Ordinarily, when an insured experiences property damage to their home (such as from a fire, explosion or impact) and, thereafter, decides to repair and reconstruct, the insurer ordinarily pays the contractor in the name of the insured for the work as it is completed. Almost invariably the insured will instruct the insurer to include the name of the contractor on all the reimbursement checks and authorize a deposit of the checks into the contractor’s account.

However, as the California Fourth Appellate District finds in Jozefowicz v. Allstate Insurance Company (filed May 28, 2019) this practice is fraught with danger for the insured, especially where the insured has a dispute with the contractor over the scope and quality of the work.

In Jozefowicz, Plaintiff Stanley Jozefowicz sought to enforce a check he did not have in his possession. Jozefowicz instructed his insurer, Allstate, that the contractor renovating his fire-damaged home was to be named on all reimbursement checks and was permitted to deposit checks into its own account. The contractor then contacted Allstate for a check, Allstate sent it, and the contractor deposited it in its own account. However, at the time it was received and deposited by the contractor, Jozefowicz and the contractor were having a dispute over the contractor’s work and performance.

Jozefowicz sued Allstate under California Uniform Commercial Code section 3309, which provides a cause of action on a negotiable instrument where the payee has lost possession of the instrument. Allstate moved for summary judgment, contending Section 3309 did not apply because Jozefowicz permitted Allstate to issue checks to the contractor. The trial court and the California Fourth Appellate District Court agreed. It held that the delivery of the check to the contractor pursuant to the instructions of Jozefowicz made the deliverer of the check an agent of Jozefowicz and, therefore, Section 3309 did not apply and Jozefowicz was out of luck. He could not enforce the check as against Allstate. Therefore, Jozefowicz sole remedy was to sue the contractor to prove construction defects or breaches that would entitle Jozefowicz to potentially recover damages from the contractor.

If you suffer a loss that will be repaired or re-constructed by a contractor with monies to be distributed to a contractor by an insurer, it is essential that you consult legal counsel to assure your agreement with the insurer and contractor requires that reimbursement checks be endorsed by you and the contractor, and sent to you first.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.