by Collin Hite
Hurricane Sandy swept through the mid-Atlantic and Northeast with tremendous force. The storm was so large that the media dubbed it “Frankenstorm.” All indications are that the storm’s impact was significant, including tragic loss of life, direct property damage, business interruption and extra expense from flood, wind and power outage, as well as civil authority, ingress/egress issues. Now home and business owners are not only faced with the prospect of cleanup, but pursuing their insurance claims. Business Insurance is reporting that the number of claims could be unprecedented. Catastrophe modeling firms are estimate total losses of $5 billion to $20 billion.
There are some important tips for policyholders when dealing with an insurance claim. First and foremost, the insured should promptly give notice to the insurance company of the loss. Many insurance policies require notice, and the policies usually use language saying the notice should be quick. For instance, many insurance policies use language such as “prompt notice” or “as soon as practicable.” An insurance policy may have specific terms with respect to how notice is given. Some insurance policies contain specific facsimile numbers or email addresses that are to be used. It is important to review the insurance policy and provide notice in the specified manner if required. Some policies require notice to be in writing, which can be a good idea anyway. If using the mail, you should send correspondence via certified mail to obtain proof of delivery. In addition, it is a good idea to also give notice to your insurance broker or agent. In some states giving notice to an agent or broker is deemed to be notice to the insurance company. However, in an abundance of caution it is recommended to give notice directly to the insurer and to the broker/agent. Of course, choose your words carefully. Avoid attributing a cause of the damage to the loss, such as “my store was flooded.” Insurance policies define many ordinary words in a way that extends or denies coverage.
Save all receipts incurred with the loss. First-party property insurance many times requires the policyholder to “[t]ake all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property . . .” If you have to seek temporary space for your business or to live, save receipts associated with the temporary move. You also should document the damage and prepare an inventory of the damaged and undamaged property. This may also be required by an insurance policy.
Be prepared for the insurance company to send a representative to inspect the property. This person may be an employee of the insurer or an outsourced representative. Once again, your insurance policy likely requires you to allow the insurer to inspect the property, including a review of your books and records. Your claim and the inspection usually will result in having to prepare a document known as a “proof of loss.” This document usually quantifies the loss and will serve as a basis for ultimately paying the claim. Finally, most insurance policies contain a condition that states that you must cooperate in the insurer’s investigation or settlement of a claim. On the policyholder’s end, it is wise to document conversations and confirm any agreements in writing as soon as possible.
How the insurance company decides to proceed in paying the claim is where many policyholders wake up to a possible surprise in the scope of coverage. Most property policies provide for an actual cash value versus repair/replacement cost formula, and depreciation comes into play as well. This formula can put the pinch on owners with respect to personal or tangible property when they are only paid fair market value of the item, which is rarely enough to replace it. Of course, flooding rarely is covered in a homeowners’ policy unless added as a specific aspect of coverage. Whether the damage was caused by wind or flood is often a debate in property losses from such storms.
It is critical to thoroughly review your insurance policy. Yes, it will read like Greek to many people. But certain critical conditions required in the event of a loss are usually much easier to understand. Furthermore, many insurance policies contain deadlines that must be followed. For example, in looking at a particular property policy it provides for debris removal as part of paying the claim. That is a nice benefit in the policy. But the provision states that the debris removal expenses are only payable if reported within 180 days of the date of loss or damage. It may take that long to line up a contractor, get estimates and decide how to proceed. Noting these types of deadlines is important to ensure a policyholder can maximize coverage.
The first offer to pay your claim by the insurance company does not have to be the last. Many times the insurance adjuster is low on the claim valuation. Many insurers use contractors and experts that are regularly sent business by the company. A lot of times their opinions seem to be low, especially if you have a local contractor provide a comparison estimate directly to you. You should consider obtaining your own estimates and if they are higher than the insurer’s, then negotiate with the adjuster. A policyholder is not automatically entitled to get the highest price, but the difference is usually found in the scope of work. Does the roof need repair or complete replacement? Are certain items being replaced with like kind? Those types of differences should be negotiated, but you can only do so by getting your own evaluation of the scope of work. Seeking out such estimates can be difficult and time consuming in the aftermath of such large scale destruction when contractors are so busy. Plus, be mindful of using knowledgeable and trustworthy construction estimators. In negotiating the differences, policyholders should be mindful to consider assistance in that arena as well. Insurance coverage attorneys or public adjusters can help present the claim and negotiate the proper adjustments. Insurance brokers can also provide assistance to their clients. Make sure that the negotiations do not cause you to miss deadlines imposed by the policy. If you are running up against a deadline, you should seek an extension or waiver of the deadline from the insurance company.
In short, ensuring you protect your insurance claim will take extra time. While trying to deal with the actual loss, many people put the insurance aspect on the back burner, but that can be highly detrimental. Attention has to be paid to the insurance claim from day one, and that starts with reviewing and understanding your insurance policy. Once you are back up and running at home or your business, it is a good time to reassess the claim process. Did you have the correct types of coverage and policy limits? Did you have a pre-loss inventory and purchase prices for use with your claim? Did you have photographs of property before the loss that you could use with an insurance claim? Fix the problems before the next natural disaster or loss and your insurance claim process certainly will be smoother if your experience this time was problematic.
Collin Hite is the leader of the Insurance Recovery Group in Hirschler Fleischer’s Richmond office. He handles insurance recovery and coverage litigation nationally in the areas of business interruption, all risk, construction, business torts, products liability, directors’ and officers’ liability, employee dishonesty, intellectual property, environmental matters and bad faith claims.
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