The Roofing Insurance Claims Process in Texas

New Texas Law Regarding Deductibles Payment

Before we get into the claims process and the specific language of insurance claims, it’s important to point out information about a new law regarding roofing insurance claim deductibles. This relatively new state law makes it clear that it’s prohibited for a roofing contractor to waive an insurance coverage deductible. “This new law will further assist in securing Texas consumers,” stated Texas Insurance coverage Commissioner Kent Sullivan. “Roofing professionals who waive deductibles are cutting corners. Take your service in other places.” After a significant storm, specialists including some scammers are quick to show up on the scene.

The Texas Department of Insurance coverage created a unique scam system that notifies local officials after a disaster and explains steps they can take to protect locals from professional frauds. One selling point bad professionals frequently utilize is offering to waive or soak up the homeowner’s deductible. The disreputable company then cuts corners, uses lower quality products, and/or pumps up the costs sent out to the insurance provider to cover the difference.

HB2102 is the new deductible law, which is not an entirely new law, but rather an explanation and more carefully-worded variation of the deductibles law that has been around for years. It is a win for respectable professionals as it will penalize companies who waive or otherwise don’t collect insurance coverage deductibles from their clients.
Under the new law which became effective September 1, 2019, violators could get up to a $2,000 fine and up to 6 months in prison.

What can you do if one of these companies tries to solicit you, or offers to waive your deductible? Here are six things you can do to protect yourself:

• report it to the Texas Chief law officer’s Customer Protection Hotline at 1-800-621-0508.
• get written quotes on business letterhead with clear contact info
• look at referrals and phone numbers
• beware of those who only have out-of-town references or who sell only door to door
• do not pay completely in advance and don’t make a final payment up until the job is done
• never sign a contract with blanks on it

The law requires all property owners to pay their insurance deductibles.

On the bright side, this law offers property owners the liberty to invest their deductibles in installation terms. This liberty favors people who can not pay for the whole amount at once.

The roofing professional will likewise face charges if they, pay the homeowner’s deductible, overcharge the deductible amount, keep the insurance coverage deductible to themselves, refund any quantity that must become part of the insurance coverage deductible.

The focus of the new law is to protect property owners from fraudulent roofing professionals. Some homeowners spend a lot of money on botched jobs and lose their insurance money to dishonest roofers who don’t even finish the roof job.

Roof Insurance Claims Terminology

Deductible – a specified amount of money that the insured must pay before an insurance company will pay a claim. If your deductible is $500 and the value of your claim damage is $7000, then the amount the insurance company will pay in this instance is $6500.

Base Service Charges – charges associated with compensating your contractor for setup and travel expenses.

Replacement Cost Value or RCV – RCV is the maximum amount your insurance company will pay you for damage to covered property before accounting for reimbursable depreciation. This is based on a homeowner using qualified, licensed, and insured contractors and the current cost to replace your property with the new, identical, or comparable property.

Depreciation – Depreciation is the loss in value of your roof due to wear, age, or deterioration. As an example, if your roof is warrantied for 40 yrs and been in place for 10 yrs the depreciation would be 25%.

ACV (Actual Cash Value) – Although there is some ambiguity (from a legal standpoint) about the definition of ACV, the generally accepted definition is the cost to replace with new property of like kind and quality, minus any realized depreciation.

ACV Settlement – The ACV settlement is the replacement cost value minus the depreciation and minus the deductible.

Recoverable Depreciation – the portion of the depreciated amount that you can get back or “recover” from your insurance company when you make a claim on a policy with replacement cost coverage. Such claims will generally be paid by the insurer in two parts.

Understanding Actual Cash Value vs. Replacement Cost Value

Because of serious storms in recent years, (including serious hail storms in Texas last year), some insurance companies have moved to initially offering Actual Cash Value (ACV) rather than (Replacement Cost Value) RCV in their new policies.

To put it succinctly, Actual Cash Value is when your insurance company only pays for what your roof is worth at the time you filed your claim. Actual Cash Value roof insurance will consider your roof’s age and condition before determining how much it will reimburse you for any damage, taking into account how much your roof has depreciated since it was installed.

On the other hand, Replacement cost coverage (RCV) doesn’t take into account depreciation and instead pays the entire cost for the replacement of your roof after a covered event. This type of coverage costs more than actual cash value, but it means you won’t have to pay any more than your deductible if something were to happen.
If you have an older roof, and your policy is an actual cash value policy, it’s likely you’ll not receive enough to replace your roof.

So What About Recoverable vs. Non-Recoverable Depreciation?

In addition to considerations about ACV and RCV, your policy can have either recoverable or non-recoverable depreciation. Many homeowners ask us about the process to recover depreciation from their insurance claim. It’s important to know whether your policy includes recoverable or non-recoverable depreciation.

Most of the time, deprecation in Texas insurance policies is recoverable. There are some occasions where it is non-recoverable. I.E., if the policy owner has an Actual Cash Value Policy, or if the repairs/replacement were not done before a certain deadline or some other similar circumstances. Be sure to check if your policy includes recoverable depreciation, by looking at your insurance adjustment, or on your insurance declaration page or other places in your policy.

If your policy includes recoverable depreciation then you will need to spend the amount that your insurance adjustment indicates as the Replacement Cost Value (RCV) of the repairs/replacement in order to receive the full recoverable depreciation.

A copy of our invoice is then submitted to the insurance company, which declares the work has been completed. Then the insurance company will release the recoverable depreciation to you. The invoice may indicate any payments, however, the total payments and remaining balance must equal the Replacement Cost Value (RCV) in order to receive the total available recoverable depreciation. The insurance company will only send you the recoverable depreciation that you are invoiced for – they do not reward their insured’s for saving money.

As an example:
Your home is insured for $200,000 and has a roof totaled from a West Texas storm. The cost to replace the roof (Replacement Cost Value) is $20,000. Let’s say the roof is 15 years old and the policy owner’s deductible is 1% of the insured amount ($2,000).

The full replacement cost of the roof is $20,000.

Let’s say the insurance adjuster “depreciates” the roof 50% (we’re just picking an arbitrary amount) based on its age. The Actual Cash Value of the roof is now $10,000. The recoverable depreciation also happens to be $10,000 ($10,000 replacement value less $10,000 Actual Cash Value).

In this example, the policy owner’s deductible is $2,000.

The insurance company will initially make a payment to the policy owner for $8,000. They arrived at $8,000 because the actual cash value is $10,000, and they withhold/deduct the deductible amount of $2,000.

Jones & Associates will then perform the work, and the policy owner will make a payment of $10,000. The $10,000 comes from the $8,000 that insurance company already paid, and the $2,000 deductible.

Once the insurance company has the final invoice for the full Replacement Cost Value (RCV) they will release $10,000 of recoverable depreciation which will then be paid to Jones & Associates to get the actual cost of roof replacement. This includes the recoverable depreciation of $10,000, the initial payment from the insurance company of $8,000, and the homeowner’s deductible of $2,000, totaling the $20,000 full roof replacement costs.

Examples of Actual Cash Value and Replacement Cost Value For Roofing Insurance Claims In Texas

Now that you understand both the vocabulary of roofing insurance claims and differences in policy types, let’s apply this to a couple of specific examples for clarity. In our first example, we’ll look at an Actual Cash Value (ACV) replacement policy, and in our second example, we’ll look at a Replacement Cost Value (RCV) policy.

Claim example: $10000
Base Service Expense/Charge: $250
Subtotal: $10250
Minus Depreciation: $3000
Subtotal: $7250

Minus Deductible: $1000
Subtotal: $6250

Payout for ACV: $6250

Now let’s look at the same numbers for an RCV policy.

Claim example: $10000
Base Service Expense/Charge: $250
Subtotal: $10250

Minus Deductible: $1000
Subtotal: $9250 This is the most the insurer will pay for the claim

Actual Cash Value of Loss: $8000
The first check would be for: $7000 (ACV minus the deductible)

Once the repairs have been completed, with proper receipts and documentation, your expenses above the ACV (in this case $8000), will be distributed in a second check, up to, but not exceeding $10250.

It’s important to note that it is the responsibility of the insured to prove an insurance loss. This means that the adjuster is not obligated to find some level of damage, and busy adjusters can sometimes miss items that might initiate a claim that would otherwise not be a covered loss. That’s why we recommend you call Jones & Associates before you call your insurance adjuster to look at the roof. We have decades of experience and great working relationships with most insurers to help ensure you get the most favorable outcome.