Tuesday, November 15, 2016

Avoiding Potholes on the Road to Growing Your Contracting Company

By Ben Tenenholtz

As a general contractor finds its customer base expanding, it may find itself conflicted between growing quickly or growing safely.  In an effort to grow the business, contractors should be cognizant of some commonly-adopted sales tactics that, while alluring, may, in fact, result in serious harm to the contractor and the viability of his or her company.
One of the most popular and dangerous sales tactics that some contractors engage in is offering to cover or rebate an insured’s deductible.  However, the Texas Business and Commerce Code provides that a contractor commits fraud if:

  1. it advertises or promises to supply the contracting goods or services and to pay or rebate all or part of the insured’s deductible;
  2. the contracting goods or services are paid for by its customer with insurance proceeds; and
  3. the contractor knowingly charges a fee higher than its usual and customary fee which then covers the amount of the deductible that the contractor agreed to cover or rebate.

TEX. BUS. & COMM. CODE § 27.02(a).  Furthermore, the contractor’s customer can also be guilty of fraud for submitting a claim under a property or casualty insurance policy based on charges that violate the provisions of Section 27.02(a). Indeed, the customer may even open him or herself up to criminal prosecution.  

Another common sales tactic is offering to represent a contractor’s customer in disputes or negotiations with the customer’s insurance company.  While it may be tempting to offer help to a customer, contractors should refrain from negotiating with insurance adjusters or from promising a customer that they will do so.  The Texas Insurance Code prohibits a contractor from acting as a public adjuster or from offering “to adjust claims for any property for which the contractor is providing or may provide” contracting services. TEX. INS. CODE § 4102.163. This means that a contractor cannot “negotiate[e] for or effect…the settlement of a claim or claims for loss or damage under any policy of insurance covering real or personal property.” See id. § 4102.001(3)(A)(i).

It is important to note that in addition to violating the Texas Insurance Code, advertising or promising to perform such services can also run a contractor afoul of the Texas Deceptive Trade Practices Act.  Violations of either the Texas Insurance Code or the Texas Deceptive Trade Practices Act may invite a suit for economic damages, attorneys’ fees, and potentially treble damages.  

The consequences described above can hurt a contractor’s bank account, its yearly legal services budget, and its customers. These problems can also ruin a contractor’s goodwill and word-of-mouth advertising which are often paramount to growing its customer base and yearly receivables.  In the end, the short-term gains are not worth the long-term consequences.

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