Water mitigation and restoration work presents a number of legal risks that differ significantly from those found in typical construction projects. Unlike planned construction, restoration work is often performed under emergency conditions. This can lead to a lack of written contracts or clear scope documentation. Arizona law still requires a written contract for residential work exceeding $1,000, even in emergencies. Failing to have one can result in disputes over payment and authorization.
Assignment of Benefits (AOB) Disputes
Another unique challenge to this type of work comes in the form of Assignment of Benefits (AOB) agreements. These agreements allow restoration contractors to bill insurers directly for work performed, but they are often contested by insurers or homeowners who may dispute the scope or validity of the assignment. Arizona law prohibits insurers from ignoring valid AOBs—but in practice, many still do, leading to delays or outright denials in payment.
Estimate Discrepancies with Insurance
Additionally, contractors frequently face discrepancies between the restoration estimates they provide—often prepared using software like Xactimate—and what the insurer is willing to pay. This misalignment can lead to significant shortfalls in compensation, disagreements with property owners, and in many cases, accusations of fraud or overbilling.
Consumer Fraud Act Exposure
The Arizona Consumer Fraud Act (A.R.S. § 44-1522) is another area of heightened concern. Because restoration customers are usually homeowners in distress, any lack of clarity around costs, scope, or payment terms can be interpreted as a deceptive practice. This exposes contractors to consumer fraud claims and potentially treble damages, especially where project costs exceed expectations or were not properly disclosed.
Even minor disputes with homeowners can result in disproportionately large liabilities due to attorneys’ fees and court costs.
Claims of Unauthorized Work
Issues also arise when homeowners later allege that certain work was not authorized or that they were not adequately informed about what was being done. Without proper documentation or clear change order procedures, contractors may find themselves unpaid or facing legal claims for unauthorized work.
Contamination and Hazardous Materials
Health and safety concerns further complicate restoration work. Projects often involve mold, asbestos, sewage, or other hazardous conditions. Improper remediation can result in not only breach of contract claims but also personal injury lawsuits or regulatory penalties. It is essential that contractors follow IICRC standards and maintain appropriate certifications for hazardous remediation.
Lien Rights Compromised by Urgency
Lien rights are also commonly compromised in restoration projects. The urgent nature of the work, lack of clear ownership documentation, and failure to serve a Preliminary 20-Day Notice can result in a loss of lien rights under A.R.S. § 33-992.01. Contractors who fail to strictly adhere to notice and recording deadlines may have no recourse for nonpayment. Whether a restoration project can qualify for lien rights depends largely on the nature of the work being performed. Read more about restoration company lien rights here.
Subcontractor Oversight and Liability
Finally, restoration projects frequently rely on subcontractors for specialty services such as plumbing, HVAC, or demolition. Without proper subcontractor agreements and lien waivers in place, general contractors may be exposed to liability for substandard work, job site injuries, or unpaid subcontractor claims.
Due to the reactive and high-risk nature of water mitigation and restoration, contractors must adopt meticulous legal practices. This includes:
- Executing written contracts for all projects
- Strictly following lien procedures
- Using clear AOB and change order documentation
- Maintaining communication with homeowners and insurers
- Ensuring subcontractor compliance
- Adhering to IICRC and safety protocols
Consulting a qualified Arizona construction law attorney can help your restoration company stay protected and profitable in a legally complex field.
