10 keys to combatting price gouging after a storm

The National Conference of State Legislatures has defined price gouging as a situation “when retailers and others take advantage of spikes in demand by charging exorbitant prices for necessities, often after a natural disaster or other state of emergency.” Fallen trees due to severe weather can cause significant property damage as well as major business interruption losses, as was clearly seen during recent hurricanes such as Irma, Michael, Ida and Ian.

The need to remove trees quickly coupled with the high demand for tree services after a storm puts property owners in a very vulnerable situation and the number of complaints filed with state attorney general offices against tree care companies accused of predatory pricing practices over recent years has increased dramatically.  However, there are some simple steps that property owners can take in order to protect themselves against gouging by tree companies.

The following is a list of 10 best practices that an adjuster can discuss with an insured who needs the assistance of a tree vendor for storm work:

1. Plan ahead: Do not work with storm chasers who provide unsolicited offers to perform tree work; before a major storm strikes, create a relationship with a quality vendor as part of your disaster preparedness planning; this will allow you to ensure fair pricing and rapid response after a CAT.
2. Say ‘No’ to Assignment of Benefits: Do not hire tree vendors that demand an assignment of benefits (AOB). Unscrupulous vendors may take advantage of the power that an AOB provides when homeowners sign over their rights.
3. Due diligence: Do due diligence and check to see if the vendor is properly licensed, insured and if there are any consumer complaints filed against them with the Better Business Bureau or state authorities.
4. Use qualified companies: Only work with companies who have a certified arborist on staff and belong to leading trade organizations such as the ISA [International Society of Arboriculture] or the TCIA [Tree Care Industry Association]; this is an indicator of a professional company that cares about reputation.
5. Payments: Do not pay the full amount upfront and pay no more than 25% of the value of the contract as a deposit; ensure that you can hold back the final payment amount equal to 25-30% of the value of the contract until work is completed to your full satisfaction.
6. Get a detailed proposal: Do not sign a work authorization unless it clearly states in detail the scope and cost of work; never sign a blank proposal and do not sign a lump sum proposal — the vendor should break down all of the costs of the job, i.e., number of trees, tree sizes, crew size, labor hours, equipment. Make sure you understand if debris is being hauled away, left on-site, or stacked at the curb (FEMA will generally not haul debris from commercial properties; only residential, so this is a key point). Do not accept any proposal with 8-hour daily minimums — pay only for the hours that a crew is on-site (one exception to this rule: crane companies will generally only do full-day leases).
7. File a complaint: If you have concerns about pricing and the vendor is not willing or able to address your concerns, then contact your state attorney general’s office (consumer protection unit) and file a complaint. Price gouging is against the law in most states, and property owners do have legal recourse against tree vendors who overcharge.

1. Say ‘No’ to liens: Demand a release and waiver of any liens that could be placed on the property from all subcontractors prior to making final payments. Property owners may have liens placed on their properties by subcontractors who have not been paid by the tree vendor. If the tree vendor fails to pay them, the liens will remain on the property title and will impact your ability to sell the property.

9. Prioritize the work: Immediately after a major storm event costs will be at a premium. Evaluate what work is critical to your use of the property in the short-term. If some work can be deferred to a later date, the costs will likely be lower.
10. Work with your adjuster: Do not assume that a tree vendor’s bill will be covered by your policy. Policies are for the fair and reasonable cost to conduct a repair and will not cover exorbitant costs. Get work pre-approved by your adjuster — adjusters have resources and can not only advise on coverage but assist in determining if the proposed costs are reasonable.

So what are the fair and reasonable costs one should expect to pay for tree removal after a storm event? This will vary depending on numerous factors, e.g., is the tree on a structure making the removal more hazardous; are there a lot of trees (economy of scale); are there access issues, or how urgent is the timeline?

While there are too many cost factors to address in this article, here are a few rules of thumb that can assist in identifying if a tree vendor may be price gouging:

• if there are multiple trees that are not on structures but down on flat surfaces lining a parking lot, driveway or a playing field, then the average cost to move a mature tree off the property should be between $1,500 to $2,000 a tree;
• a 3-person tree crew removing a tree from a structure should cost between $4,000 to $5,000 for an 8-hour work day, however, more crew members or specialty equipment may significantly increase this range;
• do not work with a vendor that increases their regular costs by over 30% during a CAT event unless there is a very specific scenario, e.g., diesel fuel is not available in an impacted area and the tree vendor leases a fuel tanker to accompany crews, or crews have deployed from out of state to assist in disaster areas. (ISO recently did an analysis of average vendor increases during a CAT event and 30% was the industry average).

Gouging in many industries is becoming more prevalent, especially during the current, turbulent economy. Property owners need to take accountability and be very involved and proactive in managing clean-up and repairs. The best protection is for property owners to have a disaster response plan in place — before disaster strikes. Property owners should be proactive and do their research on what is a fair price for tree removal services and they should identify in advance reputable resources — this will go a long way in avoiding falling victim to price gouging.

Doug Malawsky, CRM, (dmalawsky@hmiadvantage.com) is the chief operating officer of Horticultural Asset Management, Inc. and has over 25 years of operational, legal and risk management experience. He handles large and complex losses and has consulted on numerous large losses involving some of the most prestigious commercial and hospitality properties in the U.S. and the Caribbean.

Related:

Navigating the unpredictable: Key trends in catastrophe claims

Insured losses during 2023′s first half were 4th highest on record