In addition to the new employee misclassification laws (my summary of that law can be found here: https://hjlawfirm.com/important-contractor-update-changes-to-employment-independent-contractor-laws/), another law was recently passed targeting insurance restoration contractors. Effective August 1, 2024, when signing a contract that involves insurance proceeds, the customer must be given a good faith estimate of total project cost before the contract is signed.
Under revisions to Minn. Stat. § 325E.66, Subd. 1, at the time a contract is signed contractors must now provide the customer with a “good faith estimate of the itemized and detailed cost of services and materials undertaken pursuant to a property and casualty claim.” Most contractors use the Xactimate software (the same software commonly used by insurance companies) to create insurance estimates later in the process, well after the contract is signed. The new law does not define “good faith estimate,” but states that it must include an “itemized and detailed cost of services and materials.” My initial interpretation is that the new law intends to require an upfront estimate similar to what is usually not prepared until later in process.
The consequence of failing to provide a “good faith estimate” at contract signing is that “the insurer . . . shall not be obligated to consider the estimate prepared by the residential contractor.” The law also requires contractors to notify customers of the initial good faith estimate obligation when the estimate is provided.
It will likely be challenging for many contractors to generate an Xactimate or similar estimate before the contract is signed. Since the term “good faith estimate” is not defined, a possible option is providing an estimated dollar amount based upon the approximate number of squares, lineal feet, number of windows, etc. However, it is not yet clear how the Department of Labor, Department of Commerce, and insurance adjusters will interpret the requirement that the good faith estimate include an “itemized detailed cost of services and materials.” Providing only a lump some dollar amount with no other details might not satisfy this requirement.
The new law takes effect on August 1, 2024, and it remains to be seen how it is enforced and interpreted. My initial opinion is that at the time contracts are signed contractors should start providing initial estimates with as much detail as possible. Otherwise, insurance adjusters might refuse to consider subsequent full estimates because the contractor failed to provide a sufficient “good faith estimate” when the customer agreement was signed.
