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When to use a carrier's estimate

Army Lawyer, Dec, 2002

United States Army Claims Service

Personnel Claims Note

When to Use (and How to Reject) a Carrier's Estimate

Several weeks ago, a hypothetical claimant, Soldier X, submitted a claim in which the carrier had damaged some picture frames after shipping them in mirror cartons to an Army field claims office. Soldier X filled out a Department of the Army (DA) Form 1840R and submitted estimates from two frame shops, both of which recommended replacing rather than repairing the frames. The carrier submitted an estimate from a furniture repair shop that recommended repairing the frames. Although the carrier's estimate was the least costly of the three, the Army claims office concluded that the frame shop estimates were more "reasonable" and reimbursed Soldier X for the lower of the two replacement estimates for the damaged items. If the carrier objects to the Army's decision to use a higher estimate, it may appeal the Army's demand to the Defense Office of Hearings and Appeals (DOHA). How would the DOHA decide a hypothetical case such as this one?

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The result "depends." While a claims office has some latitude to determine the most reasonable estimate of those submitted by the claimant and the carrier, it must follow the guidance in the agreement between the Department of Defense and the carrier industry.

The Military-Industry Memorandum of Understanding on Loss and Damage Rules (MOU) (1) contains the rules governing repair estimates. The MOU discusses, among other issues, the general principles of processing carrier estimates, how to evaluate estimates submitted by carriers during any of the three "stages" following delivery, and the governing rules at each stage. (2)

General Principles

Paragraph III(A) of the MOU requires claims offices to "evaluate itemized repair estimates" from "qualified and responsible firm[s] in the same manner as any estimate submitted by a claimant." (3) Accordingly, claims offices should scrutinize carrier estimates as carefully as they would scrutinize estimates provided by claimants, but give serious consideration only to those estimates itemized and prepared by reputable firms. Claims offices are not obliged to reimburse claimants based on opinions and estimates prepared by new repair firms whose reputations are unknown, or by established repairers whose reputations are untrustworthy. (4)

Carrier Estimates Received Within Forty-Five Calendar Days of Delivery

Paragraph III(B)(1) of the MOU requires claims offices to use--not merely consider--carrier estimates they receive within forty-five calendar days of delivery, if: (1) the estimate is the lowest; and (2) the repair firm that provided it "can and will perform the repairs adequately for the price stated." (5) In short, a claims office should consider how quickly the firm will complete the repairs, the cost of the repair, and the repairer's qualifications and reliability. Claims offices should judge a firm's promise to repair the property by the firm's reputation within the local military community. If the repair shop has a good reputation, if the carrier proffered its estimate within forty-five calendar days of delivery, and if that estimate is the lowest one presented, the claims office should reimburse the claimant based on this estimate. (6)

On the other hand, if the carrier has submitted the lowest estimate, but there is good cause to select a higher one, then the claims office must promptly notify the carrier in writing of his reasons for not using its estimate. This explanation should address the specific reasons the claims office lacks confidence in the repair firm's ability and willingness to perform the repairs adequately for the price stated, based upon the firm's reputation for timely and satisfactory performance. (7) A claims office should provide this notice to the carrier during the adjudication of the claim--that is, before paying the claimant. (8) This requirement appears intended to encourage fair and open discussion between the parties. A claims office that uses an estimate higher than the carrier's estimate without giving the carrier advance written notice violates the MOU. In such cases, the carrier is entitled to a refund for the difference between its estimate and the amount of the offset. (9)

Claims offices must not postpone the adjudication and payment of claims while waiting for carriers to submit estimates. The forty-five day period specified in the MOU affords the carrier a reasonable time to obtain and submit its estimates. (10) Although some carriers diligently provide estimates, others do not. If an estimate arrives after the claims office has already paid the claimant, but within forty-five calendar days of delivery, claims offices should apply the standard criteria: (1) whether the estimate is lower than the others; and (2) whether it is from a reliable, reputable firm capable of completing the repairs for the stated price. If the estimate satisfies these criteria, the claims office should recover the amount of the lower estimate from the carrier, rather than the higher sum the claims office paid the claimant. (11)

When to use a carrier's estimate

Army Lawyer, Dec, 2002

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