You Choose Your Contractor: Preferred Vendors Explained

Soon after you report a loss, someone may offer to send “our preferred vendor,” “an approved contractor,” or “a certified partner.” It can sound like the insurer is doing you a favor, and sometimes the vendor does fine work. But before you let anyone start, you should understand who that company works for and whether you have to use it. In most cases, you do not.

What “preferred vendor” really means

Insurers and the claims firms they hire often build contractor networks. You will hear them called preferred vendors, approved contractors, program contractors, managed repair networks, or direct repair programs. The details vary, but the basic structure is common.

• The insurer is the client. One of the largest networks, Crawford & Company’s Contractor Connection, markets its managed repair service to insurers. Its website calls the companies that use the program “clients” and speaks to them about “your customers.”
• Estimates follow the insurer’s rules. The same network says it writes “accurate estimates tailored to each client’s estimating guidelines.” Those guidelines come from the insurer, not from you.
• Performance is measured for the insurer. The same network tells insurers its program improves cycle times and customer satisfaction.
• Contractors may pay to participate. A program requirements document for one large network, posted in 2022 by a policyholder-side law firm, lists an application fee and a percentage fee on each job sold. Fee arrangements differ by program, may have changed, and may not be disclosed to you.

None of this means a network contractor will do poor work. It means the contractor has an ongoing business relationship with the party paying your claim, and its referrals can depend on working within that party’s pricing guidelines. You are entitled to know that before you sign.

Questions to ask any “preferred” contractor

Ask these directly, and ask for the answers in writing:

• Who referred you, and do you have a written agreement with my insurer or a claims management company?
• Do you pay a fee, commission, or percentage to anyone for this referral?
• Whose pricing guidelines will you use to write the estimate?
• If the insurer’s guideline price is too low to do the job right, who decides what gets done?
• Who is your customer on this job, me or the insurer?
• Will you give me a complete copy of your estimate, photos, moisture readings, and any reports?
• What warranty do you offer, and who stands behind it?

Does your policy require you to use the insurer’s vendor?

Standard homeowners policies

The widely used ISO Homeowners 3 form (HO 00 03) does not require you to use a contractor chosen by the insurer. Its loss settlement terms pay the cost to repair or replace, subject to the policy’s conditions. It does not name who must do the work.

That form does contain an “Our Option” condition. Under it, the insurer may choose to repair or replace damaged property with property of like kind and quality, if it gives you written notice within 30 days after it receives your signed, sworn proof of loss. This is a narrow right, it has a deadline, and it is different from simply telling you to use its vendor. If an insurer says it is exercising a repair option, ask for that notice in writing and ask which policy provision it relies on.

California

California’s Fair Claims Settlement Practices Regulations address this directly for residential and commercial property claims:

• An insurer may not require the insured to have the property repaired by a specific individual or entity (10 CCR § 2695.9(b)).
• An insurer may not suggest or recommend a specific repairer unless you ask for a referral or you have been told in writing that you have the right to choose your own (10 CCR § 2695.9(c)).
• If you accept the insurer’s recommended repairer, the insurer must make sure the property is restored to no less than its pre-loss condition, using accepted trade standards, at no additional cost to you beyond what the policy provides (10 CCR § 2695.9(c)).

Managed-repair endorsements

Some insurers sell policies, often at a lower price, that include a managed-repair or preferred-contractor endorsement. These can change your options. For example, a Florida appeals court in People’s Trust Insurance Co. v. Restoration Genie, Inc. (Fla. 4th DCA 2022) upheld an endorsement that required the insured to notify the insurer before authorizing emergency repairs so the insurer could use its own vendor. If the insured did not, the insurer’s payment for those repairs was limited.

Because these endorsements differ, the only reliable answer for your claim is in your own policy. Request a complete copy, including every endorsement, and look for words like “managed repair,” “preferred contractor,” “emergency services,” or “our option.”

Red flag: Being told, without any policy language cited, that you “have to” use the insurer’s vendor, or that your claim will be harder or slower if you do not. Ask for the specific policy provision in writing. In California, you can also cite 10 CCR § 2695.9(b).

If you choose your own contractor

Choosing your own contractor does not mean the insurer pays whatever that contractor asks. The insurer owes what the policy covers. Expect it to compare your contractor’s estimate to its own.

In California, if the insurer’s estimate is the basis for its settlement and your contractor’s written estimate is higher, the insurer must do one of three things: pay the difference, promptly name at least one repairer who will do the work for the insurer’s estimate amount (if you ask), or reasonably adjust your contractor’s estimate and give you a copy (10 CCR § 2695.9(d)). Other states handle this differently, so check with your state Department of Insurance.

For how estimates are built and compared line by line, see Understanding your estimate.

How to vet any contractor

Use the same standard whether the contractor came from your insurer, a neighbor, or a search engine.

License

Most states license general contractors and many specialty trades. Look the company up on your state’s licensing board website before you sign. In California, use the Contractors State License Board’s Check a License tool, which also shows complaint disclosures. Confirm the license is active, in the right classification for the work, and in the name on the contract.

Insurance

Ask for certificates of insurance showing general liability and, if the company has employees, workers’ compensation. Call the insurance agent listed on the certificate to confirm the policy is active.

IICRC certification

For water, fire, smoke, and mold work, ask whether the firm and its technicians hold certifications from the Institute of Inspection, Cleaning and Restoration Certification (IICRC). You can check using the IICRC Global Locator. The IICRC also keeps a list of firms that falsely advertise certified-firm status. Certification shows training in industry standards such as ANSI/IICRC S500 for water damage. It is not a substitute for a state license. See What IICRC S500 requires.

The contract

• Get a written contract with the scope of work, price or pricing method, payment schedule, and start and finish dates.
• Read any assignment of benefits or direction to pay language carefully.
• Know your cancellation rights.
• Be cautious about paying large amounts up front, and check your state’s rules on deposits for home improvement work.

Where to get help

If your insurer insists you use its vendor, or ties your claim to that choice, ask for the policy basis in writing and keep a copy. Your state Department of Insurance can explain the rules in your state and accept a complaint. For a decision about a managed-repair endorsement or a disputed scope, a licensed public adjuster or an attorney licensed in your state can review your specific policy.