$$$ Paid but No Work Done Yet $$$ Spent!!!

[ChrisTechMech]

I live in Ohio and had wind damage to my fence and roof. I filed a claim with my HO insurance. I received a check in my name and the contractor's name for about $7000. The fence was repaired and the contractor was paid $980. Due to scheduling conflicts, we never replaced the roof and in the meantime I spent the money (during hard times). The insurance company informed the IRS that the contractor was paid $7000 but in fact he only got $980 per the work he did. I was told by a builder friend of mine that if I told the insurance company that he didn't do the work, the insurance company would likely drop me. I intend on having the roof replaced this summer (probably by myself, I'm qualified) but what do we do about this situation in the meantime. The contractor called me because he obviously doesn't want to be taxed for money he didn't receive. Thank you.

 

[joshb]

So did you not repair the damaged roof? If you pocket the money after filing a claim, that was given to you to repair your home, that's considered insurance fraud, whether it was your intention to defraud them or not. Also, keep in mind what do you think the insurance company would say if you received more damage? There not going to pay it, and you'll be out of pocket on that.

 

[ChrisTechMech]

Thanks for the response. I hadn't considered that. I will fix my roof. I guess I'll need to pay the income tax on it myself then.
- - - - - - - - - - - - - - - - - -
Another question though. My ins. company wants me to write a notarized letter stating that my contractor hasn't done the work and won't be doing it. If I do that, are they likely to drop me? This was a dumb mistake I made but want to get this roof fixed and don't want to screw the contractor.

 

[joshb]

They will probably drop you, but thats the least of your concerns in my opinion. I don't know the ramifications of collecting money, and not repairing anything in your state, but I assume, they can go after you for that money back. I would get it done as soon as you can.

 

[djs]

So did you not repair the damaged roof? If you pocket the money after filing a claim, that was given to you to repair your home, that's considered insurance fraud, whether it was your intention to defraud them or not. Also, keep in mind what do you think the insurance company would say if you received more damage? There not going to pay it, and you'll be out of pocket on that.

Nope, not insurance fraud. You suffered the loss, you are entitled to the check. It is mortgage fraud (well, not technically) since there is a mortgage on the house (2 party check) and repairs weren't done. It is part of the mortgage to keep the house in good repair.

Now, you are out probably a second check from the insurance company. Usually they pay ACV till the repairs are done, then pay replacement cost.

Also, to you, there should be no taxes due because you were reimbursed for a loss, not paid an income. The contractor needs to get this corrected with the insurance company/IRS, but apparently he wasn't actually paid the money so he shouldn't pay the taxes either. Don't let him bully you into paying the taxes, even though he apparently did you a favor by signing the check over to you.

You do need to get your roof fixed though. Yes, they will non-renew the policy if it isn't done. They also won't pay a weather related claim (if its at all associated to the roof) if the roof repairs aren't done.

Yes, we all fall on tough times somedays. That money was to repair the roof, not for you to spend on other things. I won't pass any judgement since I don't know the situation, but hopefully it wasn't done as easily as it sounded in your post.

Dan

 

[joshb]

I disagree Dan, Filing a claim for the roof, collecting money and spending it on other things, sounds like insurance fraud to me.

it sounds to me like, he needed money, due to tough times, and saw the insurance company as an easy route for claim money. This is common, and unfortunately, I consider this insurance fraud. I'm not trying to pass judgement, but just giving my 2 cents.

 

[joshuapaccione]

Not insurance fraud. No different than your car insurance company writing you a check for damage done to your car and you not fixing it. The car insurance company does not care if you fixed it. You had a loss, you filed for a loss and received payment. What you do with the money should be to fix the damage but not fixing it and pocketing it is none of their concern.

Read your policy

 

[joshb]

Again, I disagree, and I just pulled out the policy, and it states the insured has X amount of days to enter into a contract for the repairs etc. after receiving the first payment. Ya'll must have a different interpretation of what insurance fraud is, but being in the insurance fraud capital, we consider this insurance fraud. Our companies have clinics on insurance fraud, for what to look for etc. and this is a topic brought up at EVERY meeting. If our carriers consider it insurance fraud, so do i. Filing a claim, and not repairing the damage is a serious issue, atleast down here. This past year we had several cases like this, and if the company is unable to obtain the proof of repairs, they send me a notice letting me know that I need to contact the insured within X amount of days, or they will cancel the policy with 120 days notice. I am working with a customer right now, who did not complete the repairs on a fairly large claim (and has told us several times, she does not plan on repairing the home, because she spent the 40K on her daughters wedding), and the insurance company, has sent this to their legal department to handle it from here.

 

[djs]

Josh - I agree it is a sign of insurance fraud. People damage stuff themselves so they can get a payment from the company, absolutely, that is fraud.

Without something like a roof being repaired, it leaves a big opportunity to create a bigger future claim. Insurance companies will automatically non-renew these policies, and should.

Spending $40K on your daughters wedding, having 'tough times', etc are all signs of insurance fraud, but by themselves are not insurance fraud. There is usually no requirement that you rebuild/replace after a loss, from the insurance side (except to get replacement cost coverage, rather than ACV). Mortgage company on the other hand, zoning laws, and a variety of other things may require this.

So basically, I'll meet you half way. It is a huge fraud indicator.

Dan

 

[tjeyoyo]

Definitely not fraud. The policy is designed to prevent fraud - pay ACV until the work is done and then pay RC. There may be a lack of communication since the check was made out to the contractor and the insured it would be assumed that the work is being done. The contractor may have to pay tax on this since he got the check. Unfortunately he signed it over to the insured so whether or not he can expense that on his financial statements is between he and his accountant. Just because the insurance company gives him a 1099 doesn't mean he has to pay taxes on it. My agency (LLC) gets all kinds of 1099's. I don't even look at them. I pay taxes based on my financial statements generated in my agency management system.