Waiving Insurance Deductibles is Illegal in Colorado

Since Colorado's Front Range is located in the heart of "Hail Alley," which receives the highest frequency of large hail in North America, residents can usually count on three or four catastrophic hailstorms every year that will cause damage to their property. According to the Rocky Mountain Insurance Information Association, in the last 10 years, hailstorms have caused more than $5 billion in insured damage in Colorado. As a homeowner, it would make sense to allow a contractor to cover your roof deductible. However, Colorado Senate Bill 38 (C.R.S 6-22-101 to 6-22-105), signed into law in 2012, makes it illegal for roofing contractors to pay, waive or rebate a homeowner's deductible.

These storms also bring with them "storm chasers," otherwise known as fraudulent roofing contractors. These contractors prey on homeowners following a major storm event and take off with their insurance money. A common tactic for these contractors is the promise of waiving any applicable insurance deductibles and a cost-free roof. That is why Colorado implemented Senate Bill 38, otherwise known as the Consumer Protection/Residential Roofing Bill, which is designed to protect consumers and insurance companies while regulating the residential roofing industry.

The bill explicitly states that it is illegal for a roofing contractor to pay, waive, or rebate a homeowner's insurance deductible. An insurance deductible is an amount that an individual must pay out of his or her pocket before the insurance company will pay the rest of the claim. When a roofing contractor promises that he or she will cover a homeowner's deductible, it means that a roofing contractor will try to pay, waive or rebate an insurance deductible for the roofing work so the homeowner will not have to personally pay the deductible.

This practice can be construed as property insurance abuse or fraud depending on the specific facts. The crime is charged as a Class 2 misdemeanor which can carry a potential sentence of 3-12 months imprisonment, a fine of $250 to $1,000, or a combination of imprisonment and fines. This information is not meant to be a scare tactic but rather a benefit to you by informing you about the possible consequences a homeowner or contractor can face from insurance fraud.*

For this bill to apply, there must be a signed contract between a homeowner and a roofing company. The contract must include the following:

• scope of the work to be done and materials being provided;
• cost based on damages known when the contract is entered into;
• start and end dates of service;
• roofing contractor's contact information;
• identification of contractor's surety and liability coverage insurer and their contact information;
• contractor's policy regarding cancellation of contract and refund of any deposit including a rescission clause allowing the property owner to rescind the contract for roofing services and obtain a full refund of any deposit within 72 hours after entering the contract;
• a statement that if the property owner plans to pay for the roofing services through an insurance claim, the contractor cannot pay, waive or rebate the homeowner's insurance deductible in part or in whole;
• a statement that the contractor shall hold in trust any payment from the property owner until the contractor has delivered roofing materials to the job site or has performed a majority of the roofing work on the property; and
• a statement that the property owner may rescind a contract for services, the payment for which will be made from the proceeds of a property insurance claim, within 72 hours after receiving notice from their insurer that the claim is denied in whole or in part.

The National Insurance Crime Bureau estimates that insurance fraud costs each family in the United States approximately $300 in increased annual premium expenses. The only way this will stop is when homeowners no longer participate and begin to report instances of insurance fraud. Claiming lack of knowledge is not an excuse for breaking the law. It is important for homeowners to choose a reputable roofing contractor. One way to go about this is to contact the Colorado Roofing Association, which maintains a current list of licensed and properly insured contractors who passed a nationally recognized exam that addresses roofing work on residential and commercial properties. Colorado Senate Bill 38 is designed to protect homeowners and insurance companies, but the homeowners have the ultimate power to stop insurance fraud by being well informed and reporting it. 

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Regulations and laws may vary depending on your location. Consult with a licensed attorney in your area if you wish to obtain legal advice and/or counsel for a particular legal issue.

Danielle Maya is a Partner at Cotney Construction Law’s Denver, Colorado office. For more information, contact the author at (303) 653-9155, dmaya@cotneycl.com or visit www.cotneycl.com.