Contingency can take 40%, so if they end up suing and settling for just a bit more than the house is worth, it might actually cost them money instead of just getting a directly negotiated settlement from the companies insurance.
That is probally the main issue. A mostly falling apart home isn’t worth much in comparison to the land it’s on. 100k at most, more likely 25-50k. Bog standard houses themselves aren’t that valuable, so suing suddenly is maybe not worth it, which the demo company knows and is abusing.