Risk

Efficiently Navigate Insurance Claims After Property Damage

Here’s a general overview of what contractors should do after damage occurs to property.
By Tim Romero
October 25, 2022
Topics
Risk

Property is one of the most valuable assets on a construction site. As everyone in the industry is well aware, inflation, supply chain issues and skilled labor shortages have affected nearly every aspect of operations.

And the property risks that have long affected contractors still exist. An average of 3,840 construction fires are reported each year—and as recently as 2021, extreme weather caused $150 billion in damages across the United States. Equipment and tool theft also remains an ongoing concern. Fortunately, insurance is one of the ways contractors can protect their operations from the unexpected. By taking the following steps before and after filing an insurance claim, owners can keep their business—and project—moving forward. Before reading further, though, it’s important to note that these tips are for non-auto-related property claims. Every policy will have its own provisions outlining contractor duties in the event of loss or damage, which should be read and followed.

Reporting the claim

When businesses face property loss or damage that they’d like to claim under their policy, it’s important to report the claim promptly. Some insurance policies may require claims reporting within a certain timeframe. In some instances, failure to report a property loss promptly could result in a denial of coverage from the insurer. Coverage could also be affected if something prevents an insurer from inspecting the damaged property and determining the cause—or extent—of the loss.

To help streamline the reporting process and get the claim assigned to an adjuster with the proper expertise sooner, include the following information when reporting the loss:

  • Account name and policy number;
  • Date, time and location of the damage or theft;
  • Name and contact information of the person reporting the loss, as well as a point of contact for the affected site;
  • A detailed account of what happened and those involved; and
  • The number and jurisdiction of the filed police report if a crime is involved.

If there is an immediate need to take action on a property loss—such as a safety issue or the potential to mitigate further damage—convey that need to an insurance representative and ask for the claim to be escalated. Otherwise, most insurers will try contacting a business within 24 hours of the claim being assigned to an adjuster.

Loss mitigation and evidence preservation

Most policyholders have a duty to mitigate a loss. Contractors must balance this with the need to preserve evidence from a coverage investigation standpoint—and if a third party is identified for causing the loss.

Contractors and adjusters should discuss topics like mitigation and evidence preservation on their initial phone call to define next steps. In some cases, an insurer may require a field adjuster or other expert to inspect the damaged property.

If an insurer decides an inspection isn’t needed, the adjuster may ask the business to photograph or visually record damages before cleaning up. Employees should make sure the area is well-lit to capture the exact details of the loss.

Presenting your claim

For theft losses, an insurer will likely want to know the following.

  • Who was the last person to see it?
  • When did they see it?
  • Where was it?
  • When was the loss discovered?
  • Was there evidence of forced entry?
  • How was the property secured?
  • How was the list of missing items determined?

A business may also be asked to complete a theft affidavit or proof of loss form, which includes a detailed inventory of any items taken or damaged. These forms typically include questions about model numbers, brands, dates of purchase, and the cost of replacement or original purchase price. Receipts or past photos of property can help substantiate the loss, particularly in cases of theft. If someone records an annual list of purchased tools and equipment for tax purposes, it could provide support for the claim. The same applies to purchase lists from frequently used vendors.

In some cases, an insurer may have existing partnerships with tool or equipment suppliers, which can help businesses replace their property quickly and often at a cheaper price.

Work with a claims adjuster to determine a loss value

Whether the claim is related to a tool, equipment or building loss, contractors often understand the value of their property. An insurer will do their own evaluation of the loss and provide the business with an itemized estimate or equipment quote.

If a contractor disagrees with the value, they can present their estimate to an adjuster with additional details. Adjusters are often willing to collaborate with businesses to identify where differences might exist and then determine a solution. Open communication is important throughout the claims process.

The more complex the loss, the longer a claim may take. An adjuster should explain the settlement process in detail. For example, a covered business income loss involving suspended operations often can’t be fully calculated until operations resume completely. Such a scenario may require periodic loss calculations and payments as financial results are provided. Oftentimes, policies with replacement cost provisions require actual replacement to be completed—with supporting invoices provided—before issuing payment for replacement cost benefits. The claim is typically paid in two steps, with the first being a payment based on the actual cash value of the loss.

In large losses where coverage is clear and a business needs assistance, insurers will often advance benefits while the loss assessment is ongoing, even though most policies don’t require it. This comes with the understanding that the advance will be reconciled and deducted from the final claim amount.

Coverage categories

The risk of property loss will always exist in the construction industry, but owners and managers can stay one step ahead by reviewing their insurance policy. Before the next incident, it’s important to know the types of coverages that can help.

  • Builder’s Risk or Installation insurance is for property damage to a business’ construction projects. In addition to the direct property damage provided by this coverage, protection for soft costs such as engineer and architect fees, delays and penalties can be added.
  • Contractor’s Equipment and Tools coverage helps protect equipment and its usual exposure away from a contractor’s place of business.
  • Property insurance helps cover damage to the buildings that a contractor owns and operates from, along with the business personal property typically kept there.
  • Business Income and Extra Expense insurance can help when property damage either partially or completely shuts down a business’s place of operation. Business income helps cover lost profits, while extra expense coverage pays for necessary expenses that reduce the time period a business is shut down. This can include the cost of renting and setting up a temporary location.

No contractor wants to think of the worst-case scenarios that could affect their business. But with a few basic steps, and the help of a claims team, contractors can return their businesses to full strength sooner rather than later. The tips in this article provide a general baseline for reporting claims, but every owner should talk with a local expert or insurer to discuss questions or guidelines specific to their business.

by Tim Romero
Tim Romero has more than 35 years of diversified experience in property claims and is a managing general adjuster for commercial property large loss with Sentry Insurance. Sentry provides property and casualty insurance to the construction industry. Learn more at sentry.com.

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