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Question DetailsAsked on 6/5/2017

Is my contractor intitled to my recoverable depreciation for the work he did here in VIRGINIA

He accepted the job for a certain amount of money, submitted supplemental requests to be paid for additional work, then told me he also wanted the recoverable depreciation. I did not know what this was until I looked into it. I saw on the original contract he had me sign that he gets this. The job was over $100,000 ans when you come home to find your home destroyed, it's hard to understand everything going on. Am I legally bound to give him my recoverable depreciation money that I paid an Insurance company for? I want to be fair and legal.

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If he accepted the job for a specific fixed $ amount (plus any authorized change orders for additional, presumably outisde of the insurance claim, work) - then unless the contract specifically states that he is also due the recoverable depreciation amount, then no - he agreed to a specific price and that is the contract term. If the depreciation amount (whatever you recover) WAS included in the contract, as it sounds like, then yes he is due it.

Course, you could always (with an attorney) argue that you did not understand what that term entailed hence did not intend for that to be an additional payment, on the basis that the contract should not be binding on that matter because there was no "meeting of the minds" - both parties understanding what the contract was getting you into.

However - almost always your insurance policy (and in most cases state law too) stipulate that you cannot "make money" on a claim - the claim should cover your reasonable loss expenses, but you should end up (net out of pocket) paying your deductible, and any claim settlement amounts which are in excess of what the contractor charges have to be returned to the insurance company.

Of course, most contractors dealing regularly with insurance claims (siding and roofing and auto body damage especially) put in their contracts that they are to receive the full settlement amount, including recovered depreciation, plus the deductible, so as to not leave any money on the table. Is inherently a crooked system in that respect and prone to insurance adjuster/contractor/homeowner fraud - insruance companies could save a lot of money if they required competitive bids and took the lowest responsive bid and held contractors to that.

BTW - it is also generally illegal for the contractor to offer to "cover your deductible" so you end up not pahying that out - that is generally held to be insurance fraud, but an amazing number of contractors bump up their bid by the deductible amount to do that.

A bit of explanation - insurers (especially on home claims) commonly pay in two parts - first being the value of the damaged portion right before the damage occcured, so a value that takes into account the depreciation of the property over time. So for a 20 year old 30-year rated shingle roof being replaced for hail damage the first part would be for 1/3 of the roof value - the undepreciated remaining life. This is commonly paid up-front (minus your deductible), either to you or direct to the repair company, as a down payment. If you have depreciated value insurance, that is all you get - the rest of the loss is out of your pocket.

However, if you have replacement value insurance (at tuypically 10-25% hjigher premium cost), then the coverage should "make you whole" - pay to repair it to like materials and finishes as original. They commonly still pay the remaining value up front (or sometimes half), then upon repair completion pay you the remainder - commonly the recoverable depreciation or some similar term - so the initial depreciated value plus the recoverable depreciation plus your deductible combined should equal the cost of the repair - in theory.

You can sometimes choose to accept the settlement amount in case and get the work done on your own (which means you may come up short if you did not have binding bids to match that amount) and in that case the insurer will generally after the repair is done demand proof of payments to show you did not make money on the situation - and also that you actually got the repair done.

Alternatively, many contractors (especially siding and roofing) who routinely deal with insurance company claims will sign a contract stating they will accept (sometimes with a minimum $ amount stipulated) the insurance payments the insurer agrees to plus your deductible (which is your out-of-pocket share) as full compensation for the repair under the contract. Of course, in that instance they generally want to be intimately involved in the damage appraisal/insurance adjustment process to be sure they get the claim amount up to what they are happy with (or more).

Sounds like this last instance may be your case - in which case the depreciation value payment would just be part of the overall compensation for the repair/replacement funded by the claim, and legitimately (both under fairness and legally under the contract) be his, and indeed if he did not get it would likely have to be refunded to the insurer.

Answered 3 years ago by LCD

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