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Property Restoration Industry: A Culture in Need of Repair?

By | April 1, 2024

Jatiek Smith, a Bloods gang member convicted on extortion and racketeering charges in New York, blamed ruthless competition and a culture of violence in the fire restoration industry for the accusations made against him by federal prosecutors.

Smith was a fire chaser, one of many in the restoration business who aggressively solicit business from owners of fire-damaged properties by monitoring emergency dispatches. They may show up at a homeowner’s door with a contract, sometimes while the fire is still burning. The restoration work is paid for by the property owners’ insurance companies.

Prosecutors found that through his control of one mitigation company, Smith asserted control over the industry by using violence, threats and extortion to drive his main competitor out of the business.

Smith was found guilty on racketeering and extortion charges on February 14. The judge said that Smith’s defense was undermined by the government’s proof of his use of violence and extortion to enforce his system. According to prosecutors, once Smith and his crew had established control over the industry, they imposed rules under which they gained a preferential share of fires.

U.S. Attorney Damian Williams, whose office prosecuted the case, said Smith’s “audacious takeover of the New York City fire mitigation industry with the help of his gang associates presented a new form of organized criminal activity.”

The use of violence and extortion to dominate an industry places the New York case in a category of its own. But experts say often-aggressive, sometimes-violent tactics have been seen across the country as fire restoration, paid for by insurance carriers, attracts illegitimate contractors seeking quick profits.

In many cases, contractors or adjusters show up at fire victims’ homes, sometimes even before firefighters have extinguished the blaze.

“We have unfortunately seen this emerge as a common practice after major loss events,” said Michael Richmond-Crum, director of personal lines and counsel for the American Property and Casualty Å˽ðÁ«´«Ã½Ó³»­ Association, in a prepared statement. “While these practices are seen in areas where major catastrophic events take place, there is no geographical limit to the practice, and we have seen these bad actors move around the country in response to major events.”

Restoration firms say insurers’ practice of directing mitigation work to their preferred vendors puts more pressure on firms who don’t want to work for discounted prices to get to fire scenes early.

The Smith case and others around the country have made headlines. And some states’ lawmakers are now calling for limits on when public adjusters can swoop in.

‘Fistfights, Guns’

Sean Scott, a former restoration contractor in San Diego who now writes articles and does consulting work in disaster recovery, said the violence that led to Smith’s conviction isn’t surprising. He said interactions among restoration contractors who show up at fire scenes can get ugly.

“Guys get in fistfights: ‘I was here first!'” he said. “There have been guns pulled, people shot. I was in it. I know firsthand about it.”

Scott is the author of two books about the restoration industry: “Secrets of the Å˽ðÁ«´«Ã½Ó³»­ Game” and “The Red Guide to Recovery.” He wrote those guidebooks after serving for 12 years as president of two San Diego restoration companies.

Scott said during an interview that “guerilla marketing” tactics, such as monitoring emergency dispatches to find new customers, can be a crucial business-development tool for contractors who don’t have an inside connection with their local fire department or the Red Cross to alert them when disaster strikes.

The stakes are high. A contractor who is hired to board up a fire damaged home can walk away with a restoration contract worth hundreds of thousands of dollars, Scott said. The initial pitch to customers may include a promise to work with a public adjuster partner who will take care of all of the insurance paperwork.

Scott said fire chasing allows restoration contractors to get their foot in the door. Nowadays, no one is staying up all night listening to emergency dispatch scanners, he said; there are services such as PulsePoint or Text Me Fires that send text messages to their subscribers.

“There are good guys out there trying to compete with the bad guys,” Scott said. “People in some situations are forced to do it. You have some fire departments where a retired fire chief will set up a board-up shop and start getting $300,000 or $400,000 jobs.”

Department Connections

One board-up service touts its connections to fire departments. Franchiser 1-800-Boardup boasts of 75 independently owned locations in the United States.

“We have a proven process that has helped numerous restoration companies grow their annual revenue by millions of dollars through strategic fire department partnerships,” the company’s website says.

The company, based in Jacksonville Beach, Florida, was founded in 2002 by Michael Hosto, a Red Cross disaster action team captain, the website says. The company’s senior vice president of operations, Tony Young, is a retired deputy fire chief with the Oklahoma City Fire Department. National Director Jeff Clohessy is a retired assistant chief for the Bedford Park Fire Department in the Chicago area.

The value of getting feet into doors is reflected in the salaries being offered by restoration contractors. In an online job posting titled “Fire Chaser/Emergency Response Coordinator,” Paul Davis Restoration of West San Fernando Valley promises an annual salary of $70,000 to $90,000.

“ERC’s need to possess the ability to turn an emotionally distraught customer into a satisfied one and leave the customer with a positive lasting impression,” the ad says.

A job opening posted by a ServPro franchise in Pittsburgh, Pennsylvania, offers an annual base salary of $100,000 for an “entry-level” emergency response coordinator.

Scott said most insurance claims adjusters have come to accept fire chasers as part of the claims process, at least in Southern California. He said he worked on both sides of the street when he was in the restoration business: His company accepted referrals from insurers but also dispatched crews to fire scenes.

“Having a chaser out there can ensure that the jobs that should rightfully be yours stay with you,” he said. “It’s sort of like guarding your chickens, to a certain degree.”

Business Strategy

That sounds like a sound business strategy to Israel Stepanian, owner of PackoutLA in Los Angeles.

Stepanian said he became involved with the insurance industry 18 years ago as an art appraiser after obtaining a master’s degree in art history. About five years ago, he started offering “pack-out” services. His company loads up the contents of homes or businesses damaged by fire or water and stores them in a warehouse until the building is restored.

Stepanian said he added disaster restoration work to his business’ portfolio about two years ago.

“It was natural growth, a natural progression,” he said. “I got into contents. For example, an insurance adjuster would say, ‘Can you do these couches, too?’ Then I became a content-loss specialist. I started doing mitigation work, too.”

Stepanian said when insurers dispatch him to fire scenes, he often finds several fire chasers lurking outside. He said some people find the practice distasteful, but he personally doesn’t feel there is anything wrong with offering services to customers who need help after a disaster.

In fact, Stepanian said he would hire a fire chaser to drum up business for his own company if he could find a person who would work on commission and behave “ethically.” So far, he hasn’t found the right person.

“When I work, I really consider who I am dealing with,” he said. “These people (property owners) are already in trouble. Now, they may yell and scream. I don’t take it personally. I may take two or three hours just to talk to them.”

Stepanian said he doesn’t want to do any fire chasing himself, even though he signed up for a free service that texts him the addresses of emergency dispatch calls. Instead, he is in discussions with a national franchise that would steer business his way.

“When you buy the franchise, they give you the jobs,” he said.

Rise in Fire Chasers

The number of fire chasers may be increasing as more people move into areas at high risk of wildfires, the National Association of Mutual Å˽ðÁ«´«Ã½Ó³»­ Companies said in a prepared statement. That also holds true for “storm scammers” who use similar tactics in areas where hurricanes, winter storms and other natural disasters cause property damage, the organization said.

“Fire chasers seeking to exploit the stress of someone losing their home to a fire or other natural disaster by promising quick fixes is unconscionable,” NAMIC said. “The impulse for homeowners to restore normalcy is understandably strong but can make them vulnerable to bad actors. Moving too quickly can ultimately muddy the claims process and create unnecessary delays.”

Legislation to Crack Down

Some state lawmakers, however, have concerns about the unsavory nature of drumming up business by tracking emergency calls.

Nicholas Zeitlinger, a spokesman for the National Å˽ðÁ«´«Ã½Ó³»­ Crime Bureau, said laws that seek to restrict soliciations too tightly may not withstand free speech challenges. The Florida Legislature learned that lesson after it imposed controls over solicitations by roofing contractors in 2021. A federal judge issued an injunction blocking the new law a year later.

But Zeitlinger said policymakers are finding other ways to protect consumers, such as requiring disclaimer notices.

“Some states are also tackling this issue by creating cancellation windows to allow consumers to exit a contract without penalty, or to extend the cancellation window,” he said in an email. “I’ve seen this legislation filed in Florida, Maryland, and Mississippi. Other options include offering inducements and other forms of prohibited advertisements. For example, Kentucky and Louisiana have filed legislation around prohibited advertisement this session.”

The property/casualty committee of the National Council of Å˽ðÁ«´«Ã½Ó³»­ Legislators is proposing an amendment to its model law on professional standards to prohibit public adjusters – who often work with restoration contractors – from soliciting customers during any “loss-producing natural occurrence.”

The model law also would also require public adjusters to use pre-approved contract forms, establish conflict-of-interest standards and bar public adjusters from making complaints against insurers’ claims-handling process without the consent of their client.

The NCOIL Executive Committee will consider final adoption of the change during the organization’s spring meeting in Nashville, April 11-14. NCOIL’s model laws are not binding. They serve only as templates for state legislatures to consider when adopting standards for the industry.

Lawmakers in at least two states this year have proposed rules similar to those in the NCOIL model.

In South Carolina, state Sen. Ronnie W. Cromer, R-Newberry, introduced a measure on February 7, Senate Bill 1032, that would prohibit public adjusters from soliciting customers during loss-producing events. The bill has been assigned to the Senate Committee on Banking and Å˽ðÁ«´«Ã½Ó³»­.

The Maryland state Senate on February 8 passed Senate Bill 231, a measure that would prohibit public adjusters from soliciting new customers between the hours of 8 p.m. and 8 a.m.

During a hearing before the Senate Finance Committee, a representative for the Maryland Å˽ðÁ«´«Ã½Ó³»­ Administration told lawmakers that the agency proposed the bill after receiving complaints from consumers that public adjusters showed up while fires were still in progress and gave them the impression that they were working for the property owner’s insurance company.

“Imagine your house burning down and someone comes up with a warm car and a cup of coffee and says, ‘Sign this contract and I’ll take care of your insurance claim,'” said Joseph Smith, acting associate director of the Å˽ðÁ«´«Ã½Ó³»­ Administration’s Fraud and Enforcement Division.

“What we are hearing from consumers is they are of the opinion and belief, at the moment when they are most vulnerable, that this person is with their insurance company and they are signing the contract without fully reading the contract,” Smith said.

SB 231 must also be passed by the House of Delegates and signed by the governor before becoming law.

Topics Florida New York Leadership Maryland Property

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