Posted On October 26th, 2015 by Angela Falco
CALM BEFORE THE STORM? A DISCUSSION AND ENDORSEMENT OF THE MODEL STORM CHASER CONSUMER PROTECTION ACT
By Nicholas D. Hornung
Insurance fraud is a growing and alarming problem occurring every day and in every state, especially Arkansas. From staged automobile crashes to fake automobile thefts to arson, there are a multitude of ways for criminals to fraudulently collect proceeds from insurers. However, one area of insurance fraud that receives little attention and affects those who are most vulnerable is contractor fraud. While Spring is a wonderful time of year in Arkansas, it also brings severe weather and an increased number of storm loss claims. As a result, some contractors travel around the country looking for damaged homes following the night of a storm, offering to fix a home or structure, receiving a down payment for the work, and never completing the job. Thanks to a proposed model law by Arkansas Senator Jason Rapert, there may be more rules and regulations passed by state legislatures throughout the country to protect both insurers and insureds against this type of fraudulent conduct.
At the National Conference of Insurance Legislators (NCOIL) Summer Meeting this past July, Senator Jason Rapert co-sponsored a proposed model law entitled the Storm Chaser Consumer Protection Act (the Act). According to a pre-meeting memorandum distributed by NCOIL Executive Director Susan Nolan, the Act would establish minimum standards for roofing contracts and would: (1) require various disclosures, including an approximate cost estimate; (2) allow a consumer to cancel the contract if the consumer’s insurer denies all or part of the claim; (3) require a contractor to return any payments or deposits that the consumer made to the contractor except for costs of providing emergency services if the consumer cancels the contract; (4) require contractors to maintain certain insurance coverages; (5) establish contractor prohibitions, penalties, and licensing requirements; and (6) allow certain exemptions – such as farm and residential property owners doing work on their own premises. Representative Rich Golick (GA), who co-sponsored the model law with Senator Rapert, urged fellow lawmakers to support the draft, and noted contractor fraud “increases overall costs, takes business away from reputable contractors and ultimately drives up insurance costs.” The Act was subsequently and unanimously adopted by NCOIL at the Summer Meeting.
The Act contains 14 sections. Section 2 states the purpose of the Act is “to establish minimum standards for roofing contracts and to promote fair and honest practices in the roofing services business.” Section 3 defines various terms in the Act including “Consumer,” “Contract,” and “Contractor.” Section 4 requires a written contract for any services undertaken specifying various details such as, inter alia, an itemized description of the work, a total itemized amount agreed to be paid for the work to be performed, and a conspicuous provision notifying the insured the contract may be canceled at any time within three business days pursuant to §§ 5 & 6. Under § 7, any contractor who wishes to perform roofing services must register and apply with the appropriate governmental body, thereby providing greater oversight that the contractor is in good standing. Section 8 requires a contractor to obtain and maintain, inter alia, Workers’ compensation insurance, public liability insurance, and bodily injury insurance. Section 9 establishes the penalties for contractors who fail to abide by the Act. Section 10 prohibits and regulates certain contractor conduct such as advertising, referrals, and methods of payment. The final substantive section is § 11, which exempts certain parties from the Act such as residential or farm property owners who decide to repair damaged property themselves and governmental employees or representatives performing services upon government property.
As the upcoming Arkansas Legislative session is a fiscal one, the earliest the Act, or a similar piece of legislation, could be submitted as a Bill would be 2017 during the 92ndGeneral Assembly. In the meantime, other states may adopt the Act, and some states like Arizona, Colorado, and Indiana have already approved measures to increase consumer protections against roofing contractor fraud. In the interest of both insurance companies and Arkansans, I think it would be wise for Arkansas to do the same and ask the Arkansas Association of Defense Counsel’s legislative Committee to look into the matter.