When to File a Claim

One thing to consider when filing a claim is whether or not you should file a claim. In some cases, especially with regard to larger properties or multi-property policies, clients have opted for a larger deductible to reduce the cost of the insurance policy. If the claim looks like it may fall below the deductible or only exceed the deductible slightly, it may be in your best interest not to file a claim. The reason for this is simple. Underwriters look at the risk the insurer is taking when they are calculating premiums. If you have a number of small claims on your property records it will adversely affect the cost to insure the property. More claims = more risk to the insurer = more cost to the insured. I have spoken to a shopping mall owner who had a tornado hit their property and caused close to $150,000 worth of damage. Their deductible was $100,000 on the property and they weren’t going to file a claim because of this very issue.

How to File a Claim

Keeping in mind that your insurance policy is the guidebook for all things and processes when it comes to your claim, you should definitely read the section of the policy that pertains to “Duties After A Loss.” While all policies read a little bit differently, the basic language that applies to filing a claim generally states that the insured is to notify the insurance company in writing as soon as possible, but certainly within 10 days of the loss. Most insureds that I have assisted with their claims, call their insurance agent who files the claim on their behalf. To be honest I have never seen this become an issue (partly because, when we are helping a business owner or homeowner with their claim, we send a written notice of loss to the insurance carrier to satisfy this requirement) but, if the insurance adjuster gets a burr in his bonnet, for whatever reason, he/she could press the issue.

How to Document the Loss

There are several areas that the business owner needs to have a grasp of in order to accurately file a property loss claim. These areas are related to areas of coverage that the policy provides. These general areas of coverage are:

  1. Structure loss
  2. Business personal property loss
  3. Loss of use/ loss of income/ business interruption loss

All three of these areas will need to be treated as a sub-part of the overall claim for several reasons.

  1. The structure loss will likely be calculated in Xactimate. This is the main estimating program that most insurance company adjusters use to calculate loss and damage. This program is very similar to construction estimating software programs which are, by design, extremely complex. These programs will require a great deal of experience and skill to get the best and most accurate outcome. But besides that, the structure portion of the claim, when paid in check form, will likely have the name of anyone who has a mortgage interest as a signatory on the check. This usually means that the check will have to be signed by the insured and the funds will then get sent to the lender and will be put into an escrow account and drawn out in 1/3 increments as you reach certain reconstruction benchmarks. (In the event that you have no mortgage on the property, this restriction will not apply.)As discussed earlier this payment will most likely not be the full amount you are owed for the loss but a depreciated amount based upon ACV (actual cash value). The balance of this payment will come as you complete the rebuilding project and prove to the insurance company that you have spent the money to rebuild. Then and only then will you be able to recover the depreciation to get the benefits of your RCV(replacement cost value) policy.
  1. Business personal property (BPP) or personal property (PP) loss is a whole different approach. In the event that you have a loss that includes BPP or PP the insurance company’s adjuster will normally provide you with a few sheets on which you are to write down all of your personal property inventory. These sheets require a great deal of information including:

– The name or description of the item – The quantity of the item – The age of the item – Current replacement cost of the item – The depreciation % applied to the item. – The Actual Cash Value (ACV) of the Item – All line items totaled at the bottom of the final page – Sometimes, they may require where the item was originally purchased and the original purchase price. Often times this information is really unnecessary, but some carriers may still require it.

I have also spoken to clients that were being asked by the insurance company’s adjuster to provide receipts for all of the items they were claiming. Additionally I have seen some depreciation, that I will say was unreasonable, when calculated by the insurance company’s adjuster. You should understand that not all insurance company adjusters are going to treat you unfairly (though some will) but it is their job to adjust the claim. This means that they may also need to adjust your expectations in the process as well. Having an advocate like a Public Adjuster (or more specifically FirstCall), usually shifts the tactics of an insurance company adjuster in favor of the insured.

There is a reason that we average a 58% increase in claim size. (I’m just sayin’.)

  1. The third category I want to unpack is the Loss of Use/ Loss of Income/ Business Interruption part of the policy. When a business has a loss to their place of business it can have a lasting effect on the income that is produced by that business. This area of coverage can be very confusing.When you have a loss to your business you will likely have a subsequent loss of income from that business until it is back up and running. Calculating that loss of income is then point of this type of coverage. Oftentimes calculating this loss is a matter of locating the right information and presenting the information in a way that the insurance company can clearly understand.In my experience with hotel losses, many of my clients have been surprised and disappointed when they have provided all of the necessary information and the insurance company responds with a judgment of no loss of revenue related to their property damage. In a hotel loss you will be required to provide the insurance company a copy of your books, the level of occupancy of the property and usually tax records for the past two years. The level of occupancy and the extent of damage sometimes counteract each other and produce a “no net loss” result. Of course there are other situations, where the property is untenable to some degree, that do require reimbursement. It is all in the forensic accounting and presentation of the facts that will determine your actual loss. This is definitely an area that you will need an expert to assemble and present these facts in order to give you the best opportunity to recover.(As a side note, for those who do some cash business that inadvertently gets omitted from your tax records every year, this type of book keeping will hurt you in your “loss of income” portion of a claim, should you have one.)
  1. Thank you for your tips on how to file a claim. I like how you said that a claim needs to be filed within 10 days. My guess is that the sooner the claim gets reported the smoother the processes goes.

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