State Farm Insurance sued in Class Action lawsuit for pushing ServPro and Service Master on their policyholders.

The lawsuit contends that State Farm has a relationship with ServPro and ServiceMaster that are part of State Farm’s Preferred Service Provider (PSP) referral program for water damage mitigation that is known as State Farms Premier Service Program.

Preferred Service Provider relationships are very common in the Insurance world and lawsuits involving such are not as uncommon as insurance companies would like people to believe.

Many Public Adjusters and Attorneys believe that this is a fatally flawed mechanism that works to the detriment of the insured or policyholders. Why you might ask, well they often strongly suggest that you use their “pre-screened, pre-qualified, and warranty backed contractors” for your own benefit and safety. At times they will even just have the Preferred Service Provider Contractor or Vendor come straight out to your home or building to start work without ever having really consulted with you, the insured about it. At that time the PSP will have you sign legal paperwork authorizing them to do the work often in the form of a Work Authorization or Repair Contract. Note that contract or agreement is now between you and the PSP. Oh smack, the liability has shifted from the Insurance Company pushing or touting the PSP to the PSP and you for using them. See how that worked.

Often their paperwork will have a direct pay authorization that allows them to bill the insurance company directly for the work they performed. This in and of itself is not necessarily wrong or out of order, as this is fairly common in the industry. What happens more often then not, at least based on my own experience with Insurance Companies and their contractor’s (PSP’s), is that they almost never prepare an estimate for what is to be done prior to them starting work. They almost NEVER provide the insured with the estimate and invoice once it is done. I was just working on an underpaid claim, not with State Farm, where the contractor sent out by the insurance company told the homeowner that they could not give their estimate or invoice to the homeowner. The contractor told the homeowner that they had to submit it to the insurance company. Imagine that, if the insurance company didn’t pay do you think they would have provided it to the homeowner? Once I was able to obtain copies of those documents, upon examination, it became obvious that things were invoiced for that clearly were not done. Upon further investigation I found that the insurance company contractors, yes there were two contractors involved, were not properly licensed to do the work they did do.

They often like to tout how they have prescreened these vendors or contractors and that the CONTRACTOR or VENDOR provides a certain term warranty for your benefit. THEY FAIL TO TELL YOU that they carefully and skillfully attempt to remove any liability that they might have regarding that contractor or vendor. THEY FAIL TO TELL YOU that contractors / vendors on their Preferred Service Provider network or program typically have to sign contracts with the insurance company agreeing to things that could restrict their ability to act properly on YOUR BEHALF. THEY FAIL TO TELL YOU that many, if not all of these Preferred Service Providers are afraid to lose work if they disagree with the insurance company on estimate damages or repairs. A Contractor or Vendor that doesn’t conform will not be feed work and will typically be removed from their PSP program.

It will be interesting to see how this pans out in court.

Case number BC575126 filed in the Superior Court of the State of California.

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