Every year across Nebraska thousands of homeowners are left cleaning up a mess left behind after severe weather rolls through the state. Following such storms, these homeowners often turn to contractors to help them with the difficult task of repairing the damage to their homes. This can frequently turn into a battle for payment when the contractors are left to fight with insurance companies after the work is complete. Some contractors may consider the occasional skirmish with an insurance company to simply be the cost of doing business, but, if the necessary time is taken to have a sound contract in place with the homeowner before the work begins, contractors may be able to avoid a few insurance-company-induced headaches. In this regard, the Nebraska Supreme Court recently released a decision in Valley Boys, Inc. v. American Family Insurance Co. that sheds light on a few contracting errors to avoid.

The recent decision discussed some of the components of a contract that must be present for a homeowner’s assignment of insurance proceeds to a contractor to be valid and enforceable. The Valley Boys case involved a roofing contractor that had performed work for several homeowners following a 2014 hail storm. The contractor believed it had obtained enforceable contracts with the homeowners whereby the homeowners had assigned their right to collect under their insurance policy to the contractor in exchange for the contractor performing the necessary repair work. The “contract” between the homeowner and contractor provided that the contractor would provide labor and materials “as outlined in Exhibit A” to the contract and that the contractor had the option not to perform the work listed in Exhibit A if it determined it was not “professionally necessary and/or applicable.”

The Supreme Court identified several problems with these “contracts” between the homeowners and contractor, problems so severe that the Court determined the agreements were not enforceable. Two of the most significant problems identified by the Court were that the agreements did not state a scope of work for the contractor to perform, and that the contractor was not truly obligated to perform any work under the contract. First, the agreements were found to be for an indeterminable amount of work because the agreements stated that the work to be performed was in Exhibit A, but, notably, there was no Exhibit A included with the agreement. Second, since the contractor was able to avoid performing any work it deemed was not “professionally necessary,” the Court determined that the contractor was not actually obligated to perform any work. These two deficiencies, among other issues the Court identified, led to the contractor losing out on over $80,000.

This recent decision is generally in line with existing Nebraska law and should serve as an important reminder to contractors who rely on insurance assignments for payment, that such assignment agreements must include a clear statement of what work will be performed. In this regard, Nebraska law requires contractors to provide homeowners with “an itemized description of the work to be done and the materials, labor, and fees for repair or replacement of the damaged residential real estate and the total itemized amount agreed to be paid.” Notably, the itemization must be provided before the work has begun. Absent such itemized statement of work, contractors may face significant obstacles in obtaining payment from insurance companies. Since the itemization must be created before the work has begun, contractors may be afraid that they will be stuck with that original itemization even if they discover additional necessary repairs after the work has begun. But, concerned contractors should know that Nebraska law provides contractors with a little wiggle room to avoid this potential problem by allowing contractors to later supplement their itemization with these necessary repairs that are covered by the homeowners insurance policy. In general, however, contractors should always provide a detailed scope of work to the homeowner prior to beginning the work. In sum, if contractors fail to nail down the scope of work at the time they enter into a contract, the insurance assignment may be virtually worthless.

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