In order to make confident decisions in HVAC losses, claims professionals need fact-based conclusions about the cause of loss and necessary repairs. Getting down to the facts often means challenging common misconceptions and inaccurate information to avoid unwanted outcomes regarding these claims. Below are five common red flags to look for in contractor estimates for HVAC claims.
Red Flag #1: Estimates That Only Provide Replacement Costs
Claims professionals should expect to receive repair costs for HVAC systems in most situations. Only in extreme circumstances should a contractor determine that the entire system must be replaced. Here’s why: HVAC systems are robust and comprised of numerous electrical and mechanical components. When something fails in a system—whether it is caused by a power surge, water intrusion, wear and tear, or flying debris—it is likely that only one or two components will be damaged. To return a unit to preloss condition, it typically is more economical to replace the damaged component rather than the entire system, and components are available readily for most systems that are 20 years old or younger.
If an estimate comes across the claims professional’s desk and it isn’t for repair costs, the claims professional should consider taking a closer look at the claim and asking additional questions. The best question the claims professional can ask the contractor is “Which component failed?” If the contractor cannot identify a specific component, it probably means that a thorough analysis of the system has not been performed and the claims professional should ask for another opinion. If the contractor identifies a component that has failed, the claims professional should question why the entire system must be replaced rather than only the failed part.
Red Flag #2: Matching SEERs of the Interior and Exterior Units
Contractors sometimes claim the entire HVAC system needs to be replaced when the outside (condensing unit) and inside (evaporator/“A” coil and air handler) systems have different seasonal energy efficiency ratings (SEERs) due to replacement of the condensing unit.
Imagine a claims professional is handling a loss where a tree has fallen on the outside condensing unit and it needs to be replaced. The damaged system is a 10 SEER for both the condenser and “A” coils. Currently, 13 SEER is the lowest you can purchase, but many older units are lower at 8 SEER or 10 SEER. It is acceptable to pair a 13 SEER condenser with a lower SEER “A” coil, but the repaired system will operate at the lower SEER.
In this example, a 13 SEER mated to a 10 SEER will operate at a 10 SEER. Although a common concern, this usually is not a problem. Most insurance policies state that the system must be repaired to the condition it was in before the loss, which in most cases was operation at the lower SEER.
Red Flag #3: Limited Availability of R-22 Refrigerant
Claims professionals also tend to get replacement estimates when the damaged HVAC system uses the refrigerant R-22. Contractors may state that the system must be upgraded to use R410A because of regulations. This is not accurate. The Clean Air Act, which governs these refrigerants, states that R-22 and the manufacturing of R-22 are hazardous to the ozone layer, so its production is set to be phased out and ceased by the year 2020. However, the regulation does not address the use of R-22 in repairs, and plenty of R-22 still is being produced today.
The federal government also requires R-22 to be captured and recycled from decommissioned systems or systems needing repairs involving the refrigerant components. This captured R-22 is recycled and then sold back to HVAC contractors for recharging older systems or making repairs such as replacing the compressor. R-22 still is widely available, and there is no date stating when it will be taken out of use. Although R-22 prices fluctuate, current prices are at levels where the most economical way to repair an HVAC system is to replace the damaged component and recharge it with R-22.
Red Flag #4: Acid in Refrigerant Systems
The presence of acid in the refrigerant of a failed compressor is commonly misperceived as resulting from a lightning strike or a lightning-induced power surge. This is an incorrect assumption. When a power surge causes a compressor to fail, it occurs instantaneously. A system that was operating normally prior to a surge will have an electrical short in the compressor motor causing it to suddenly stop without the chance to overheat. No acid is formed during this type of failure.
Acid is produced when the refrigerant is exposed to excessive heat and/or moisture over a period of time. The excessive heat can be caused by the motor working too hard due to deterioration of the compressor’s moving parts from normal wear, or it can be produced because of moisture in the system due to improper installation or maintenance. The acid will deteriorate the varnish on the motor windings causing the motor to fail electrically. Many times this will be referred to as compressor “burnout.” The pH of the refrigerant can be determined using litmus paper; however, to determine an accurate cause of an electrical failure to the compressor, it should be deconstructed for visual observation.
Red Flag #5: Chillers with Ruptured Refrigerant Tubing Due to Freezing
Much of the country experienced an extremely cold winter in late 2013 and early 2014. These extended weather conditions correlated with an increase of chillers—devices that remove heat from a liquid via a vapor-compression or absorption refrigeration cycle—with ruptured tubing from freezing. Contractors commonly diagnosed these failures as “due to cold temperatures.” While the cold temperatures seemed to be the logical cause, most systems are designed to withstand low temperatures and should not have failed. These claims warrant a closer investigation.
Oftentimes, failures are a result of improper installation or maintenance of the chiller system. Systems that are exposed to the ambient air are supposed to have their water mixed with glycol to prevent the water from freezing. These systems should be winterized during normal maintenance operations, and the glycol level should be monitored by the contractor.
Other chiller systems have louvers that are designed to open and close based on temperature systems inside the mechanical room. It is not uncommon for the louver controls and motors to be poorly maintained or improperly installed, and either factor can allow them to remain open, causing the tubing to freeze and burst. Conclusive determination of the underlying cause of failure to a chiller establishes whether there is subrogation potential and allows the claims professional to make the correct coverage decision.
Residential and light commercial HVAC claims typically aren’t high dollar, but in large volume, loss costs can add up to a significant figure. Identifying common red flags in contractor estimates aids claim handlers in deciding when to call in an expert for further investigation.
Forensic investigation firms frequently are called upon to review and explain contractor estimates. From reviewing and analyzing photos and estimates to deconstructing the compressor for visual inspection, an expert often is needed to conclusively identify the cause of failure, accurately estimate the cost of returning a unit to preloss condition, and enable claims professionals to make fact-based coverage decisions.