluding any amounts for overhead and profit of the contractor who will be performing the work. If the Insurer’s interpretation of the clause was accurate a property owner would be hard pressed to find a contractor willing to complete a construction project without entitlement to overhead and profit.

Insurers may not deduct overhead and profit when calculating the actual cash value to replace or portion of a dwelling.

If your insurance claim has been delayed and/or denied or you would like more information about this insurance issue contact Milo D. Miller Law Group, P.C. at 720-306-7733.

Methods to Obtain Payment for Construction Services Under Colorado Insurance Law

Construction lawyers often evaluate insurance policies for a variety of reasons including covered risks, uncovered risks and possible avenues for recovery for their clients.  One need not be covered by an insurance policy in order to successfully sue an insurance provider.  Contrary to the common belief, insurance companies may vulnerable to suits filed by a wide range of individuals and entities beyond the actual policy holder.

Vendors such as construction contractors who contract with property owners (homeowners, HOAs, REITS) may qualify as “first party claimaints” allowing them to obtain recovery from the property owner’s insurance company for work the vendor provides in correcting a covered property loss claim.  At least two Colorado Courts have found that vendors who have provided construction services for an insured property loss to be first party claimants under the property owners insurance policy.

Beside the potential of a claim by an insured who purchased the insurance policy, the path for potential claims has been statutorily opened up for an expansive class of plaintiffs categorized as “first party claimants” through Colorado’s “statutory bad faith” statute.  The definition of a “first party claimant” is broad and includes “a person or entity that asserts a claim ‘on behalf of’ an insured.”  Hence, an independent third party, such as roofing contractor, who has no contract with an insurance company, may be permitted to sue that insurance company for contractual breach “on behalf of” a homeowner or condominium association with whom the insurance company did have a contractual relationship when the roof repairs were commissioned.

This means the insurance company providing the policy may be obligated to pay for the construction vendor’s services, and additional statutory damages equal to double the denied benefit, and attorney fees. These remedies may be available under Colorado’s “statutory bad faith” statute, § 10-3-1113, 1115 and 1116, which provides relief where an insurer unreasonably delays or denies the benefits owed.

In addition to pursuing statutory bad faith claims, an insured or a contractually-uninvolved third party may utilize another well-established avenue for legal action, specifically, a straight forward breach of contract action.  A breach of contract claim is viable as long as there is a valid assignment of claims from the insured to the third party.  However, there is a caveat arising out of the law of assignments: the insured cannot assign the actual policy that was contractually entered into with the insurance company; what is assignable is the right to receive money due or to become due under the existing contract.   Every case is unique and should be evaluated by an attorney experienced in insurance and construction claims.

For more information, contact the Milo D. Miller Law Group, P.C. at 720-306-7733.

Making Insurance Carriers Pay for Property Damage

Recent hail storm events have caused significant property damage to homeowners in Colorado, and many are having difficulty getting property insurance carriers to pay for roof and siding damage or losses to their homes or common interest communities.

Colorado law provides homeowners with significant rights and remedies when insurance carriers unreasonably deny or delaying paying homeowners for losses.  In Colorado, an insurance carrier that unreasonably delays or denies a claim can be held liable for twice the amount of the covered benefit and payment of a homeowner’s attorney fees.  Additionally, Colorado recognizes claims against insurance carriers for damages due to an insurance carrier’s breach of contract, bad faith conduct and violations of the Colorado Consumer Protection Act.

Should you have any questions about your policy or the manner in which your insurance carrier is handling your claim, contact the Milo D. Miller Law Group, P.C. at 720-306-7733

What is an “Act of God”?


September Rain Storm Floods Stapleton’s Westerly Creek

In light of the recent flooding in Colorado some builders have taken the position that water damage to homes is an “act of god” and deny they are responsible for making repairs to the home.  The builders apparently rely on the theory that flooding is a natural event that cannot be controlled and the builder is not responsible for damage that water causes to homes.

Black’s law dictionary defines as “act of god” as follows:

“A natural event that causes loss. No human force is used and the event cannot be controlled.  An overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”

When homeowners are faced with circumstances where a builder or insurance company denies responsibility for water damage, it is essential to determine what actually caused the damage.  It may be that the homeowner is entitled to relief from the builder or insurance carrier because the damage may not be due solely to uncontrollable acts of nature.

Often, builders fail to establish proper grading and drainage to allow water to flow away from the structure of the home.  This can result  in water intrusion into the home  entering window wells, through basement walls and into crawl spaces.  If the builder fails to establish proper grading/drainage and the cause of the water intrusion is the improper grading and drainage, the builder’s reliance of the “act of god” defense may be inappropriate.  This is because the water intrusion and resulting damage may be caused by the builder’s failure to use proper construction techniques and not a natural, uncontrollable “act of God.”

Similarly, some insurance companies may deny claims under the theory that water damage was caused by a flood and, in the absence of flood insurance,  that insurance carrier does not have a duty to provide the property owner with benefits to correct the resulting water damage.  Here again, the analysis needs to focus on the cause of the water damage.  The cause of the water damage may not be the natural flood event.  Rather, the cause of the water damage may be the result of a failure to adequately design or construct the property in such a manner that would have prevented the water from entering the home or other structures.

For more information, contact Milo Miller of the Milo D. Miller Law Group, P.C., at 720-306-7733, or [email protected]