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— Property Management Quarterly — October 2016
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C
ertain losses cannot be
prevented – accidents hap-
pen – this is why you have
property insurance. Premi-
ums are paid hoping you will
never need to file a claim; monthly
premium payments provide peace
of mind and great satisfaction is
realized that money spent on this
service, never used, was well worth
the cost. Yet, should your property
sustain damage, you understand-
ably anticipate and expect the loss
is covered and you will be indem-
nified having paid premiums for
known risks.
A waterline in your building
bursts – a sudden and accidental
event at midnight – 100,000 gal-
lons of water damaged rooms on
two floors before noticed and the
water supply was shut off. Not only
are interior components damaged,
but structural damages are evident
as well. Equipment and property
of multiple tenants are destroyed
and the tenants will need to vacate
the building for an extended period
of time. Your business income is
impacted, as is the income of your
tenants. Without a detailed repair
estimate and property inventories,
which will require time to prepare,
your initial assessment reflects
damages will exceed $1 million.
You notify your insurance compa-
ny and representatives, who include
cause and origin experts, engineers
and an adjuster, are sent to inspect
the loss. Are these representatives
sent to assist you
or have they been
sent to provide
the carrier with
information used
to exclude or limit
the loss?
The answer will
be revealed in one
of the first writ-
ten communica-
tions you receive
from your carrier.
Is it possible for
your carrier to
acknowledge coverage for the loss
and for your tenants’ carriers to
deny coverage? Yes. Might coverage
be different if the burst pipe was
underneath the building as opposed
to inside the building? The answer
is again yes – each policy will dic-
tate coverage and representatives of
each company may view coverages
differently.
In this example, it is extremely
likely you and your tenants expect-
ed and intended to have coverage
for this type of loss. Policies cover
certain water-related losses and
exclude other water-related losses.
The source of water loss often
impacts coverage and endorse-
ments to exclude water loss are
part of many commercial policies.
The intent of such exclusions are
to reduce the carriers’ risk of dam-
age caused by flooding and surface
water from broken dams or levees.
Carrier representatives may assert
any damage caused directly or indi-
rectly by water under the building
is excluded. Based upon the circum-
stances of such a loss, owners will
want to challenge such assertions.
Should you consider flood coverage
for a building that is not in a flood
zone, including in Colorado? Here
too, the answer is yes – discuss
these options with your broker.
Is there any risk or type of loss
that you would not want covered,
if coverage were available? Is there
any premium you would not pay
for assurance that your property
and business will be able to recover
after a significant loss? There may
well be circumstances in which
you make an informed decision to
reduce coverage and accept risks
associated with the limited cover-
age. However, if your request was or
is for comprehensive replacement-
cost property coverage and you
have established the request in
writing, you will have taken affir-
mative steps to obtain necessary
coverage. Follow up until you have
the information you need.
Rely on your agent or broker to
provide you with coverage options
and specifically inquire as to the
type(s) of losses that may not be
covered. If a particular risk is not
covered, ask why. What is the like-
lihood that “excluded” risk could
damage your property? Exclusions
exist and can be explained on both
the property and liability forms;
there are risks that are not insur-
able such as intentional acts of the
insured or nuclear radiation, but the
number of excluded risks is limited.
Separate from exclusions, such
as intentional acts of the insured,
which are logically not covered,
many insureds are informed after
suffering a catastrophic loss that
the loss is not covered – thus com-
pounding the financial hardship
and essentially placing the business
at risk of being unable to recover.
Insurance is in place to prevent
financial ruin, not indirectly cause
financial ruin.
If, as owner of the property, you
opted to reduce coverages, know-
ingly accepted a policy that does
not provide certain coverages, opted
to reduce your limits or were oth-
erwise involved in changes to your
policy, it will be difficult to suggest
you were not aware of or did not
approve changes. If, however, you
have not requested or approved
changes or restrictions of coverage
and one of the first written com-
munications you receive from your
insurance company after a loss is
a Reservation of Rights letter, you
will know the carrier’s investigation
into the cause of loss and available
coverage is in question. It is wise
to seek input from others experi-
enced in the adjustment of property
claims to balance with the informa-
tion provided by representatives
of your insurance company – your
profits and business may be at
risk.
s
Chris Rockers
Partner, The
Claims Group,
Northglenn
Insurance
