Page 10
— Property Management Quarterly — July 2016
S
ome properties, whether
an office complex, multi-
family housing complex,
manufacturing facility or
other, sustain frequent dam-
age for various reasons, including
hail. If claims are filed to address
the losses, insurance companies
may not renew the policy for these
properties; with advance notice the
property owner or an owner’s repre-
sentative will need to secure proper
coverage with another carrier.
Property owners and their rep-
resentatives should be aware of
and pay particular attention to
the terms and conditions of a new
policy and thoroughly understand
changes before accepting the policy.
Changes will reflect new premium,
new coverages with new exclusions
and endorsements, new definitions
and new deductibles. Ask ques-
tions to learn how deductibles are
applied and to determine if alterna-
tives are available and more cost-
effective.
With Colorado properties regularly
susceptible to hail damage, securing
a policy with proper coverage for a
building or complex at an accept-
able premium with an appropri-
ate deductible(s) is critical. Policy
language that may limit coverage
should be understood as well as
costs the owner will incur by way of
the deductibles, should damage be
sustained for hail and wind dam-
age.
Many policies now reflect sepa-
rate and increased deductibles for
hail and wind damage. For damages
caused by most
other perils, such
as fire, a deduct-
ible is noted on the
declarations pages
– the deduct-
ible may be set
at $1,000, $5,000,
$10,000 or another
amount.
However, as a
result of the like-
lihood of hail or
wind damage,
deductibles for
these two specific perils may be set
at 1 percent, 2 percent, 5 percent or
higher based on the value of each
building.
As an example, consider a large
apartment complex with 20 build-
ings and a policy reflecting a 2
percent hail deductible. Each build-
ing in the complex is valued at
$750,000. In this scenario, the owner
will be responsible for the initial
$15,000 of hail damage to each
building; the carrier will apply the
deductible to the claim before any
payment is issued.
In this example, after many hail
storms and a thorough assessment
of the property, the owner learns
that not only has each roof been
damaged, but also the exterior of
the buildings including the façade,
downspouts, windows and signage
are damaged. Let’s assume repairs
to the exterior of each building is
$10,000. Let’s also assume it costs
$40,000 per building to replace a
damaged roof.
To simplify the owner’s exposure
to out-of-pocket costs in this exam-
ple, if damages were established
and agreed upon by the parties
at $50,000 per building, the claim
would be $1 million. The insurance
company will issue payments total-
ing up to $700,000. However, with
$15,000 being applied as the deduct-
ible for each building – based on
the 2 percent deductible with each
building valued at $750,000 – the
owner will be “self-insured” for the
initial $300,000 – after having paid
the specified policy premium.
The example reflects the parties
agreed to the scope of damages and
repair costs to include roof replace-
ment for each building and exterior
damage. Yet suppose, with the same
applicable deductible and after mul-
tiple inspections of the property,
representatives of the insurance
company agreed the damages to
the exterior of each building was at
$10,000 and asserted the roofs on
12 buildings must be replaced, but
damage to the other eight could be
repaired for $5,000 each.
If this is how the claim is adjust-
ed, with the owner responsible for
the first $15,000 for each building,
the owner will have out-of-pocket
costs of $180,000 for the 12 build-
ing where repair costs exceed the
applicable deductible and the car-
rier will be responsible for the
remaining $420,000. Repair costs
for the other eight buildings are at
$15,000 each – the amount of the
deductible for each – thus the car-
rier will not issue any payment for
damages to those eight buildings
as repair costs do not exceed the
applicable deductible. The owner
will be responsible for the $120,000
to address required repairs on these
eight buildings, in addition to the
$180,000 for the 12 buildings with
full roof replacement.
In both examples, the owner is
exposed to costs of $300,000 for a
covered peril – after having paid
the requested policy premium and
factoring in the noted deductible.
If necessary funds are not readily
available to cover the out-of-pocket
expenses, required repairs may be
delayed.
Owners who are aware of and
understand this exposure will prop-
erly budget for repairs, yet some
owners or their representatives may
not fully understand the exposure
and the required funds may not be
readily available. Depending on the
value of the property, the specified
deductible and costs to properly
repair the damage sustained, the
exposure could be less – or consid-
erably higher.
Owners should consult with their
agent, broker or another experi-
enced in the insurance industry to
learn of options with respect to hail
and wind coverage and to be aware
of their financial exposure if their
property is damaged. Owners will
benefit from seeking input from
those experienced in securing prop-
er coverage and from those experi-
enced in the claims process.
s
Insurance
Chris Rockers
Partner, The
Claims Group,
Northglenn
