I often obtain calls from policyholders or their contractors saying that an insurance coverage firm is not going to transfer ahead with the declare adjustment or cost course of until they’re supplied with documentation such because the contractor’s materials provider receipts, worker labor charges, or revenue margin particulars.
Is an insurance coverage firm entitled to this third-party documentation?
Many insurance coverage insurance policies include cooperation clauses that require the insured to offer information and paperwork requested by the insurer, so long as the request is related and made in good religion. For instance, monetary paperwork could also be requested when the insurer suspects fraud in reference to a declare; in such situations, the insurer wants solely religion perception that fraud is feasible to justify the request. Nevertheless, the cooperation clause doesn’t mechanically lengthen to paperwork exterior the insured’s possession, custody, or management, until the insured has a authorized proper to acquire them from a 3rd occasion. 1
Understandably and justifiably so, from a enterprise perspective, a contractor doesn’t wish to share their proprietary or trade-secret data exterior their firm. Offering detailed enterprise information might result in aggressive disadvantages and even unfair denials primarily based on an insurance coverage firm’s arbitrary pricing thresholds. A contractor’s markups, margins, and provider agreements are a part of their enterprise mannequin and should not topic to third-party audits, particularly from a non-client insurance coverage provider.
So why are some insurance coverage carriers attempting to demand the sort of proprietary data from contractors?
From the provider’s perspective, they’re obligated to indemnify the insured and keep away from overpaying. They could argue that they want proof of “affordable and obligatory” prices underneath the coverage and want to stop worth gouging, overinflated estimates, or potential fraud. By scrutinizing provider invoices, labor charges, and revenue margins, insurers might consider they will confirm that proposed repairs mirror honest market worth and business requirements. Some carriers may additionally level to regulatory necessities or inside auditing pressures that demand thorough documentation for declare funds. Whereas the provider might have a justifiable argument, it should even be balanced in opposition to contractors’ rights to confidentiality and policyholders’ want for immediate, equitable declare decision.
When insurers delay adjustment or cost as a result of a contractor refuses to reveal inside enterprise information, it’s the policyholder, not the contractor, who’s harmed. Policyholders need their property fastened by the contractor of their selection, wish to be correctly indemnified by their insurance coverage coverage, and need well timed completion. They shouldn’t be held hostage over the submission of irrelevant paperwork.
What’s one of the simplest ways to cope with this case?
Stay keen to reply clarifying questions that don’t breach confidentiality or transcend authorized or contractual necessities. Nevertheless, you aren’t required to reveal inside enterprise bills until your contract requires it. You possibly can (and will) present detailed estimates of scope and worth, however that’s completely different from handing over your monetary books.
Whereas due diligence is suitable, demanding proprietary information from third events could also be seen as overreach and dangerous religion, particularly if it ends in declare delays. The cooperation clause doesn’t entitle an insurance coverage firm to data exterior of the policyholder’s possession. If sure documentation is unavailable, settle for affordable alternate options, resembling itemized estimates, summaries, or consultant invoices—particularly when these are supported by business requirements and market charges.
Push again on pointless delays. Your insurer’s responsibility is to you—to not micromanage your contractor’s inside accounting. In case your insurer calls for third-party paperwork, require them to determine the exact coverage provision or authorized foundation for his or her request and to elucidate why the data is related to your declare. In case you consider your insurer is asking for data exterior your settlement, take into account consulting a public adjuster or contacting our workplace for those who face resistance.
Most significantly, whereas contractors should not beholden to insurance coverage firms, the very best outcomes occur when insurance coverage firms, contractors, and policyholders every respect correct boundaries whereas working collectively to rebuild lives, not boundaries.
1 See, e.g., Safeco Ins. Co. v. Blue Sky Innovation Grp., Inc., 230 N.E.3d 898, 907-08 (Ind. 2024) (holding that contractors and third events haven’t any responsibility to protect or produce proof for others absent a particular relationship or contract, and rejecting broad duties primarily based solely on an insurer request); Templin v. Grange Mut. Cas. Co., 81 Ohio App.3d 572, 577-78 (Ohio Ct. App. 1992) (holding that the insured met the insurance coverage coverage’s cooperation clause the place he produced all paperwork in his possession and defined the absence of others not inside his management).