This post was written by Paul E. Breene, Douglas E. Cameron, James M. Davis, John N. Ellison, Ann V. Kramer, Richard P. Lewis, Matthew J. Schlesinger, John D. Shugrue and Gary S. Thompson.
Hurricane Sandy left a swath of major damage and destruction over a large area of the Northeastern United States. Commercial policyholders will have major claims for property damage, loss of business income, and extra expenses. History teaches that the insurers will resist or seek to limit payments. Policyholders are advised to be proactive in claiming their rights under policies. Resolution is achievable, but usually with hard work and patience. Here is a list of some practical pointers that most commercial policyholders should consider:
- First, Protect and Preserve the Assets. Emergency and temporary repairs should be documented and, if practical, reviewed with the insurer in real time.
- Attend to Notice and Timing. Make sure all notices have been issued to all insurers that could be called to pay. If the policy requires a Proof of Loss within 30 days, obtain a written extension. Spot any other time-related requirements.
- Reserve All Rights. Reserve all rights and contentions. Do not allow the insurer to classify or characterize your claim before you have had a full opportunity to review everything. If you let them, the insurers will dictate your claim to you.
- Form a Team. Form a team of all personnel involved in the claim and hold regular team calls or meetings. Review the policy with counsel; remember that all exclusions and limitations must be construed strictly and narrowly. The insurer will have counsel, adjusters, consultants and accountants. Consider leveling the playing field with your own team. Many policies cover some of these claim-preparation costs.
- Be Aware of Deductibles and Sublimits Before Agreeing on Causation. Review causation and proceed carefully before taking a position. Coverage, sublimits, and deductibles can be affected by determinations as to whether the damage was caused by a certain covered peril.
- Look for Other Policies. Some properties are insured under other policies, like a “deductible buy-down” policy or a National Flood Insurance Program policy. Limits under these policies may offset the deductible that otherwise applies.
- Communicate. Develop relationships at all levels of your team with their respective insurer-side counterparts. Keep communication open and civil.
- Documentation and Accounting. Keep exact and tedious records of all communications, meetings, and exchanges. Keep submitting documentation. Set up accounting codes or other processes to track all invoices, costs, and expenses of any kind related to the claim, by various categories.
- Attempt to Involve Insurers Before Repairs. Attempt to obtain insurer approvals before repair and replacement of property. Be aware of insurers’ rights to salvage property. If insurers are silent or non-responsive in the face of repair decisions – as is often the case – document it for the record. They should not be allowed to second-guess the decision after the fact.
- Replacement Cost New Means Replacement Cost New. Most policies value property on an RCV basis. By definition, what is old is being replaced with something new. This is a natural “upgrade.” Be wary of insurer pronouncements that the damaged property had “preexisting” defects or wear and tear.
- Do Not Forget Code Upgrades. Most policies cover code upgrades. Be aware of the underlying codes and whether they will increase repair costs. Capture all such costs in your claim.
- Prepare the Business Interruption and Extra Expense Claim Carefully. Insurers will challenge attempts to recognize net profit for an interruption period. Utilize experts who can draw on market data to prove the “BI” analysis.
- Review Other Agreements That Can Affect the Claim. There may be agreements that can impact a hotel claim – a loan agreement, a ground or space lease, a property management agreement, a condominium association agreement, etc.
- Work Toward Resolution. All claims should settle. If yours does not, make sure it is only because the insurer is being unreasonable and that the record makes this obvious – so that if you do end up in litigation, it will be apparent that you gave the insurer every opportunity to adjust the claim based on the facts, and that the insurer chose to be aggressive and unreasonable.
- Draw on the Business Side. Insurance is expensive. You should expect fair treatment on the claims side. Business contacts, such as between risk managers and brokers, should be explored. If the insurer does not live up to its end of the contract, consider renewal with a different insurer.
Reed Smith’s Insurance Recovery Group has unmatched experience in advising and assisting policyholders in all aspects of first-party property damage and business interruption insurance claims. Our experience is especially unparalleled in hurricane insurance claims.