Insurance Repair Work in Illinois

Starting January 1, 2012, residential contractors in Illinois have to jump through another hoop.

If any part of a job may be covered by insurance proceeds, section 513/18 of Illinois’ Home Repair and Remodeling Act will require a special notice in the contract and extra cancellation forms. Section 513/18 applies if:

• The work is on an existing residential building with from one to six units, and
• The work is valued at $1,000 or more, and
• Repairs are needed because of damage from a “natural occurrence” and
• More than one residence was damaged by this natural occurrence, and
• Part of the work may be covered by proceeds from property insurance.

If § 513/18 applies, a contractor:

1. Can’t offer a discount on the insurance work.
2. Can’t help the homeowner file an insurance claim.
3. Has to include a roofing contractor’s license number in the contract.
4. Can’t start work until the insurance claim is resolved.

This doesn’t make sense on several levels:

1. Contractors should be encouraged to give discounts.
2. Some homeowners need help preparing claim forms.
3. Not all catastrophe repairs require a roofer.
4. Homeowners need the right to start repair work before their claim is settled.

Ready, Fire, Aim

Illinois has a reputation for legislating first and regretting it later. Until the Home Repair and Remodeling Act was “fixed” last year, a violation of the law left contractors with no right to collect. For example, in Smith v. Bogard, a contractor who forgot to give an owner the state’s two-page consumer protection brochure lost all rights: The contract was unenforceable, lien rights were void and there was no recovery for unjust enrichment. That opened the door to all kinds of mischief by owners operating in bad faith. The Illinois State Bar, the office of the Illinois Attorney General and the legislature in Springfield stewed about that for a while and decided that wasn’t what they intended. So HRRA was “fixed” last July, allowing enforcement of lien rights and recovery for unjust enrichment.

Now comes the new section 513/18. Sub-section (f) requires a boldface notice in the contract. Sub-section (g) requires a new cancellation form – in duplicate – attached to the contract. This is in addition to the usual Reg. Z (three-day) cancellation form. I have no problem with either the notice or the attachments. Contractors know their contracts have to be letter-perfect. But there will be unintended consequences from sub-section (e). An owner has the right to cancel the contract at any time up to the earlier of:

• Five days after the insurer has denied any part of the claim, or
• Thirty days after the homeowner has delivered a proper proof of loss to the insurance carrier.

After cancellation, the contractor has ten days to make a full refund – even if repairs are already complete!

So what’s an insurance repair contractor supposed to do? I have three recommendations:

1. Write the contract now. But don’t start work until the insurance claim is settled.
2. If only part of a job is covered by insurance, put that part on a separate contract. Write another contract for the remainder of the job. Start work on the non-insurance work when you’re ready.
3. Explain section 513/18 to the owner. Until the carrier settles, your hands are tied. All you can do is prevent further damage – but only if the owner agrees in writing.

As long as there’s a right to cancel, repairs are on hold. That benefits no one. Better to let an owner acknowledge in the contract that their insurance claim may be denied. Then get on with the work. A “fix” like that benefits everyone. But until the legislators in Springfield make that change, Illinois contractors have to follow the law as written.

If you’re using Construction Contract Writer, your program will revise automatically when the new Illinois law goes into effect. If you’re not using Construction Contract Writer, the trial version is free.

Illinois Home Repair and Remodeling Act

Cory and Angela Bogard needed more space in their Casey, Illinois home. In the fall of 2004, Dan Smith of Dan R. Smith Building Services offered to put a 26' x 20' addition on the Bogards' living-room for "$20,000 or less". 

Cory and Angela accepted Dan's offer and he started work the following month. By February, Dan had pocketed $15,000 in progress payments and was nearly done. His final bill was $10,515, bringing the total cost of the job to $25,515. That was a little over budget. But at $49 per square foot, Cory and Angela got a pretty good deal. Unfortunately for Dan, that wasn't the end of it.

The Bogards weren't satisfied. They refused to pay, claiming more work was needed. Dan didn't agree. Months passed. It was too late for Dan to file a mechanics' lien. By October, Dan still didn't have his $10,515. So he filed suit.

Dan's fate was now on the desk of two Illinois attorneys, both looking for ways to blast the other side.

The Bogard's attorney had high caliber ammunition, courtesy of the lawmakers in Springfield. The labels were HRRA, CFA and HRFA. If you make a living in residential construction in Illinois, you need to know these acronyms:

• HRRA -- Home Repair and Remodeling Act
• CFA -- Consumer Fraud and Deceptive Business Practices Act
• HRFA -- Home Repair Fraud Act

HRRA requires a written contract for just about every residential remodeling or repair job over $1,000. The builder and the homeowner have to sign and date the contract and a brochure, 'Home Repair, Know Your Consumer Rights'. That was Dan's problem. No contract, no brochure and no way to collect. The court didn't award Dan a dime for his trouble, leaving him $10,515 short on the Bogard job. But it could have been worse, as I'll explain.

The enforcement teeth for HRRA are in Illinois' Consumer Fraud and Deceptive Business Practices Act (CFA). Operating a home improvement business under an assumed name can earn a $2,500 fine and a year in prison. Dan had no problem there. He was doing business under his own name, Dan R. Smith Building Services. But failure to complete work on time gives owners the right under CFA to demand a full refund. What if the Bogards had demanded a refund a week or two after Dan pulled off the job? Under CFA, Dan would have had 10 days to return the $15,000 in progress payments to that point. The penalty under CFA for failure to make a full refund: Suspension of the right to do business and a fine of up to $50,000.

Illinois' Home Repair Fraud Act (HRFA) threatens contractors with up to a year in jail and a $2,500 fine for making false promises, misrepresenting a material fact about the job, charging more than four times fair market value for any work, making false excuses for non-performance, failing to employ qualified personnel or violating the building code. Wow!

But, as I said, Dan got off easy. He got tripped up by HRRA and lost ten grand. A mistake under CFA can be (much) more expensive. Consider the case of Joe and Chris Taylor. They agreed to pay Father and Sons Inc. $40,000 for an addition to their home in LaGrange Highlands. The job went bad and ended up in arbitration. On a $40,000 job, the Taylors got an award under CFA of $40,000 for design defects, $22,006 for consultants, $75,000 for attorney fees, $1,400 for arbitration expenses and a discharge of all mechanics liens filed by Father and Sons Inc.

The moral of these stories: When a job goes bad, your paperwork better be good. If it isn't, you've written a blank check that's going to be cashed by an attorney for the other side.

Do yourself (and your bank account) a favor. Push back against consumer protection laws that back contractors into a corner. You're liable for everything that's either in or omitted from your contracts. Why not draft agreements that bend the bias in your favor? There's nothing illegal about that.

If your client suggests using an A.I.A. form or some other boilerplate contract, explain that the document offered is unlawful for home improvement work in Illinois. Using an unlawful contract would be a deceptive act under HRRA and CFA and could land you in jail. Instead, offer an agreement that you drafted and that complies with Illinois law.

If you make a living as an Illinois contractor, have a look at this site.