Some insurance companies have preferred contractor programs under which the insurer, or a party they contract with, develops a network of contractors who are available to repair property damage for insureds. The insurer typically subjects contractors to a background check of some kind before they are included in the network, and may require contractors in the network to adhere to certain pricing requirements. In some jurisdictions, statutes or regulations allow insurers only to make a list of preferred contractors available to insureds, whereas in other jurisdictions insurers can offer an incentive for insureds to use preferred contractors, such as by receiving a reduction in their deductible or receiving some kind of guarantee with respect to the repairs (either from the insurer or the contractor). The goal of these programs is to improve the quality of repairs and keep costs down, thereby benefitting both insureds and insurers.
A recent class action filing in Ohio state court against Allstate Indemnity Company and Alacrity Services, LLC alleges that Allstate’s preferred contractor program is purportedly in violation of Ohio law. In Boynton v. Alacrity Services, LLC.pdf, CV 12 786626 (Ohio Ct. Cm. Pleas July 9, 2012), the plaintiffs allege that Allstate required them to use one of the contractors in its preferred contractor program, and that the work was performed poorly. They allege that Allstate has a relationship with Alacrity whereby Alacrity manages the network of preferred contractors, Allstate makes claim payments directly to Alacrity, and Alacrity retains a percentage of the claim proceeds (allegedly 2.8%) for its services in managing the network. Plaintiffs claim that by allowing Alacrity to deduct this 2.8%, Allstate is wrongfully passing on the cost of Alacrity’s services to insureds, and that this procedure was not properly disclosed to them. The complaint seeks certification of an Ohio statewide class and “potentially” a nationwide class. The complaint pleads various theories of relief, including breach of contract, conversion, restitution, constructive trust, declaratory relief and unjust enrichment.
It’s too early to tell whether this case will gain any traction. It seems to me that, assuming the facts pleaded are true, the 2.8% withholding could be properly characterized as compensation from the contractor to Alacrity.