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Like so many issues in the property management business, insurance coverage is constantly changing and becoming more complex. While some property managers have made insurance a secondary business and have been schooled in its intricacies, most have only a very basic knowledge of the subject. The owner’s insurance coverage may seem to be a matter strictly between the owner and his or her insurance specialist, but the realities of operating investment real estate indicate something different.
You, as the manager, will almost surely be the one to maintain the actual policies for the apartment property. Even if you don’t hold the policies and pay the premiums, it is imperative that you understand the property’s coverage in the event of a loss, because insurance questions will surely be directed to you. For example, if an unidentified truck knocks over a light standard in the parking lot of a property you manage, you will need to know which policy covers such damages, the insurance carrier, the agent, policy number, policy expiration date, any deductibles, and the method or form for reporting the incident. Similar information will be needed in the case of injuries to people (employees, residents, or guests) or damage to the property from any one of a number of possible causes. Operating without the insurance information makes things far more difficult. Most managers readily appreciate the need for insurance knowledge and are rather quickly appointed “the keeper of the policies.” It is implied that the manager will not only keep these policies in an orderly and safe manner but also assume the responsibility of monitoring expiration dates and, perhaps, coverage amounts. What starts out as someone else’s concern quickly becomes a rather considerable obligation.
Learning about insurance is made even more difficult because the people in the insurance industry work every day to improve the products they offer, to ward off competition, and to maintain profit margins. Your learning process must parallel the incessant changes. In years past, insurance coverage was available for a number of basic losses or casualties that could disrupt or destroy the well-being of the property or the financial status of the owner or mortgagee. This coverage often took the form of individual policies with specifically chosen limits, and these policies were obtained from one or more carriers. Today, insurance companies are offering package policies that include most of the commonly sought forms of coverage in one comprehensive policy. One of these business-owners’ or habitational policies (as residential rental property policies are some-. times called) can include almost all needed forms of coverage. As is the case with luxury automobile merchandising, these policies are offered with fewer and fewer options. Most of the different types of coverage are built into the basic policy and only special needs are accommodated through extra-cost add-ons. Very large properties must still piece together separate policies to create a customized multiperil policy; but even these properties may soon be able to take advantage of the convenience and lower cost of the comprehensive package policy.
Broadly interpreted, insurance coverage for an apartment property breaks down into two components—options that provide for necessary repairs when damage is done to the physical components of the property and those that protect the owner and others from liability arising out of the ownership and operation of the rental property. Of course, the mortgagee (the lender), is most interested in the insurance protection for the property or physical plant. This, in most cases, represents the limit of the lender’s collateral. If a loss occurs, the lender must be assured that the money necessary to put the property back into rentable condition will be forthcoming. On the other hand, the manager, employees, residents, and the general public are more concerned about the liability aspects of the property’s insurance coverage. In the discussion that follows, I’ll address the different types of coverage within these two major classifications of apartment complex insurance. It is important to understand that they are frequently combined into one comprehensive insurance policy.
INSURING AGAINST PROPERTY LOSS
I will begin with the primary insurance concern of the lender—coverage for loss of the physical property. This insurance covers damage caused by those things most of us think of first when we consider the need for insurance: loss from fire, storm, or vandalism.
Fire, Extended Coverage (EC), and Vandalism or Malicious Mischief (VMM)
These types of insurance cover the basic perils that can damage or destroy an income-producing property. In every hour of every day more than 275 fires will occur in this country; and rental apartments are certainly involved in a good share of these losses. Common causes of fires include kitchen accidents, smoking in bed, grilling on a patio or balcony, over loaded electrical circuits, and malfunctioning heating equipment. As a property’s concentration of residents increases, so do the chances of a serious fire. The added risk of loss from other causes is also very real. Sooner or later, the apartment manager will be confronted with the need for insurance and a working knowledge of how to deal with a loss.
Fire. Coverage limits for fire are stated as the maximum amount the insurance company will be responsible to pay in the event of loss from a fire. Unfortunately, it is not quite so simple as this. There is also the question of how the property is to be restored. For years, the insurance industry used the term actual cash value (ACV) which means replacement costs that have been reduced by a depreciation deduction (made in accord with a depreciation schedule). Most of us know of someone who took particularly good care of his or her automobile only to be told the car was “totaled” after a relatively minor accident. This person was probably offered a settlement that wouldn’t begin to repair the car. The collision portion of the automobile policy is an example of actual cash value (ACV) reimbursement. The insurance company determines the value of the automobile by consulting a guide that quantifies the automobile’s depreciation based on the age and model of the car. The owner of the car receives the guidebook amount and the case is closed. Substantial arguments result from auto mobile claims, so you can imagine the problems with a large apartment property that has suffered a loss.
The current trend in real property insurance is toward replacement cost coverage. This eliminates virtually all depreciation deductions in the settlement of losses. For example, under the older style policies, the subject of the replacement cycle for carpeting would become a settlement issue. If you typically replaced the carpets in your apartments on a six-year cycle and the carpet had been down for three years when you made your insurance claim, you would only be entitled to one-half of the carpet costs because of the deduction taken for depreciation. The same is true for painting and a number of other depreciable items. Under the replacement- cost form of coverage, if you started with carpeting on the floor before the casualty, you will have carpeting after the settlement. Because you can’t buy used carpeting, the replacement will be new goods similar to the previous carpeting in type and quality. You can’t apply three-year old paint, so here again you would benefit from an “undepreciated” replacement.
Extended Coverage (EC). In addition to the loss of property due to fire, buildings are susceptible to damage by other means including wind storm, hail, lightning, collapse, explosion, riot, smoke, aircraft, broken pipes, and fire hoses. Just as these risks are commonly added to your insurance under an extended coverage provision of the basic fire policy, war and nuclear disaster are usually special exclusions to the insurance carried to protect against property loss.
Vandalism or Malicious Mischief (VMM). As the name implies, this coverage, which usually requires an endorsement to the basic policy, insures against damage caused by vandals or burglars.
This is an insurance feature that, despite good intentions, has caused in numerable problems. Coinsurance had its beginnings as a vehicle to en courage property owners to carry the proper amount of insurance cover age. When this form of coverage was chosen, a special clause was added to the policy; the clause provided that the owner would pay a considerably lower rate for each one hundred dollars of coverage if he or she would agree to maintain coverage limits that at least equaled a given percentage of the actual cash value (ACV) of the property. A typical figure is 80 percent of the actual cash value. Again, ACY is the replacement cost, less a deduction for depreciation. As we discuss coverage limits, you should remember that the value of the land is excluded, because the land will remain even after a major loss. If the property owner maintains the agreed amount of coverage, the insurance company will pay 100 percent of the loss up to but never exceeding the limits of the policy. If the owner lets the coverage slip behind as construction and material costs rise, the owner will become a coinsurer with the insurance company in the same proportion that the property is underinsured according to the agreed-upon percentage established in the coinsurance clause. The formula, plus two examples—one showing proper coverage and one showing inadequate coverage—will help to demonstrate this calculation.
Assume you own a building that has an ACV of $800,000 (remember, this is not market value; it is replacement value less depreciation deductions) and you agree to the 80 percent coinsurance provision. Then you must maintain at least 80 percent of $800,000, or $640,000, worth of cover age. If you do, you will be covered on losses up to the limits of the policy ($640,000) by the insurance company. The formula is:
Amount carried / Amount to be carried = Percentage of loss to be paid by the insurance company up to the limits of the policy
Or, inserting some numbers:
$640,000 (Amount carried) / $640,000 (To be carried) = 100% of loss to be paid by the insurance company (up to the limits of the policy, or, in this case, $640,000)
Let’s assume that the cost of restoring buildings has increased. Your building now has an ACV of $1,100,000, but the insurance coverage has remained at $640,000. You are committed to maintain coverage of at least 80 percent of the current ACV, or $880,000. Now apply the formula again:
$640,000 (Amount carried) / $880,000 (To be carried) = 73% of loss to be paid by the insurance company (up to the limits of the policy, or, in this case, $640,000).
In this case, if a loss amounted to only $20,000, the insurance company would pay 73 percent, or $14,600. You would have to make up the difference. If the loss was $200,000, the insurance would cover $146,000, and your share as coinsurer would be $54,000.
Investment property owners as well as homeowners were quick to take advantage of the lower insurance premiums created by the coinsurance provision. Unfortunately for many, either the principle was inadequately explained by insurance agents, or the policyholders did not fully appreciate the consequences of failing to meet the agreement to maintain adequate coverage as construction prices rose. Many people had a rude awakening when they submitted claims that were well below the total dollar limits of the policy and those claims were subjected to sizable co-insurance deductions. The general public’s misunderstanding became a public relations nightmare for the insurance carriers, who in turn directed a good part of their advertising budgets at further explaining the principle of coinsurance and the need for constantly updating coverage limits. In an effort to avoid a dispute at the time of a loss, insurance carriers then began to seek agreed-amount endorsements in which the insurance company and the insured would agree, in advance, on an actual cash value. The insurance company’s position was to set this amount high enough to cover inflationary restoration costs—and thus boost premium revenue. The insured party, on the other hand, was not all that eager to raise insurance expenditures and pushed to keep value estimates rather low.
The insurance industry seems to be headed toward elimination of the coinsurance provision and conversion of actual cash value with its depreciation deductions to replacement value cost coverage. The problem of increasing restoration costs is often handled with an inflation guard provision that increases the coverage on a periodic basis (e.g., quarterly). This assures the property owner that the coverage will be adequate to properly restore destroyed components, but it also means that, at renewal time, the premium will increase because the amount of required coverage has grown.
Inclusions and Exclusions
While on the subject of insurance coverage, we should also discuss those items that are typically included or excluded from coverage. It is very easy to misinterpret what is covered after a quick reading of either the policy itself or a single-page summary of it. The insurance industry has developed some guidelines to help in its communication. Over the years, “building,” as defined by the insurance industry, has pretty well identified the additions and extensions that are to be considered part of the building for insurance purposes. These usually include overhangs and marquees, mailboxes, intercom systems, aerials, machinery, equipment, construction materials, outdoor furniture, yard fixtures (with meaningful exceptions discussed below), and personal property used in the maintenance or ser vice of the building.
Even more important, however, is what is typically not covered in a basic insurance policy. Many of these exclusions fall into the category of yard fixtures and include fences, detached retaining walls, swimming pools, and paved surfaces (e.g., walks, roadways, aprons, and parking lots). Piers, wharves, docks, and beach areas or diving platforms are examples of improvements that are excluded from many policies. Similarly, foundations, underground pilings, sewers, or drainage systems are not covered. Unless specifically insured by a special policy extension, outdoor signs, lawns, trees, and plants are also commonly excluded from coverage. When these things are covered, the policy usually contains a limit to the amount that can be recovered if a loss occurs.
In addition, some coverage is lost after a building remains vacant or is unoccupied for a period of time, commonly in excess of thirty days. Vandalism or malicious mischief and plate glass coverage are two such examples. Special endorsements can be added to the policy to continue such coverage when needed.
Claims processing is expensive, and the number of comparatively small losses far exceeds the number of major incidents. If an insurance company can avoid losing the processing expense and the payment of the smaller claims, it is in a position to offer coverage at a lower premium. This is accomplished by setting a minimum dollar amount for claims called a deductible. Deductibles can range from $100 to more than $1,000,000. Some property owners and institutions can set aside adequate amounts and choose to self-insure against all but the most catastrophic losses. Others set up a loss pool among several properties and cover the lot using a blanket policy with a substantial deductible. This drives down their annual premiums, and losses up to the deductible amount are funded by the loss pool.
This protection is almost standard for rental properties. Lenders invariably require rent loss insurance as a condition of their making a loan on the property. A great many loans on rental property are termed non- recourse, which means that the lender’s sole recourse to satisfy the debt is the property that is pledged as collateral; the lender has no claim to the borrower’s other assets. If the property has been damaged by a casualty and is left partially or totally uninhabitable, rental income will be interrupted; and the funds for making mortgage payments will be reduced or discontinued altogether. The rent loss coverage substitutes for the lost rental revenue after the damage is sustained and until the building can be readied for occupancy again. Frequently, this coverage applies for up to twelve months, although it should be stated that there are many differences among rent loss coverages.
With the seemingly endless combination of building types, locations, climates, inclusions, and values, there is a corresponding number of insurance option combinations. The insurance industry has measured the risks of many of these exposures, and underwriters have calculated extra premiums and customized special coverage for almost any situation—most, of course, at an additional cost. In addition to the special forms of cover age already mentioned, here are some other examples of the more commonly requested options.
Improvements and Betterment. This coverage is carried by occupants to insure any special improvements they have made to their apartments. These treatments can include anything that becomes a part of the real estate such as floor covering, paneling, built-ins, climate control de vices, upgraded bathrooms or kitchens, and more. This is seen more in condominium properties than in rental apartments.
Boiler and Machinery. This can usually be selected as optional cover age for losses sustained in connection with damage to a building’s boiler, pressure vessels, and air-conditioning systems. The added cost is established by the insurance carrier’s underwriting department and is related to the cost of such apparatus and the exposure to damage.
Plate Glass. Exterior plate glass insurance is commonly added to a package policy. Coverage is usually limited to a fixed dollar amount per lite of glass or to a total loss amount per occurrence or during the term of the policy.
Contents. This coverage might be needed to insure lobby furniture, recreation building furnishings, exercise equipment, office or model furnishings, apartment furnishings (should you have any furnished units), and the like. A value is usually established, and coverage frequently involves a deductible amount to eliminate small claims. The policy may also be endorsed to include fine arts coverage for paintings or sculptures that are used to decorate the lobby or common areas.
Mini-Computers or Personal Computers. Computers are the focus of many apartment office break-ins because they are light, highly portable, and can produce instant dollars for thieves. This kind of equipment is usually named in a schedule provided by the insured; each piece of equipment is identified by a description, serial number, and model number. Coverage can be added to include software programs and the time required to restore lost data.
Volume Purchases. As with most commodities, greater volume results in lower prices. Insurance companies are no different; they prefer volume and will discount premiums to attract bulk business. Many owners of multiple properties have elected to group their properties together under one blanket policy to gain the lowest annual premium. Such an owner might also be able to include one or two higher risk properties in the package at a much lower rate than what should be expected.
Natural Disasters. Floods, earthquakes, volcanic eruptions, mud slides, etc. were once referred to as “acts of God.” Now they are referred to as “causes of loss” and individually identified in the policy. Losses involving these types of hazards may be included under a “difference in condition” (DIC) endorsement. Insurance covering natural disasters often involves very high deductibles.
Flood insurance is unique because qualifying for coverage means that the insured property must be in an area that is prone to flooding and in compliance with government guidelines for flood prevention. Insurance can be provided by the National Flood Insurance Program or by private companies.
INSURING AGAINST OTHER CLAIMS
Everything we have discussed thus far has involved possible loss or dam age to the property itself, but there are many more risks. Rental property is a business, and in the course of operating that business we are exposed to a myriad of potential financial losses—often very serious ones.
Liability insurance protects the property owner and those involved with the property’s operation, (e.g., the managing agent), from claims arising from injuries or even death. Other people, such as tenants, tenant guests, visitors, some vendors, and the general public are covered by this form of insurance. If a person were to slip and fall on a walk or stairway in the complex, it is this liability insurance that would absorb the medical bills. It would also defend the owner as well as any other named insured in the event of a lawsuit arising from such an accident. The managing agent will surely be included in any such litigation, because it can be argued that the manager had day-to-day responsibility for the upkeep of the property and thus played a role in the injury. Also, it is not uncommon for the managing agent’s employer, as a company, to possess a greater net worth than the owner of the property being managed. Lawsuits tend to include everyone, even those with the most remote connection, and especially those individuals and entities with some degree of wealth. For that reason, the manager as well as his or her employer must insist upon being named as additional insured on the property’s general liability policy. The lender, on the other hand, is not in a position of daily control; generally, liability coverage is not extended to financial institutions.
We face an increasingly litigious society. The total claims and awards for commonly sustained injuries range into the millions of dollars; this exceeds the limits of most basic liability coverage.
There is always the possibility of a major liability claim exceeding the basic liability coverage. To protect against this, the property should have additional umbrella coverage which is available from either the basic p icy carrier or a second one. This coverage, which is its own separate policy, would undertake the payment of claims that exceed the basic liability coverage. The limits of umbrella protection can be as high as, if not higher than, 20 million dollars; the premium is usually quoted as a specific dollar amount per million dollars of added liability coverage. Because these personal injury losses can reach such enormous amounts, even the insurance companies will reinsure themselves against a major claim.
Errors and Omissions
Managing real estate is a complicated business with myriad responsibilities. As agent, you are very definitely exposed to financial risks if you should make an error or fail to perform a crucial function within your scope of authority. As is the case with most risks, there are insurance carriers willing to protect you against such losses—for a price. This coverage is called errors and omissions insurance and it is typically purchased and paid for by the managing agent. Because of the substantial awards made by juries in liability cases—especially those awarded in decisions against the medical profession—errors and omissions coverage is expensive and offered by only a handful of insurance companies. This coverage usually involves a large deductible to eliminate small nuisance claims. The policy carefully delineates what constitutes an error or an omission; gross negligence on the part of the agent is often excluded—as, of course, is fraud.
Non-Owned or Hired Auto
This is a rather special form of third party liability and property damage insurance that allows an employer to buy insurance coverage as protection from claims arising out of accidents involving vehicles that are not owned by the property (e.g., an employees’s automobile). It is common place in the operation of an apartment property to send one of the maintenance people to the hardware store or to the gas station. The manager might ask the bookkeeper to make a bank deposit at lunch time. Examples of “hired auto” also include asking a person to borrow or rent a vehicle to perform a particular task. If any of these people are involved in an accident while performing a work-related duty, the liability can quickly shift to the employer.
Coverage for these risks is comparatively inexpensive, but the loss potential is substantial. This is particularly true when the employee has inadequate coverage or none at all. You should also know that if your firm, the managing agent, is involved in sending your people on such errands, you will also need protection either as a named insured on the complex’s non- owned auto policy or through separate coverage.
Insurance to protect vehicles owned by an apartment property as well as those who drive these vehicles is a separate policy and not often part of the non-owned auto coverage.
Host and Liquor Liability Insurance
Another common Occurrence, and hence a liability exposure, is the accident that results from the consumption of alcoholic beverages. Perhaps alcohol is served in your complex’s clubhouse or during the social activities offered by the development. If an accident causing injury or death occurs—and it can be proved that the responsible party was consuming alcohol in your development prior to the accident—you can be sure that those involved, including the managing agent, will be included in any resulting lawsuits. Host and liquor liability insurance protects those involved only when the beverages are given away, not sold. To sell liquor, you need not only a license but a completely different kind of insurance— dram shop insurance. Let’s assume that you do not have a recreational facility and you don’t plan to include parties in your regular resident activities. If you do not have a recreational facility, and you don’t plan to host parties as part of your resident activities but you choose to host a single party, you are advised to contact your insurance agent to purchase host and liquor liability insurance for that single event rather than run the risk of catastrophic loss.
Fire Legal Liability
What if your property suffers a major fire and the dense, black soot discolors the white building next door? The fire damage to your building would be covered by the property’s fire insurance, hut what about the building next door? Your insurance carrier did not agree to repair all of the buildings in the neighborhood. Fire legal liability, which is optional coverage, can be obtained to handle such situations.
Depending upon the types of coverage included in your policy, this insurance protects the apartment owner from some twelve to fourteen different risks, the most common of which are employee dishonesty and burglary, and destruction, theft, and disappearance of currency.
This coverage is last in our list of the basic insurance forms because it is Unique in so many ways. First of all, workers’ compensation is always a separate policy and is not included in either a business owners’ policy or a special multi-peril policy. It is also one of the only types of insurance that is not assignable to a new owner. This insurance is required by state law; in some states, however, an employer may be allowed to carry the risk independently if sufficient financial ability is demonstrated. The insurance protects employees who are injured during the course of their work- related activities by paying the medical costs and providing salary benefits while the employee is recovering (or continuing benefits if the employee is partially or permanently disabled). The premium is determined by the job hazards inherent in the work being performed and the amount of money paid in wages. For example, the rate per $100 of salary for a building engineer is much greater than the rate applied to the earnings of a leasing agent. The engineer’s job involves whirling machines and pumps and a host of potential injuries while the leasing agent’s greatest risk might be the possibility of falling down a few steps. The initial or deposit premium is determined by listing the different classes of worker exposure and estimating your workers’ annual wages during the upcoming year. At the end of each year, the insurance company audits the payroll records to arrive at an adjusted premium. Either this is invoiced to make up any difference owed, or a credit memo is issued for an overpayment. It is not uncommon for properties with no employees to maintain workers’ compensation insurance. The possibility of hiring a student or some other casual laborer to help out with a particular project might result in an injury and a workers’ compensation claim.
It is absolutely essential that you secure current certificates of insurance from all of the contractors and subcontractors who perform work on the properties you manage. There are several situations in which the liability of an independent contractor can be transferred to the owner and operator of the property. Some states have laws stating that a contractor without a license and insurance is deemed to be employee of the property. During the workers’ compensation audit, some insurance carriers include the value of work performed by individuals and contractors as if they were direct employees when these people show no evidence of insurance. If you do not constantly verify the existence of current policies and sufficient coverage for each tradesperson who works at your proper ties, you may well find yourself providing that insurance or, at least, undertaking the associated risks.
HANDLING INSURED LOSSES
Knowing what to expect and how to proceed in the event of a loss is one of the most important aspects of property management. Managers have some very definite responsibilities in this area, and the failure to handle them correctly can shift much of the liability to the management firm. In most cases, a period of learning and an allowance for mistakes are part of the process of becoming a property manager. However, mistakes in handling an insurance claim can result in huge economic losses to both the property owner and the management company.
Report All Losses
The advice to report all losses may sound too simple, but this first procedure following a loss is omitted regularly in the operation of rental property. Let’s say one of your groundskeepers sustains a cut on the hand while using a weed trimmer. A common response might be to administer a little first aid and hope that the healing process is quick and pain-free. Perhaps you hear about a person who fell on a slippery spot in the parking lot. You don’t know the time the accident occurred, the exact location, or even the identity of the individual involved. What can you report? The simple answer is, report everything you know and everything you heard. When insurance is purchased, the burden of responsibility shifts to the insurance carrier with a few, very important exceptions. Obviously, the premium must be paid and all incidents must be reported promptly. The final bur den that remains with the owner or manager is the follow-up activity to lessen any damages should a loss occur.
The reluctance to report claims may stem from a general optimism that everything will work Out, the fear that insurance rates will rise, or the unwillingness to assume the burden of additional paperwork and investigation. Wishing it so won’t help. Insurance has been purchased, and a manager’s job requires that potential claims be handled in a responsible manner. The failure to report a claim results when incidents are communicated vaguely or appear to be minor, not when major incidents occur. The law gives injured parties considerable time to register any claims for damages. If it is revealed that you had knowledge of an incident involving an injury and failed to report it to the insurance company, it may be deter mined that you breached an important condition of your insurance agreement. You can avoid such problems by reporting all incidents to the insurance carrier. It’s all right if you lack much of the background data, such as the person’s name, time of occurrence, extent of injuries, etc. The insurance company has people capable of securing the missing information. Your job is to report all incidents.
When a catastrophe such as fire, windstorm, or tornado results in a casualty loss (i.e., loss of property) there is usually a great deal of commotion. The scene is anything but pretty. The weather may be inclement and such incidents frequently occur at night. As you would expect, emotions run high in a situation involving the loss of furnishings and other personal possessions. Some people may have been injured trying to escape from the peril. People may be homeless and without proper clothes to wear.
There are plenty of opportunities to volunteer, hut in my opinion you should not do so. You may have vacant apartments that could be used to house those of your residents who have lost their homes, but that is not one of the provisions in your lease document. There are legal implications and ongoing consequences when you begin to go beyond the bounds of a normal landlord-tenant relationship. As a manager, you do not have the authority to commit and obligate your owner to these added burdens.
Another word of caution: Television crews may want pictures and answers to questions ranging from ‘What happened and why did it happen?” to “Who is responsible?” Reporters sometimes try to address all the issues in one telecast. As for the “media,”• it is best to let someone else do the talking. In the minutes immediately following a disaster, chances are good that your grasp of the situation will be incomplete. When the statement is aired publicly, you may regret your attempt to make a coherent statement from limited knowledge. Chances are, you will know much more in the morning, so hold your comments until then.
Beware of Public Adjusters
When you are called to the scene of an apartment complex that has been damaged by fire or some other force, you will often be approached by an individual who hands you an impressive-looking business card with a generic name involving insurance or insurance adjustments. This person will typically act calmly and be very knowledgeable about what steps should be taken next. This can be very comforting to a manager who has not experienced the emotions associated with a property loss. Unfortunately, many managers might begin to work with this stranger under the assumption that he or she is an agent of the insurance carrier. You should be aware that the adjusters who arrive at the scene are most likely public adjusters and do not represent your insurance company. Once they have secured an obligation from you, they gain a foothold in the loss settlement and restoration work—and their fee is commonly a percentage of the monetary loss. These public adjusters have numerous contacts. With just a few phone calls, workers will begin to arrive to take care of necessary chores: a tarpaulin is placed over a hole in the roof, doors and windows are boarded up to secure the building, and emergency electrical lines and portable boilers are installed to furnish heat to the damaged structure. Seeing a public adjuster seize the authority and order this repair work, the manager may be convinced that things could not be better—when in reality he or she may be obligating the management company or the property ownership to substantial fees. I strongly advise you not to become involved with these people in the first place. Your insurance carrier will let you know when their adjuster is coming to your property—do not accept the services of anyone else.
Protect the Property
The work that the public adjuster would authorize comes under the heading of protecting the property from further damage. That is the remaining obligation of the insured. There will be time between the occurrence of the crisis and the moment the insurance company’s representative arrives on the scene. Until then, you are not only authorized to act but also responsible for the mitigation of any further damages to the property. You should always have the home telephone numbers of various tradespeople or contractors whom you can call during emergencies. That list should surely include a board-up service, electrician, plumber, carpenter, furnace or boiler company, and a locksmith. Talk with them in advance so that you know they will respond, have alternate firms or individuals avail able, and keep a copy of that list with you or in your car. There are no advance warnings for emergencies. Your job requires that you act quickly and decisively; so you must always be prepared. The cost of this work will be part of the insurance claim on a dollar-for-dollar basis.
Learn About Insurance Adjustment
Adjusting an insurance loss is a very detailed and complicated process. It is absolutely no place for a beginner. Even for experienced managers who have been through many fire or casualty losses, the adjustment procedure can be troublesome. Remember, the authorized insurance adjuster who is assigned to the loss is the employee or agent of the insurance company, not the property. The insurance company is anxious to settle the matter and to see that the restoration process is begun, but it is not going to throw money at the building. The adjuster appointed by your insurance carrier will methodically go through each and every component and decide whether it needs to be cleaned, repaired, or replaced. Insurance companies have a schedule of allowances that may or may not be sufficient to complete the work. The adjuster’s estimation of what is acceptable may not be what you know to be necessary in the marketplace. Under certain policies, some items are subject to depreciation deductions which can present a rude surprise when the final settlement amount is announced. The adjuster does this every working day; you don’t. So get help. Most cities have a “fire-builder” or restoration contractor who is very experienced in both the adjustment of insurance casualty claims and the actual restoration work. A few calls to the more experienced managers in town will give you the names of these people and some background information. The good ones are expensive, but they know this very specialized business. They know the rules that the insurance company will follow, and they know what you are entitled to. Their chances of achieving a proper settlement are far superior to yours unless you have considerable experience in insurance settlements. They are also very efficient in the dirty and dangerous business of fire restoration. There is a big difference between building a new building and restoring one that has been damaged in a major fire or natural disaster. The method of compensation is often a percentage of the money needed to restore the property. Some managers choose to pay a fee only for the help in adjusting the loss, and then they do the actual restoration with their own cadre of contractors or personnel.
With luck, the properties that you manage will suffer very few losses requiring the services of an adjuster. When the occasion does arise, take the time to learn more about this very important subject.