The Challenge of Getting Paid on a CAT Job

When catastrophe strikes, restoration companies are on the front lines, helping communities rebuild and recover. Unfortunately, despite restorers being the first on-site and helping put put the community back together, they are also among the last to get paid. Moreover, restorers face significant legal challenges and payment issues that can impede their operations and financial stability. This article will discuss the various reasons for payment issues restoration companies face in the aftermath of a catastrophic event (CAT).

Delayed Payment

One of the most pressing issues for restoration companies is the delay in receiving payments from insurance companies. Insurance companies often dispute the invoices submitted by restoration companies, leading to protracted negotiations or even litigation. These disputes can arise from disagreements over the scope of work, the cost of materials, or labor charges. These delays can create significant cash flow problems, affecting the company’s ability to sustain operations and pay its workers.

Documentation Challenges

Restoration companies must maintain meticulous documentation to justify their invoices. Insurers often use any lack of documentation as a reason to refuse payment. Therefore, ensure all your contracts are signed, change orders are properly entered, and maintain thorough written correspondence with the adjuster. We know that adjusters will scrutinize documents, so let’s stay ahead of it and protect your money.

Consultant Interference 

Insurance carriers frequently hire consultants to scrutinize and dispute the restoration costs. This “nickel and diming” approach can lead to prolonged disputes and financial strain for restoration companies. Consultants meticulously review the invoices and often dispute the costs of services provided, arguing that certain charges are excessive or unnecessary. This can lead to prolonged negotiations and delays in payment, affecting the restoration company’s cash flow.

Adjuster Delays 

Insurance adjusters are also overwhelmed after a catastrophe, leading to significant delays in adjusting claims. Restoration companies may complete their work months before an adjuster evaluates the claim, creating uncertainty and financial strain. In the immediate aftermath of a disaster, adjusters tend to be more agreeable during the state of emergency, recognizing the urgency and the need for prompt action. They may verbally agree to various restoration measures to mitigate damage quickly.

However, this cooperative spirit often wanes when it comes to finalizing payments. Once the initial crisis subsides and the urgency diminishes, adjusters become more critical and stringent in their evaluations. They might scrutinize every aspect of the restoration work, challenge the necessity and cost of certain measures, and hold back payments, using their control over funds as leverage to negotiate lower payouts. This shift from initial cooperation to rigid scrutiny can significantly delay payments and reduce the compensation that restoration companies and homeowners receive, exacerbating financial strain and prolonging recovery efforts.

Misclassification of Losses

Due to delays in adjusting claims, adjusters sometimes treat catastrophic (CAT) losses as non-CAT, leading to inadequate compensation. They may also challenge restorers on mitigation standards, affecting reimbursement rates. Misclassifying catastrophic losses can result in lower compensation that doesn’t reflect the extensive damage caused by the disaster, putting additional financial pressure on both homeowners and restoration companies. Insurers may argue that certain mitigation measures were unnecessary or excessive, leading to disputes and delays in payment.

Labor Cost Disputes

In the wake of a disaster, local hotels and accommodations are often booked solid with displaced residents. This leaves restoration companies scrambling to find lodging for their workers, many of whom must travel significant distances to reach the affected areas. The lack of nearby accommodations means that temporary workers often have to stay in hotels far from the disaster zone, adding long commutes to their already demanding work schedules. During disasters, labor is scarce, and workers may need to drive long distances to reach the affected areas. Insurers may refuse to pay for the extra labor hours and travel expenses, arguing that these costs are inflated or unnecessary.

Additionally, there needs to be some financial incentive for labor. Working in a CAT environment is far from ideal, so restorers often have to pay higher labor costs. However, carriers tend to overlook this necessity.

Lack of Communication

Effective communication with property owners, insurance companies, and other stakeholders is crucial, yet often lacking. Failure to communicate properly can exacerbate existing issues and create new ones.

In the chaos of disaster recovery, clear communication with property owners is essential. Misunderstandings and lack of updates can lead to frustration and disputes. Poor communication between restoration companies, adjusters, and insurers can lead to misaligned expectations and delays.

Insurance and Funding Issues

Many property owners are not fully aware of the specifics of their insurance policies, including what is covered and the extent of their coverage. This lack of knowledge can lead to significant challenges during the restoration process.

Property owners may find that their policies do not cover the full extent of the damage after the work is completed, leaving them with substantial out-of-pocket expenses. Policies with high deductibles can also pose a financial burden, as homeowners may struggle to meet these costs before insurance benefits kick in.

Safety Protocols

Safety protocols are essential to protect workers from hazards such as contaminated water and unstable structures. These measures require additional resources and time, which add to the cost of restoration. However, insurance carriers don’t always care to pay for these necessary safety measures. 

Over Promising 

While your intention to help homeowners is commendable, it’s crucial not to overpromise or sign every contract that comes your way. Keep an eye out for red flags, and remember your obligation to fulfill contractual commitments. Overpromising and failing to follow through can lead to lawsuits, which means money out of your pocket and damage to your reputation. Stay realistic about what you can achieve and ensure you can deliver on your promises.

My Advice for Restorers:

• Document, Document, Document: Keep detailed records of everything—contracts, change orders, pictures, videos, or texts. This documentation is vital for supporting your claims and protecting your interests.
• Emails with Adjusters Are Gold: Since everything about a catastrophe is out of the ordinary, your emails with adjusters can be invaluable in the event of a dispute. Keep thorough and organized email records.
• Prepare for Payment Delays: Be ready for the reality that you may not get paid for a while. Ensure you have the financial stability to handle all the jobs you sign up for without immediate payment.
• Protect your right to payment by keeping track of your lien deadlines. Using software like Need2Lien.com can help you manage these deadlines efficiently.

Keep up the great work! 

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