Without proper planning the Commercial Property Insurance Claims Process Can Be a Risk:
The above linked article provides businesses the resource tools to mitigate large insurance property losses with minimal business interruption.
For more information on mitigating risks see Dodd Recovery's website.
Introduction
An EF3 tornado recently struck a global distribution center near Memphis, TN. The Company designs, manufactures and distributes home organization, storage, laundry, and garment care products to major retailers around the world. The tornado destroyed over one-third of the 280,000 SF facility, systems and equipment, while the remainder suffered significant but repairable damage.
The Company immediately notified its Insurer, and then hired a demolition contractor to perform the initial demolition/debris removal and mitigation work to preclude additional damage and related “make-safe” activities.
The Company also asked the original contractor who built the facility and several additions over the years to “bid” the repairs. Unfortunately, this contractor had no experience with disaster reconstruction projects.
The Insurer retained its preferred architectural/engineering consultants and a construction estimator to independently develop and price necessary repairs to the buildings, equipment, and build-outs, as well as a time to complete.
About one month post-loss, the Insurer met with the Company and both parties presented their preliminary findings. The Insurer’s estimate was not only 65% lower, but the estimate prepared by the Company’s contractor was much less than the Company expected based on applicable records of the original construction costs. The Company’s employees also confirmed that both estimates omitted many damaged, destroyed, or missing elements of the loss.
The Company was referred to and retained a specialty multi-discipline loss consulting firm, and provided the two scopes of repair and associated costs, requesting a review of both. After a site inspection and verbal report, the firm went on to develop a complete scope of damage assessment on an expedited basis since more than a month had already passed.
Not only did the Company have limited insurance interruption coverage, the Company needed to return things to normal before its key employees, long-term customers, overall market share, and reputation were lost.
SIGNIFICANT DISPUTED ISSUES
Flying debris (or “missiles”) damaged the perimeter walls, and wind pressures stripped and loosened fasteners in the areas of walls and roof that remained in place. The Insurer’s experts incorrectly opined that only missing screws and loose roofing materials needed repairs on a patch-like “quilt” basis where visible. Not only was this contrary to the manufacturers’ requirements, it would have voided all warranties, and did not meet the newer, more intensive code-required wind loading pressures. Stripped or loose fasteners can allow water penetration, structural, and other problems.
The tornado lifted steel columns, base plates, and anchor bolts completely out of the concrete. The Insurer’s experts recommended repairs or replacement “as-was” which was virtually impossible, and did not address the increased column loadings per new codes.
The Insurer’s team indicated that no Building Permit was required, and that compliance with new building codes was not mandatory, all based on a telephone conversation with an inexperienced building inspector. Not only was this incorrect information, the Company had purchased “Mandatory Code Update Insurance as recommended by its agent for these very reasons.
The Insurer’s cost estimator was of the opinion that no General Contractor (GC) or engineer/architects were required because everything was to “go back the way it was.” He believed that subcontractors of various trades could perform all of the work and thereby “save” the industry-standard mark-ups, overhead, and profit of a GC. A complex project that includes foundations, steel erection, perimeter walls and roofing repairs, mechanical, electrical, equipment installation and interior build-outs essentially puts the Owner in the role of a GC. The project clearly required a General Contractor to coordinate, facilitate, and schedule the project to expedite the period of indemnity, and based on design professional’s drawings and specifications.
The Insurer’s cost estimator used “Xactimate” software to prepare the estimate, and while this software is acceptable in the insurance industry for some losses, it was not appropriate for a loss of this complexity, nor did it reflect the increased costs of construction caused by demand following a large regional disaster.
OUTCOME
The Insurer realized that the Company’s loss consulting firm was knowledgeable, knew how to communicate and provide claim information in a format acceptable to the insurance industry. It began providing cash advances immediately after the initial meeting with the Company’s firm.
After providing the CEO with the technical counter arguments and supporting cost data for the disputed items, including firm bids by experienced restoration contractors, the Company was able to negotiate a final settlement for the property and business interruption losses that was nearly 400% more than the Insurer's initial estimate.
For smaller claims, businesses may try to handle the details in-house or rely on the consultants provided by their insurers. However, with larger and more complex claims, most companies find it advantageous to hire their own loss specialists to assist in the preparation and resolution of the claims.
The insurer will retain experts to review the claim that your team submitted, but you should have more peace of mind knowing that your team prepared it. Hiring a claims team will also allow the business’s personnel to continue to focus on business operations, rather than spending their time pursuing the insurance settlement.
About Brian Dodd
Article by Brian J. Dodd, CEO. Dodd Recovery Solutions has over fifty-years of experience in assisting companies with the technical aspects of measuring, preparing, and resolving complex insurance claims, and recovering from natural or accidental disasters and catastrophic losses.
