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Legal Considerations

Module 4, Lesson 4

The Legal Framework Around Insurance Claims

Important Disclaimer

This is general information, not legal advice.

For specific legal questions, consult with a licensed attorney in your state.

Understanding the legal framework helps you operate more confidently and avoid common pitfalls.

The Contract Structure

Contract #1

Insurance Policy

Between homeowner and carrier. Defines coverage, exclusions, and claims handling. You're NOT a party to this contract.

Contract #2

Work Authorization

Between you and homeowner. Authorizes work and may assign insurance benefits. This governs YOUR relationship.

Assignment of Benefits (AOB)

What is AOB?

When the homeowner assigns their right to receive insurance payments to you.

Allows you to bill and receive payment directly
Regulated differently in different states
Gives you standing to pursue payment
Does NOT change what the policy covers

Know the AOB laws in your state. Ensure your forms comply.

Billing Accuracy & Fraud

Insurance fraud is a serious crime with serious consequences.

Criminal charges
Civil liability
Loss of contractor's license

This course is about getting paid fairly for legitimate work—not inflating or misrepresenting anything.

Mechanic's Liens

A Powerful Collection Tool

Gives you a secured interest in the property for unpaid work.

Rules vary by state
Requirements for preliminary notices and timing
Used when homeowner doesn't pay—not when insurance doesn't
Your contract is with the homeowner

Learn the lien rules in your state and follow them carefully.

Dispute Resolution Options

Informal Negotiation—back-and-forth with adjuster or supervisor
Appraisal—each party selects appraiser, panel determines value
Mediation—neutral third party helps reach agreement (non-binding)

Dispute Resolution (Continued)

Arbitration—private proceeding with binding decision
Litigation—filing lawsuit in court (most expensive option)

Most disputes are resolved through informal negotiation—it's faster and preserves relationships.

Bad Faith

When carriers unreasonably deny or delay valid claims

Can result in damages beyond the original claim, including attorney fees and sometimes punitive damages.

Signs of potential bad faith:

Unreasonable delays with no explanation
Denials without stated reasons
Failure to investigate the claim
Misrepresenting policy language

Regulatory Compliance

Contractor licensing requirements
Consumer protection laws
Insurance regulations
Requirements for written contracts
Restrictions on AOB
Rules about contractor advertising
Requirements for handling customer funds

Stay current on regulations in your state. Requirements change.

Documentation = Legal Protection

If you ever face a dispute, your documentation is your evidence.

Photos, logs, authorizations, communications
Keep complete records
Maintain them securely
Retention policy: at least the statute of limitations period

Coming Up Next

Lesson 4.5: Public Adjusters

What public adjusters do
When they add value
How to work with them
Potential issues to watch for

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End of Lesson 4.4

Legal Considerations

See you in the next lesson!