Contractor Fraud Bills Clear Three State Legislatures

Three state legislatures have passed legislation targeting unscrupulous contractors who take advantage of homeowners who have suffered damage from a significant storm.

Indiana and Nebraska recently passed bills focusing on the issue, and in February South Dakota sent a similar bill to the state's governor. Five other state — Arizona, Colorado, Iowa, Kentucky and Tennessee — have introduced their own version of contractor fraud legislation.

The bills passed in Indiana (HB 1237), Nebraska (LB 963) and South Dakota (SB 145) provide for notices and contract termination rights and prohibit rebating or other compensation to induce consumers to enter into contracts.

Robert Passmore, senior director of personal lines policy at the Property Casualty Insurance Association of America, said the recent spate of contractor fraud bills may have been spurred on by the historic number of storms that occurred in 2011. Passmore said what typically happens in the wake of a storm is some contractors go to homeowners to sell them on getting a new roof, regardless of whether the storm caused damage to their roof.

"The problem with this kind of fraud is that it creates a serious customer service problem for insurers," Passmore said. "While the insurance companies are going out and inspecting these roofs that have no damage, they aren't helping other companies that may have significant damage to their own. That costs time and money that would be better spent elsewhere."

Passmore said it can also cause problems for the insurance company in situations where the homeowner has entered into a contract with the roofing contractor but the homeowner's insurance claim is denied. "That leaves the customer very upset because they have to pay for a roof they didn't need in the first place," Passmore said.

Last year, the Iowa Legislature passed a bill that expanded cancellation rights for homeowners, including a mandate that contractors provide customers with written notice of their right to cancel. The legislation also barred contractors from acting as a legal representative with a homeowner's insurance company (Best's News Service, April 21, 2012). The bill passed both chambers but has not been signed by the state's governor yet.

In 2010, the top five writers of homeowners multiperil policies in the United States were: State Farm Group, which had a market share of 23.53%; Allstate Insurance Group, with 9.68%; Farmers Insurance Group, with 6.53%; Liberty Mutual Insurance Cos., with 5.26%; and Travelers Group, with 4.64%.

(By Jeff Jeffrey, Washington Correspondent: [email protected])