Pricing Water Damage Work: Xactimate, Categories and the Insurer

“How do I get paid fairly on insurance water jobs?” Mostly by getting the scope right before anyone argues about price. On an insured water loss you are paid against a line-item estimate, and the lines on it come from how the job was described: what kind of water it was, how much of the building got wet, and what your meter said each day. Leave a line out, or call the water cleaner than it was, and no unit price will save the job.

This article covers the four pieces: the category and class labels that set the scope, how the insurer's price list is built, the records that hold the scope up, and the part of the bill the homeowner owes no matter what the insurer pays.

Category: how dirty the water is

The industry's reference is ANSI/IICRC S500, the Standard for Professional Water Damage Restoration; the current edition is the fifth, from 2021, and the IICRC says its consensus body has begun work on a revision. It sorts water into three categories by contamination. As a 2020 Cleanfax summary of the standard (then in its fourth edition) puts it, Category 1 water comes from a sanitary source and does not pose a substantial risk from skin contact, swallowing or breathing; Category 2 contains significant contamination; Category 3 is grossly contaminated. The standard's own definition of Category 3 lists sewage, waste line backflows from beyond any trap “regardless of visible content or color,” all flooding from seawater, and rising water from rivers or streams.

The category changes the work, which is why it changes the bill. Under section 10.6.7 of the standard, a Category 1 job can proceed without contamination controls such as containment barriers and pressure differentials; for Category 2 or 3, remediation should come before drying, and restorers shall use contamination controls and appropriate worker protection.

Two details matter when an adjuster pushes back:

• Category is decided on site, from evidence. In a position statement dated February 10, 2026, the S500 consensus body said water from wind-driven rain and other weather events is not automatically Category 3; the restorer determines Category 3 when inspection finds a grossly contaminated condition. The same reasoning cuts the other way: you do not get Category 3 by naming the storm, you get it by showing what you found.
• Category can get worse with time. Section 12.2.6, quoted in the same statement, says time and temperature can affect the growth of contaminants and so the category. A clean supply line that ran for days under a cabinet may not be clean water by the time you open it up.

Class: how hard it will be to dry

Class measures the evaporation load. The Cleanfax summary gives the S500's bands by the share of wet porous material in the combined floor, wall and ceiling area of the space:

Class 4 covers dense, low-porosity materials; a 2007 Restoration & Remediation article on the standard names hardwood, plaster, brick, concrete and stone, and notes they may need longer drying and special methods. The Cleanfax piece adds two points that bear on the estimate: the class is set after demolition or remediation is done, and the S500's calculation for dehumidifiers and air movers both sizes the equipment and justifies it. That is your answer when an adjuster asks why four dehumidifiers and not two.

How the insurer's price list works

The estimate you are measured against is often written in Xactimate, from Verisk. The company's pricing methodology paper (the 2015 edition, published when the business was called Xactware) said its cost data was used by insurers responsible for at least one out of every two property claims in the United States and Canada, and by more than 80 percent of contractors in repair and remodeling who use computerized estimating. The paper explains where the numbers come from:

• Local lists. Separate price lists for nearly 500 markets at the time, with U.S. markets built from five-digit ZIP codes, published monthly and as often as every two weeks when demand surges.
• Surveys and real estimates. Unit-cost surveys of local subcontractors (top-down) and time-and-material surveys of labor, materials and equipment (bottom-up), checked against completed estimates from live jobs. A cluster analysis picks a representative price from the largest group of submissions, which the paper calls the “market price.”
• A typical job. Each unit price assumes the most common job size and complexity. Users can drill down into a line item to see the components behind its price.

The paper's own summary is the line to remember: there is “no way to be certain that any published price will be appropriate for a specific contractor, repair, or structure,” the correct price for any job is based on an agreement between the purchaser and the provider, and Xactimate lets users create or modify costs to match the job. If a unit price is wrong for your market, the paper describes an Independent Verification Request: send the line item, the city, the price you think is right and contacts who can confirm it; if the price falls outside the cluster of existing data, the pricing team surveys local contractors, and it reports back whether or not the price changes.

Before arguing over any unit price, check that every piece of work has a line: the containment, the content move-out, each equipment-day, the baseboard pulled to dry the wall cavity. Write your own estimate in the same line-item terms and compare the two line by line.

Document it as if someone will audit it

Section 10.6 of the S500, quoted in the 2026 statement, lists what the restorer should do at the first visit: a site safety survey, the customer's priorities, verifying the source, mapping how far the water migrated, the preliminary determination of category, pre-existing damage, immediate secondary damage concerns, and dry standards and drying goals. Each of those is a photo, a note or a reading in your file.

• The paperwork. The Cleanfax article lists an authorization to repair, an authorization to pay and a statement of satisfaction.
• The drying record. Atmospheric readings, moisture points and dry standards, and equipment numbers and placement.
• The reason for the category. The same article says to document the reason for the category and “paint the picture” of why the loss falls under it, using what you saw and smelled.
• The dry standard. Take it from the same material in an unaffected part of the house, not from a canned list, as the article recommends.
• The clock. The EPA says that if wet materials are dried within 24 to 48 hours of a leak, in most cases mold will not grow. Time-stamped photos of when you arrived and when each area reached its dry standard show you met it.

Say a washing machine hose fails on a second floor overnight and the water comes through the ceiling of the room below. The restorer photographs the burst hose (the source), the wet ceiling, the carpet and pad, and the wall readings room by room, and notes an old stain on the ceiling as pre-existing. The restorer decides the category from what the water came from, what it had passed through and what was seen and smelled, and writes that down. After the wet pad and a strip of drywall come out, the restorer measures the wet porous area against the room's surfaces, sets the class, and sizes the dehumidifiers and air movers from it. Daily readings show each wall coming down to the dry standard taken from an unaffected wall. Every equipment-day on the invoice points at a reading.

The homeowner's share

Some costs on a claim can fall to the homeowner, and the time to say so is before you start.

• The deductible. The NAIC describes it as the amount the homeowner pays out of pocket on each claim, and notes that for minor damage a homeowner may decide to pay for repairs directly. Collect it; in some states waiving it is illegal, as Roofers and Insurance Claims explains.
• What the policy leaves out. The NAIC says water damage from leaky pipes is likely covered but ground-water damage from rain, runoff or snowmelt is not, and that flood coverage has to be bought separately, through the National Flood Insurance Program or a private insurer. Washington's insurance commissioner adds that most policies do not cover gradual leaks, and that many offer only limited mold coverage, and only when the mold results from a covered loss such as a pipe that suddenly bursts.
• Fixing the leak itself. Repairing the burst pipe or failed hose is separate work from drying the house. Put the plumbing repair on its own line so everyone can see who is paying for it.

Your work authorization should say, in plain words, that the homeowner is responsible for the deductible and for any work the insurer does not pay for. If you are asked to take an assignment of benefits instead, read the NAIC's warning first: an AOB lets a third party, such as a water extraction company, act on the policyholder's behalf with the insurer, and the homeowner is not required to sign one to get repairs done.

The cash jobs

Not every water job is a claim. A small Category 1 leak below the deductible is a cash sale, and you price it from your own costs: labor, equipment-days and materials, plus your overhead and margin. For the small jobs you see often, a published ballpark can save a wasted trip: NapkinPrice™ shows an instant price range on your own website, and the water damage page shows what it asks a homeowner.

General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.