Whether it’s fixing storm damage, updating a kitchen, or making essential improvements, choosing the right contractor for your home or business is key. But for many residents in Wisconsin, this decision can turn into a nightmare, thanks to one growing problem: contractor fraud.

Wisconsin residents are particularly vulnerable to these scams after severe weather like heavy snowfalls, floods, or windstorms. Last year, there were 28 disastrous climate events across the U.S., totaling nearly $98 billion in losses. Post-disaster fraud accounted for nearly 10 percent of that, impacting individuals and insurance premiums across the industry. Staying safe from storm chasers is important as storms become more common and severe in Wisconsin..

The first step is understanding their tactics. Scammers often pose as legitimate contractors and prey on stressed homeowners who need urgent repairs. They show up unwanted and prey on the sense of urgency. The consequences can be devastating—unfinished work, substandard repairs, or money lost with nothing to show for it.

In this article, we will unpack the common types of contractor fraud that Wisconsin residents face and identify the key warning signs to watch for. Keep reading to learn how to protect yourself from becoming a victim of these all-too-common scams with expert tips from Jeff Lieberman, Director of Anti-Fraud and Recovery at Central Insurance.

Understanding Theft by Contractor Fraud in Wisconsin

In Wisconsin, theft by contractor fraud is when a contractor takes payment for a project but fails to complete the work or misuses the funds. Those who fall victim to this type of serious crime may be able to file a civil lawsuit, but the contractor may also face criminal penalties, including fines and possible jail time.

Under Wisconsin law, contractors are legally required to hold any payments they receive in trust for the project. This means they must use the funds to pay for labor, materials, and services related to the job. If they divert the money for other purposes or fail to complete the work, they can be charged with theft by a contractor, a criminal offense.

Scammers can target Wisconsin residents for contractor fraud following severe weather events, such as hailstorms, flooding, or heavy snowfall. These conditions create an urgent need for repairs, and scammers often exploit this desperation by posing as legitimate contractors.

According to Lieberman, here are some key points to keep in mind after storm damage:

• Storm Chasers: Many scammers travel to areas hit by severe weather, offering services without a local presence or reputation. They often lack proper licensing and insurance.
• Urgency and Pressure: Scammers may use high-pressure tactics to push homeowners into making quick decisions, often insisting on immediate payment or signing contracts on the spot.
• Low Initial Bids: Fraudulent contractors may provide unusually low estimates to win over homeowners, but this often leads to inflated costs later when they claim additional damage or necessary repairs.

Lieberman recommends contacting your insurance carrier after the damage to your home or business and taking the time to research contractors. Let’s look further at some warning signs of a contracting scam.

Six Warning Signs of Contractor Fraud

Knowing the warning signs of contractor fraud is crucial when dealing with home repairs, especially after a major weather event. 

Here are six red flags Wisconsin homeowners should watch for, according to Lieberman:

1. Unsolicited Offers

Be cautious of contractors who show up at your door uninvited, especially after a storm. Legitimate contractors are often booked with ongoing projects and rarely need to go door-to-door for work.

“A scammer may ask to inspect your roof with a promise of finding damage,” Lieberman describes. “From there, they can claim you have damage that you don’t or even manufacture damage to your roof.”

2. Demands for Large Upfront Payments

Scammers often request large deposits or full payment upfront, promising to start work right away. Legitimate contractors typically ask for a reasonable deposit, with the balances due after completion or at key milestones in the project.

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3. Lack of Proper Licensing or Insurance

“Validate and verify are my two favorite words when it comes to fraudulent contractors,” Lieberman says. He recommends asking for proof of licensing and insurance for every contracting job. Scammers will claim they’re licensed but may avoid providing documentation. If your contractor offers an excuse instead of proof, don’t continue business with them.

License Lookup: The Wisconsin Department of Safety and Professional Services website lets you check if your contractor is properly licensed.

4. Pressure to Move Quickly

Fraudulent contractors will pressure you into signing a contract on the spot. Tactics like limited-time offers or discounts for immediate payment are not good signs and are designed to make you act quickly without proper research.

5. Suspiciously Low Bids

If a contractor’s bid seems significantly lower than others, it’s a major red flag. Scammers often lure victims with low prices only to increase costs midway through the job or provide subpar work with cheap materials.

6. High Interest in Insurance Coverage

Lieberman notes that it’s normal for contractors to coordinate with your insurer, particularly in cases involving storm damage. However, excessive probing into your policy can be a sign of trouble.

A fraudulent contractor may ask questions about your past claims and coverage limits or even encourage you to inflate the scope of the damage to maximize the payout. This type of behavior could indicate they plan to manipulate the insurance process for their benefit

What is an AOB and Why to Stay Away

An Assignment of Benefits (AOB) is a legal document that transfers your insurance claim rights to a third party, often a contractor. Signing an AOB gives the contractor the authority to deal directly with your insurance company, including receiving payments for repairs and making decisions about the claim. 

While this may seem convenient to simplify the process, it can open the door to significant risks. “When you sign an AOB, a contractor is now representing you and your claim to the insurance company,” Lieberman explains. “This is where a tremendous amount of fraud can come into play. A $20,000 roof can suddenly become $300,000 because a fraudulent contractor has set the price of your damage. Now, the insurance claim check goes directly to the contractor.”

Why You Should Avoid AOBs

• Loss of Control: Once you sign an AOB, you lose control over your insurance claim. The contractor can make decisions without your approval, which may not always be in your best interest.
• Inflated Costs: Some fraudulent contractors may use AOBs to inflate the cost of repairs, billing the insurance company for unnecessary or overpriced work, which could increase your premiums.
• Delayed Claims: A dispute between the contractor and your insurer could delay your claim, leaving you in a prolonged state of repair or damage without resolution.

Instead, Lieberman urges insureds to keep control of their insurance claim. You can do this by communicating with your insurance company to handle payments, verifying your contractor, and reading contracts carefully.

Theft by Contractor Fraud in Wisconsin: Protecting Yourself

There are plenty of methods to ensure you protect yourself from falling victim to contractor fraud. Below, Lieberman provides some ways to keep your home and wallet safe and resources you can utilize to prevent scams.

What to Do if You’re a Victim of Contractor Fraud in Wisconsin

If you believe you’ve fallen victim to contractor fraud in Wisconsin, there are immediate steps you can take to protect your rights and mitigate further damage. Acting quickly is key to resolving the situation and recovering potential losses.

Contact your insurer immediately. Many insurance companies have fraud prevention teams that can investigate the contractor on your behalf. It is important to gather any documentation possible, including contracts, payment receipts, photos of work, and communications with the contractors.

Once you’ve done this, Lieberman recommends reporting your experience to the following entities:

1. Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP): Investigates claims and can help mediate between you and the contractor or escalate the case if necessary.

2. Federal Trade Commission (FTC): Protects consumers from deceptive and unfair business practices by investigating fraudulent contractors. 

3. National Insurance Crime Bureau (NICB): Helps consumers report insurance fraud, including contractor-related scams, and works with law enforcement to investigate fraud cases.

The Central Difference

At Central, we understand how devastating contractor fraud can be for homeowners. We’re committed to standing by your side throughout the process. Central’s dedicated Anti-Fraud and Recovery Team identifies suspicious activity to ensure repairs are completed properly.

“We have a sophisticated AI and machine learning fraud analytics program that can help us detect a potential fraudulent contractor as soon as they insert themselves into the claim,” Lieberman explains. “If our insured is involved in a scam, we will not only report the acts to all the necessary departments we are mandated to, but we also take a very proactive approach to work with these entities to hold the contractor responsible.”

Learn More: Central’s Industry-Leading Fraud Analytics Program

“We have a strong internal initiative within our fraud team to build strong external relationships with all these entities dedicated to preventing fraud. We foster relationships with various government branches committed to licensing and consumer protection, Attorney General boards, the BBB, the FTC, and more,” Lieberman describes. “These relationships help us present and resolve cases of fraud.”

We constantly innovate and implement new technology to prevent fraud that no other carrier has done before. With cutting-edge analytics systems and partnerships with external organizations, we’re dedicated to protecting your well-being and peace of mind. While Central is keeping you safe from fraud, we’ll deliver exceptional coverage and customer service along the way.