First insurance claim on my rental - what did I do wrong?

[Calvin Lin]

So I had a insurance claim on one of my rentals for the first time since I started purchasing rental properties 5 years ago.  There was a water leak and it damaged some dry walls, carpets and closets.  My property manager found a contractor who gave me a quote of around $7,200 to repair everything.  I called my insurance company and put it in touch with the contractor and somehow the insurance company agreed to pay the contractor $8,700 by the time they concluded the discussion.  The $8,700 included a couple of items that involved demolition and restoration of concrete slab that had a pipe buried between the walls that was initially suspected as the cause of the leak, to the amount of $500.  Turns out however the leak came from one of the toilets which had a leaked flange and that was undetected for a few days until it did the damage so no concrete work was required in the end.  The contractor asked me to still pay him the full amount regardless, which is the amount the insurance company paid me.

Since this is my first insurance claim and working with such a contractor, a couple of questions:

1) Did I err by putting the insurance company in touch with the contractor directly?  Should I have negotiated w/ the insurance company directly instead?  I don't want to make any money from this mishap but I am not sure if leaving that to them to discuss the cost was the correct way to go?

2) Should the contractor be paid the full agreed amount with the insurance company even though at the end some of the work items were not actually required?  The contractor said that fixing the leaked toilet flange (he actually replaced the entire toilet which was $118 and installed it) = concrete repair cost, which I thought was a bit steep and he actually thought I should pay him $118 extra to cover the toilet.  Would you have agreed to this?  I said no to the $118 and said that the $500 of not-performed concrete work should cover it and then some.

[Matthew Olszak]

It sounds like there are 2 separate issues here...

First, lets discuss the concrete work that the insurance company agreed to pay for and which wasn't performed. If the insurance company knows that, they won't pay for it, plain and simple. Now, do people say they did the work and pocket the money anyway? ALL THE TIME - but its an ethical issue only you can decide on.

Second, what insurance pays and what you owe your contractor should be 2 separate issues. You have a contract (hopefully) with your contractor. It should outline the work they will perform and for what cost. Many companies that do insurance work will word the contract to say they will do all of the work in the insurance company estimate for the price the insurance company agrees to pay. I also hope you have a copy of that paperwork from the insurance company. Some line items will be above market rates, sometimes others will be below, so it all ends up balancing out, and you hopefully aren't paying anything out of pocket.

Now on to the additional $ the contractor wants. If you both agreed to tell (lie to) the insurance company about the concrete work being done, absolutely the $118 should come from that. The contractor maybe was banking on shifting the money from that concrete line to bolster profits which is why he's trying to milk that extra $118 from you for the toilet. The toilet itself likely isn't covered by your claim, just the resulting water damage to the rest of the property.

Did you make a mistake on letting the contractor negotiate with the insurance company? Unless you have experience doing so, on this small of a claim, no, you did the right thing. Your main concern should be that the property gets repaired for little or no money out of your own pocket, which it sounds like you've accomplished. In the future, for larger claims, you should engage the services of a LICENSED public adjuster to represent you, which will then allow you to shop out the contractor of your choice to do the work and makes that work independent of the insurance claim amount.