To What Extent Must California Property Adjusters Consider Public Adjusters' Evidence When Settling Claims?

AUTHOR’S NOTE: This article is written based on property claim adjusting practices, regulations, and statutes specific to California. However, most of what follows is also applicable in other states with similar regulations.

Property insurance claims for building, dwelling, or other structure damage are typically investigated by insurers’ staff or independent adjusters (IA). The investigation usually involves obtaining or preparing a construction repair or replacement estimate for the covered property. When an insured or an insured’s public adjuster (PA) disagrees with the adjuster’s estimate, one of two things most often occurs: The insured or PA either submits a competing estimate written by the PA or by the PA’s expert, or the insured or PA submits a list of items or costs believed to be inadequate or missing from the insurer’s adjuster’s or IA’s estimate.

In response, if requested, the insurer can refer the insured or PA to a repair entity or individual to do the work for the adjuster’s estimate. If such a request is not made, the insurance company at this point has two options:

1. “Pay the difference” between the insurance adjuster’s or IA’s estimate and the public adjuster’s estimate or the public adjuster’s expert’s estimate (Section 2695.9[d][1] of the California Fair Claims Settlement Practices Regulations); or

2. “Reasonably adjust any written estimates prepared by the repair individual or entity of the insured’s choice and provide a copy of the adjusted estimate” to the insured (Section 2695.9[d][3] of the California Fair Claims Settlement Practices Regulations).

For good reasons, rarely will an insurer choose option 1. This is because PAs are paid based on the amount they obtain in settlement from the insurer on behalf of the insured. Therefore, a PA will never submit a repair estimate or expert report that disagrees with the PA’s or insured’s position. It never, ever happens and never will happen because it runs contrary to the purpose of using a PA in the first place: To identify and to negotiate items or costs owed but not included in the insurer’s estimate or settlement. Therefore, simply ‘paying the difference’ between an insurer’s adjuster’s or IA’s estimate and a higher estimate submitted by a PA, as a matter of practice, is financially nonsensical for any insurer.

Occasionally, there may be a small claim dispute where it makes more financial sense to “pay the difference.” Or there may be a claim where, though the difference is more significant, the insurance adjuster or IA obviously omitted a key item or cost. In such instances, an insurer might simply “pay the difference between its written estimate and a higher estimate obtained by” the PA or by an insured. Otherwise, insurers, staff adjusters, and IAs regularly settle claims based on 2., a ‘reasonably adjusted’ estimate from the insured’s chosen “repair individual or entity.” It is also possible an insurer may obtain a third-party estimate and attempt to use it to negotiate a settlement with the insured or PA.

Insurance adjusters and IAs are required to consider PA estimates and expert reports to see if they contain information we missed or could use in the claim settlement. But this is much different from relying on PA estimates or experts to settle claims. Insurance adjusters and IAs are not even required to “reasonably adjust” estimates other than those written by “the repair individual or entity of the insured’s choice” (Section 2695.9[d][3]). We are only required to consider submitted PA evidence to a reasonable extent consistent with Section 2695.7(g)(1) of the California Fair Claims Settlement Practices Regulations:

 

Section 2695.7 – Standards for Prompt, Fair and Equitable Settlements

 

(g) No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. The Commissioner shall consider any admissible evidence offered regarding the following factors in determining whether or not a settlement offer is unreasonably low:

 

(1) the extent to which the insurer considered evidence submitted by the claimant to support the value of the claim;

 If insurance staff adjusters or IAs are not required to reasonably adjust PA estimates other than those provided by the repair individual or entity chosen by the insured, to what “extent” must we ‘consider’ estimates or expert reports submitted by PAs? As far as Section 2695.7(g)(1) quoted above is concerned, the “extent” to which insurers must ‘consider’ other (non-repair-entity) evidence submitted by the PA is not defined. Therefore, we must define what qualifies as a reasonable ‘extent of consideration’ for an insurance adjuster’s or IA’s review of submitted PA evidence.

 Where it concerns plumbing, electrical, general construction, or other PA experts, every insurer, staff adjuster, and IA should consider the submitted evidence. To “consider” such evidence consistent with Section 2695.7(g)(1), quoted above, can be understood according to the use of the same term (“consider”) in subsection (g) of the same regulation, “The Commissioner shall consider any admissible evidence.” Then follows subsection (g)(1)’s use of “consider” for what insurers are to do toward submitted evidence. If we understand and use “consider” consistently between the two immediately connected subsections, it’s clear insurers must document a reasonable ‘extent of consideration.’ This can only be determined according to the evidence the insurer receives.

 Since insurance adjusters and IAs are not required to “reasonably adjust” written estimates prepared by anyone but the insured’s chosen repair entity or individual, how is an insurer to show a reasonable ‘extent of consideration’ to PA estimates? Based on my nearly three decades of experience adjusting claims in California, and in other states with similar regulations, there are three primary ways insurance adjusters and IAs can show a reasonable extent of consideration toward PA estimates:

 1.     “Reasonably adjust” the PA’s (non-repair entity’s) estimate. I know. We don’t have to do this. But insurance adjusters and IAs can still choose this option. The main problem with this approach to documenting an insurer’s ‘extent of consideration’ is it likely will have to be done all over again! This is because unless the insured is settling at Actual Cash Value, once a repair contractor is chosen by the insured the insurer is still obligated by Section 2695.9(d)(3). This is why I recommend a combination of options 2. and 3. (below) rather than ‘reasonably adjusting’ a PA’s estimate. After the insured chooses a repair contractor, an insurer can fulfill its obligation to Section 2695.9(d)(3) by ‘reasonably adjusting’ that estimate and providing a copy of the adjusted estimate to the insured or PA.

 2.     Call or meet with the PA and document the conversation in the claim file. Section 2695.9(g)(l) and Section 2695.3(a) of the California Fair Claims Settlement Practices Regulations are relevant here, with the latter referencing the former in the quotation below. These two Regulations show that documenting a conversation over the phone or in person represents a proper ‘extent of consideration’ toward PA estimates or expert reports. Properly documented conversations with sufficient details can even be used as the basis for accepting or denying a claim:

 

 Section 2695.7 – Standards for Prompt, Fair and Equitable Settlements

 

(l) No insurer shall deny a claim based upon information obtained in a telephone conversation or personal interview with any source unless the telephone conversation or personal interview is documented in the claim file pursuant to the provisions of Section 2695.3.

 

 Section 2695.3 – Standards for Prompt, Fair and Equitable Settlements

 

(a) Every licensee’s claim files shall be subject to examination by the Commissioner or by the Commissioner’s duly appointed designees. These files shall contain all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed and the licensee’s actions pertaining to the claim can be determined.

           

      3.     Provide “a complete written response” including a “statement” explaining what is accepted, what is denied, and why any items are denied. Even if the detailed conversation notes described in 2. (above) are in the claim file, insurers still must provide PAs with complete written responses (Section 2695.5[b]). This includes a written “statement listing all the bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial” (Section 2695.7[b][1]).

 After reviewing the above three options, the most effective way insurance adjusters and IAs can show a reasonable ‘extent of consideration’ toward PA estimates and expert reports is a combination of 2. and 3. This involves documented conversations with the insured or PA (item 2.) followed by a written response to the submitted evidence (item 3.). The written response does not require a “reasonably adjusted’ copy of the PA’s estimate, as it does with chosen repair entity estimates. Some insurance adjusters and IAs might argue for all three to be used for this purpose. But 2. and 3. satisfy the existing communication and settlement regulations and they show reasonable consideration of non-chosen-repair-entity or non-chosen-repair-individual evidence. This helps prevent insurers from duplicating the ‘reasonable adjustment’ required only for estimates obtained from the insured’s chosen repair contractor.—Section 2695.9(d)(3).

Once the insured or PA submits the chosen contractor’s repair estimate, the insurance adjuster or IA can “reasonably adjust” that estimate and provide a copy of the reasonably adjusted estimate to the insured or PA. Until then, insurance adjusters and IAs should consider using a combination of 2. and 3. when responding to PA estimates. Use option 1. only to show a reasonable extent of consideration toward a PA’s estimate for an Actual Cash Value payment if the insured has not chosen a repair contractor. Even here I recommend holding off on any ‘reasonable adjustment’ of any estimate other than the one from the insured’s chosen repair contractor. Otherwise, the adjustment could take longer and the insurer will likely end up paying more than is necessary after adjusting two estimates, when adjusting only one estimate is required.

If the insured intends to repair or rebuild the property, there are few legitimate reasons to delay the process of contractor selection. This means apart from an Actual Cash Value settlement not involving property repair or replacement, there are also few if any legitimate reasons for an insured or a PA to submit any estimate for ‘reasonable adjustment’ except the one from the insured’s chosen contractor. This is particularly the case if the insured has the benefit of an insurance adjuster, an IA, or a PA to assist with evaluating repair contractors and obtaining an estimate from the one chosen by the insured. 

Until the insured chooses a repair contractor to provide an estimate, the insurance adjuster or AI can simply duplicate the claim files notes described in 2. and use them in the written response and statement described in 3. This will save the insurance adjuster or IA time, help the insurer maintain file consistency, and fulfill the requirement for a reasonable ‘extent of consideration’ toward PA estimates and expert reports.

Greg Stafford operates Claim Affirm, LLC, an independent insurance adjusting company specializing in claims, appraisals, construction estimating, and exert witness services to insurance companies, TPAs, and other adjusting companies. Greg is a licensed claim adjuster in twenty states, including California, Florida, and Texas. He is also a Certified Construction Project Manager, and a court-qualified expert on claim adjusting, bad faith practices, and construction costs. For more information, please contact Greg at GregStafford@ClaimAffirm.com.

Why Insurance and Adjusting Companies Should Prioritize Employee Retention

Here is a series of articles published across several LinkedIn professional forums related to insurance claim adjusting or management. They show the importance of prioritizing employee retention rather than waiting for employee turnover to occur. This is of particular concern in the insurance claim adjusting industry which, as these articles show, experiences an ongoing and growing problem with employee turnover:

1. "Employee Retention in Insurance Claim Adjusting: A Growing Problem with Few Solutions - Part 1 of 3," LinkedIn (July 11, 2023).

2. "Employee Retention in Insurance Claim Adjusting: A Growing Problem with Few Solutions - Part 2 of 3," LinkedIn (July 14, 2023).

3. "Employee Retention in Insurance Claim Adjusting: A Growing Problem with Few Solutions - Part 3 of 3," LinkedIn (July 22, 2023).

Here is the accompanying video which covers another challenge resulting from lack of employee retention in insurance claim adjusting - fraud:

"How the Problem of Employee Retention Leads to Fraud in Insurance Claim Adjusting," Property Insurance Claims Fraud Review (August 3, 2023).

According to one industry source, one in ten property claims is due to fraud, and fraud overall in the insurance industry cost US consumers over 308 billion dollars in 2021. Therefore, since ongoing turnover can expose insurance and adjusting companies to a number of people whose intentions may not be as apparent as existing staff, it is important to avoid anything that might risk losing a contributing employee whose work you have regularly observed and know well.

Too often companies risk losing proven claim adjusters or claim managers whose work has been proven to be reasonably reliable, not committing fraud or even regular errors. As these articles and the accompanying video explain and document, it is better financially and better for your company's work culture to increase employee retention and to decrease employee turnover, which has the added benefit of increasing fraud prevention.

Why Insurance Companies Should NEVER Rely on Public Adjusters’ Experts to Settle Claims

The reason is simple: Public insurance adjusters do not hire experts without first determining if the expert agrees with the public adjuster's position on the claim. That is why you will never experience a claim in which a public adjuster submits an expert's opinion who disagrees with the public adjuster. By contrast, you will regularly find examples in claims where insurance companies obtain expert opinions which disagree with them. This is because insurance companies regularly obtain opinions from experts without first verifying the expert already agrees with their position. 

Most insurance companies just want to know the facts about a claim, and then to settle the claim in a fair and reasonable manner. Are there exceptions? Sure. There are insurance company adjusters and managers who at times may seek an opinion which already agrees with them. But by and large, having worked for or with insurance companies for over fifteen years, I can tell you that is not the norm. The norm for insurance companies is to obtain an expert's opinion when they do not first find out what the expert will say in his or her report, 

Having worked as a public adjuster for over ten years with public adjusters while representing insurance companies, it is a fact: You will never find a public insurance adjuster obtaining and submitting an expert opinion which disagrees with the public adjuster's position on the claim. This is because the public adjuster's fee is typical based on what is paid out on the claim, and public adjusters are not going to risk their fee in order to obtain an unbiased opinion on a claim. 

My experience as both a public adjuster and as an insurance company adjuster and claim supervisor tells me there simply are not enough ethical public adjusters practicing claim adjusting today for it to be the norm to find a public adjuster hiring a random expert who may disagree with him or her. Maybe someday this will change, but not right now, and in my experience not during the past several decades, either. Even if it changes significantly, the often compromising nature of public adjuster's fees makes it so there will likely always be a large number of public adjuster who will only use experts that agree with them. 

That is why you must never rely on a public adjuster's expert to settle a claim. You always consider what any expert has to say, but never rely on a public adjuster's expert. Because everyone already knows what that expert is going to say when it comes to the public adjuster's position on the claim.

For more information on this subject, see my video, "Insurance Companies Should NEVER Rely on Public Adjusters' Experts to Settle Claims," Property Insurance Claims Fraud Review (September 6, 2021), link: https://www.youtube.com/watch?v=J2TaP3xSmvg

Wrongly Claiming Residential Supervision / Project Management as a Separate Line-Item in Xactimate Estimates

In the early 2000s in Southern California, several freelance estimators (persons with a general contractor’s license, but who do not operate a construction company), began offering services to general contractors and to public adjusters. What “services”? Preparing significantly inflated repair estimates for use in negotiating insurance claim settlements. The freelance estimator would market the estimate to certain contractors and to public adjusters seeking a bid that would allow them to get as much money as possible from the claim.

The freelance estimator would explain to the contractor or public adjuster that even if some of the inflated or unnecessary items in the estimate were negotiated down or denied, the contractor was still saving on the cost of an estimator (all while claiming 10% or more General Overhead). The benefit to the public adjuster was he or she did not have to prepare his or her own estimate, and they could rely on the freelance estimator to be at the inspection and to defend the estimate.

This process was designed to defraud insurance companies out of more money than a claim is worth. It was done by increasing labor and materials costs, adding more labor hours than are needed to complete the work, as well as using cleaning line-items (for every possible item) versus paying for actual cleaning hours, which is how cleaning jobs are actually paid. Another method commonly used was adding unnecessary or duplicative line-items.

In this article, I will focus only on the last scam, “adding unnecessary or duplicative line-items.” More specifically, I will discuss adding a separate line-item for a project manager or residential “supervision.” This line-item for supervision or a project manager was in addition to any General Overhead for operating costs already included in the estimate.

There is a reason why adding a separate supervision line-item to cover the same supervision or project manager requiring to operate a business has been successful for nearly twenty years. I was even convinced by some of these freelance estimators in the early and mid-2000s, at least until I worked for several general contractors and before I became a Certified Construction Project Manager. That is when I realized the freelance estimators responsible for the supervision scam were lying to everyone who was not familiar with the operational costs of a general contracting business. Therefore, something was needed to help adjusters and insurers recognize the deception.

The reason separate line-item supervision for the same responsibilities required to operate a business is at times convincing is because of a “White Paper” issued as early as 2003 by Xactware, Inc. Back in the 1990s the insurance industry, unlike the construction industry apart from insurance claims, began relying in large part on estimating software including a program by Xactware called “Xactimate.” While Xactimate is a good estimating system if used properly, many dishonest contractors and public adjusters seeking to take advantage of insurance companies also use Xactimate to inflate insurance claims.

For example, many dishonest companies who use Xactimate will pay cleaning workers a low-wage hourly labor cost. Yet, when it comes to submitting their Xactimate estimate to adjusters and to insurance companies, these same companies will take advantage of the Xactimate line-item cleaning costs for every single item in the affected area. Taken together, this often produces triple or even quadruple or more the actual cleaning cost. I will write more about this specific type of fraud in future article, and in a related video.

Another way Xactimate has been abused, as I have explained already in part, is by using line-item supervision where it should not be used. This specific type of fraud stems in large part from an Xactware White Paper titled “Overhead and profit.” This paper has been around since at least 2003, reprinted again in 2011, and most recently in 2020. All three versions of this Xactware paper read the same in the section called, “Job-Related Overhead.” The relevant section of this White Paper reads as follows on page 2:

·        Job-Related Overhead are expenses that can be attributed to a project,

but cannot be attributed to a specific task and include any and all

necessary expenses to complete the project other than direct materials

and labor. Examples (including but not limited to): Project managers,

onsite portable offices and restroom facilities, temporary power and

fencing, security if needed, etc.

 

Including Job-Related Overhead expenses in an Xactimate estimate–Job

Related Overhead expenses should be added as separate line items to

the Xactimate estimate.

Read in isolation from the rest of this paper, and apart from a knowledge of what general contractors are required to provide as part of the company’s operating costs (General Overhead), you can see why this section of the paper may be convincing. It states, “Project managers,” which are equated with supervision in the Xactimate line-item (LAB SUPERR), “should be added as separate line items to the Xactimate estimate.”

However, this is not what the Xactware paper is saying, nor is it what should be done when you consider the normal job supervisor or project manager responsibilities required for all construction project in California. Consider the following line-item and note from a real, recent general building contractor’s estimate using Xactimate, with a line-item for supervision based on the above-quoted Xactware “Overhead and profit” paper:

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Here there is a reference in the first paragraph under the supervision line-item to “Xactimate’s O&P white pages.” This is a direct, though oddly worded, reference to the previously quoted Xactware White Paper “Overhead and profit.” It is cited here to justify including a separate line-item for supervision or a project manager, even claiming, “Supervision is not covered in Xactimate’s O&P.” The claim here is that the Xactware White Paper justifies a separate line-item for residential supervision or project management in addition to the General Overhead and Profit (“O&P) typically listed as a percentage at the end of the Xactimate estimate.

I will address this estimate’s citation and use of the “Cal. Admin. Code tit. 16 § 823(a)” in this article, but first we need to resolve what the Xactware “Overhead and profit” paper is talking about. To further set up what is at issue, consider one more recent estimate, this one from a Southern California public adjuster who also cites and relies on both the Xactware paper and the same “Cal. Admin. Code tit. § 16 823(a)” cited in the first quote from a general contractor’s estimate:

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Note the similarity in the citation between the earlier note from a contractor estimate and this citation from a public adjuster’s estimate. Both reference the Xactware White Paper and the “Cal. Admin. Code tit. 16, 823(a),” and both contain the oddly worded language “white pages” versus “White Paper.” There is also an error in the citation of the “Cal. Admi. Code,” as I will show.

For now, focus on the use of the Xactware White Paper as justification for the supervision / project manager line-item in these two estimates. Consider what is stated in the same Xactware “Overhead and profit” paper in the section immediately preceding “Job-Related Overhead,” quoted earlier, on page 2 (with my underlining added):

General Overhead are expenses incurred by a General Contractor, that cannot be attributed to individual projects, and include any and all expenses necessary for the General Contractor to operate their business.

Here is a clear description of work considered “General Overhead,” namely, “expenses … that cannot be attributed to individual projects.” This is in direct contrast to how the same Xactware paper defined “Job-Related Overhead” (quoted earlier), that is, as “expenses that can be attributed to a project. 

Before further discussing this important difference, notice how the same Xactware paper further defines “General Overhead” as including “all expenses necessary for the General Contractor to operate their business.” This brings us to the “Cal. Admin. Code,” cited earlier in both the general contractor and public adjuster Xactimate line-item notes, as justification for line-item supervision or project management in addition to General Overhead.

After reading the first quoted Xactimate note for supervision from the general contractor’s estimate quoted earlier, after it refers to the “CSLB” (Contractor’s State License Board) the contractor’s line-item note then cites the “Cal. Admin. Code tit. 16 § 823(a)” as authority (all quotation marks are original to the contractor’s note):

 

Cal. Admin. Code tit. 16, 823(a). “Direct supervision and control” “includes anyone or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, by checking job for proper workmanship, or direct supervision on construction job sites.

When referring to the “Cal. Admin. Code” (California Administrative Code), which is the California Code of Regulations, Title 16, 823(a), this general contractor puts in quotes, “Direct supervision and control.” However, the quoted material is from sub-section 823(b), not sub-section (a).

It is revealing that both the above-quoted general contractor and the public adjuster notes to this same line-item for supervision include this same citation error, as do these additional, also recent quotes from another general contractors and a different public adjuster, both from different Southern California property claims:

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And:

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Obviously, there is a network of general contractors and public adjusters sharing information they hope will increase their profits and fees through inflated estimates wrongly claiming line-item supervision. This is clear not only from their shared use of the same incorrect understanding of the Xactware paper and the California Code of Regulations. It is clear also from the fact they contain the exact same citation error from section 823(a), rather than citing section 823(b), as well as from the same oddly worded language “white pages” instead of the more correct “White Paper.

Now we will consider the difference between section 823(a) and section 823(b). Does sub-section 823(b) of the California Code of Regulations, Title 16, support the quoted general contractors’ and public adjusters’ notes for line-item supervision? Here is the complete quotation of both section 823(a) and (b) with my italics bolding and underlining used to offset the most relevant parts:

 

823. Definitions: Bona Fide Employee; Direct Supervision and Control.

(a) For purposes of Section 7068 of the [Business and Professions] Code, "bona fide employee" of the applicant means an employee who is permanently employed by the applicant and is actively engaged in the operation of the applicant's contracting business for at least 32 hours or 80% of the total hours per week such business is in operation, whichever is less.

 

(b) For purposes of Section 7068.1 of the Code, "direct supervision and
control" includes any one or any combination of the following activities:
supervising construction, managing construction activities by making
technical and administrative decisions, checking jobs for proper
workmanship, or direct supervision on construction job sites. 

Both part (a) and (b) of this section deal directly with “Section 7068” and “Section 7068.1” of the Business and Professions Code (“BPC”). Both part (a) and (b) also involve “an employee who is permanently employed,” an employee actively involved in the “operation of the applicant’s contracting business for at least 32 hours or 80% of the total hours per week such business is in operation.”

Sections (a) and (b) are entirely about a “bona fide employee” involved in a contracting business’ “operation” and the “direct supervision and control” of the company’s “business.” This includes the “total hours per week” the employee works in the “operation” of the “business.” All of this is a part of General Overhead as defined earlier from the Xactware paper under General Overhead, not as Job-Related Overhead.

California Code of Regulations, Title 16, sections (a) and (b) have nothing to do with a specific or individual job or project. Rather, they speak to the operation of the contracting business and about regular “activities” that must be done on every job or project. These regular “activities” involve “supervising construction,” “managing construction,” “making technical and administrative decisions,” “checking jobs for proper workmanship,” and “direct supervision on construction job sites.” These “activities” are the ‘tasks’ specifically excluded in the Xactware “Overhead and profit” paper in the section about Job-Related Overhead.

Notice, too, the permanent or “bona fide employee” of the applicant seeking a general contractor’s license is linked to BPC Sections 7068 and 7068.1. Here is Section 7068, in relevant part, with my underlining added only to key parts, and to which Cal. Admin. / Code of Regulations Title 19, section 823(a) directly refers in the above quotation:

BUSINESS AND PROFESSIONS CODE - BPC

DIVISION 3. PROFESSIONS AND VOCATIONS GENERALLY

CHAPTER 9. Contractors

ARTICLE 5. Licensing

  

7068.  

(a) The board shall require an applicant to show the degree of knowledge and experience in the classification applied for, and the general knowledge of the building, safety, health, and lien laws of the state and of the administrative principles of the contracting business that the board deems necessary for the safety and protection of the public.

. . .

(d) The board shall, in addition, require an applicant who qualifies by means of a responsible managing employee under either paragraph (1) or (2) of subdivision (b) to show his or her general knowledge of the building, safety, health, and lien laws of the state and of the administrative principles of the contracting business as the board deems necessary for the safety and protection of the public.

Section 7068 of the BPC makes it plain we are dealing with an applicant for a license who must personally, or by permanently employing a responsible managing employee, understand “the general knowledge of the building, safety, health, and lien laws of the state and of the administrative principles of the contracting business that the board deems necessary for the safety and protection of the public.

Clearly, the Code of Regulations, Title 16, section 823(a), in its reference to BPC section 7068, is discussing the ongoing operation of the “contracting business,” not a individual project. Now consider BCP Section 7068.1, again in relevant part, referenced in the Code of Regulations (“Cal. Admin. Code”), Title 16, section 823(b) which describes, “Direct supervision and control,” and the “activities” this supervision involves as a part of the business’ ongoing operations (with my emphasis added): 

BUSINESS AND PROFESSIONS CODE - BPC

DIVISION 3. PROFESSIONS AND VOCATIONS GENERALLY

CHAPTER 9. Contractors

ARTICLE 5. Licensing

  

7068.1.  

(a) The person qualifying on behalf of an individual or firm under paragraph (1), (2), (3), or (4) of subdivision (b) of Section 7068 shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations to secure compliance with this chapter and the rules and regulations of the board.

. . .

(d) The board shall require every applicant or licensee qualifying by the appearance of a qualifying individual to submit detailed information on the qualifying individual’s duties and responsibilities for supervision and control of the applicant’s construction operations.

(e) Violation of this section shall constitute a cause for disciplinary action and shall be punishable as a misdemeanor by imprisonment in a county jail not to exceed six months, by a fine of not less than three thousand dollars ($3,000), but not to exceed five thousand dollars ($5,000), or by both the fine and imprisonment.

This section of the BPC explicitly states an applicant or an applicant’s permanent employee is responsible “for supervision and control of the applicant’s construction operations.” This is not a cost directly attributable to “specific tasks” and, therefore, the cost is not Job-Related Overhead. Rather, the “duties and responsibilities” are a part of the operational “tasks” excluded from Xactware’s White Paper’s description of Job-Related Overhead, and which are included in the business’ General Overhead costs for “the applicant’s construction operations.”

Everything described in the “Cal. Admin. Code” (Code of Regulations) Title 16, section 823(b) as “direct supervision and control” covers what is included in the general contractor and public adjuster notes quoted earlier to justify their estimates’ line-item for residential supervision. 

Here is another example from a recent Southern California estimate submitted by a public adjuster who, though without the specific reference to the Xactware “Overhead and profit” paper or to the “Cal. Admin. Code,” nonetheless claims one-hundred and sixty hours of “Residential Supervision / Project Management” for “activities” or ‘specific tasks’ (the wording of the Xactware paper for what is not Job-Related Overhead):

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Obviously, a lot of money is being wrongly claimed under this line-item and those claiming it are either victims of the errors of other contractors or public adjusters, or they are knowingly committing fraud by claiming thousands of dollars for what is already included in the General Overhead allowance of the same estimate. Note again what the Xactware White Paper says right after defining “General Overhead” and about what is not considered Job-Related Overhead, “expenses that can be attributed to a project, but cannot be attributed to a specific task.” 

After studying the coursework involved in becoming a Certified Construction Project Manager through San Diego State University’s Associated General Contractors’ (AGC) Supervisory Training Program (STP), it becomes obvious there are numerous “tasks” a supervisor or project manager must complete which are not attributable to an individual project. They are a part of a business’ operational activities for every job. These ‘tasks’ include the very things described by the California Code of Regulations, Title 16, section 823(b), namely, “supervising construction,” “managing construction,” “making technical and administrative decisions,” “checking jobs for proper workmanship,” and “direct supervision on construction job sites.”

Many construction companies have more than one project manager or supervisor on staff, who are often involved in the same projects. Each of these supervisors or project managers have similar or different responsibilities involving these very same tasks. Different tasks can also be delegated form one person to another as a part of a business’ operation. 

For this reason, the AGC STP Manual 4, “Contract Documents and Construction Law,” page 5-17, emphasizes the task-awareness of a project manager’s or job supervisor’s role in the company as follows (with my underlining): “Analyze the tasks that you perform. Determine which you perform by virtue of delegated authority and which you carry out because it is your responsibility to do so. This is how you can analyze the limits and the bounds of the daily tasks you are expected to perform.”

In conclusion, since the BPC and the Code of Regulations requires a company to have a supervisor or project manager prior to starting or even signing a specific project, the operational “tasks” paid for under General Overhead to be completed once projects are on the books could not possibly be considered Job-Related Overhead, as defined by Xactware’s “Overhead and profit” White Paper. If there are particular security concerns or extreme location or site issues involved with an individual project and which are not attributable to specific “tasks,” only then should a separate line-item be added to the body of an estimate in addition to the estimate’s General Overhead.

For a video presentation of much of this same information, see my "Supervision Fraud in Property Claims Using #Xactimate (#Xactware)," Property Insurance Claims Fraud Review (October 12, 2020):

Using Hydroxyl Generators for a Wide Variety of Odor-Only Property Claims

If you have a property insurance claim involving odor from wildfire smoke, mold or mildew, or any other malodor, use hydroxyl generators. They are superior to other methods of odor control such as thermal fogging, sealing, painting or a combination of these. Hydroxyl generators are also less expensive overall when handling smoke claims.

Even if a house's attic framing is cleaned and sealed after smoke exposure, complaints may later arise about lingering odors. This is particularly true during hot months. However, this can all be avoided by using hydroxyl generators instead of thermal fogging or other masking agents, since they "produce hydroxyl radicals that break apart odor molecules."—"Hydroxyl Generators: The Definitive Guide."

Hydroxyl generators also involve far less hassle for property owners, and they are much less expensive for their effect than any other traditional method that has been used. Further from the article, "Hydroxyl Generators: The Definitive Guide":

It is a relatively simple process compared to other popular odor removal methods as it does not require additional intervention by masking agents, chemicals, oils, and so on. There is also no fogging, spraying or wiping. Hydroxyl generators work simply by being strategically placed throughout an odor-impacted property and turned on. While it will likely take a few days for full results, most people notice the malodor being knocked down within the first few hours. The best way to ensure an odor removal job is complete is by inspecting and smelling porous items throughout the space – where odors would be embedded and take the longest to be remediated.

It is also important to understand how to properly place hydroxyl generators at a loss site. This is explained in part by Tom McArdle, "Hydroxyl Generators: Top Tips for Easy Deodorization" (September 26, 2016):

Hydroxyl generators are easy to use, but proper placement on each project is important. A baseline for the coverage area of each machine is the first step. When treating the moderate to severe odors encountered in the disaster restoration industry, typical coverage area for the most powerful machines is 1,000 to 1,500 square feet with normal ceiling height up to about 20 feet. This estimate is based on significant field experience and feedback.

McArdle also remarks on the value of using hydroxyl generators to address a variety of common property loss conditions. These include:

The strength of the hydroxyl radicals will break apart any odor they may come across – fire and smoke, CAT 2 & 3 water losses, chemical fumes, fuel oil, skunk, curry, VOCs, trauma, etc. – while at the same time not harming anyone or damaging sensitive materials like rubber, plastic, leather, electronics, artwork, wet items, etc.  

If you are worried about the tested quality of hydroxyl generators, don't be. Plenty of creditable testing has been done to ensure hydroxyl generators are not only effective in eliminating odors and VOCs ("volatile organic compounds"), but which also shows they are safe to use in occupied spaces. This means in most claims occupants of odor-impacted homes do not have to vacate the property. To quote once more from "Hydroxyl Generators: The Definitive Guide":

Testing has been performed over the years by reputable third-party companies such as Underwriters Laboratory (UL), Lovelace Respiratory Research Institute, the FDA, Comparative Biosciences, and Wonder Makers Environmental. This research shows how many hydroxyl radicals are produced, and how much ozone is produced, proving the machines’ safety. Plus, one major hydroxyl generator brand has had its technology approved by the FDA as a Class II medical device for use in occupied areas. In addition, a 13-week toxicity study on rats following FDA GLP guidelines showed no adverse effects. Wonder Makers Environmental, a firm that operates heavily as consultants for remediation contractors across the U.S., also conducted their own testing that showed a dramatic reduction in VOCs in addition to odor elimination while running a hydroxyl generator in a space affected by fire.

This means homeowners who previously might have had to leave the property while the remediation work is being done, can remain on-site. It also means content pack-outs and temporary housing will be greatly reduced if not eliminated altogether by using hydroxyl instead of the older, less effective methods such as ozone and thermal fogging. 

To learn more about the use of hydroxyl generators and how they can help you with odor-only claims, watch our video, "Odor 'Damage' Fraud in Property Claims."