CREJ - Property Management Quarterly - January 2018
Whether you passed on a third helping of turkey and stuffing, dessert or adult-beverage; whether you reduce the number of times you exercised in November and December; or whether you choose to help the less fortunate and those in need – the end of the year always ushers in new resolutions. No doubt, certain priorities and resolutions are more important than others. Often, our priorities or resolutions are set for us. For example, they could be based on an occupation or career plans and determined by a manager or supervisor. If you are responsible for overseeing the day-to-day operations of a property, I would recommend you consider resolving to better understand the insurance policy that covers your building, and do it soon. Insurance decisions can have significant financial implications and impact hundreds of people, which is why you need to be knowledgeable regarding property insurance – coverages, exclusions and limits on the buildings you own or manage. While you may rely on a broker to ensure the building is properly insured, you will want to thoroughly understand what is and what is not covered. You are in the minority if you completely understand or are familiar with your insurance policy. Even if you feel comfortable with the knowledge you have related to your coverage, exclusions and limits, you would be wise to schedule a meeting with your broker early this year to review the policy. Far better to ask questions about the policy now than to learn after a loss about coverage gaps, limitations or exclusions that representatives of your insurance company may assert are applicable. Your expertise may be in overseeing properties, maintaining the grounds, keeping spaces leased, collecting payments, addressing needs of the tenants and more. Yet with a sudden or accidental event at the property – a fire, a break in a water line or hail damage with water entering from the roof – everything could change in one moment. If your expertise is not insurance coverage or adjusting property claims, you turn to others for their knowledge, most likely representatives of your insurance company. However, gathering information and asking questions of those who are not affiliated with an insurance company can lead to a better understanding of policy terms and conditions – or if there are changes you could implement to better protect a property or resolve a claim. You may learn your current understanding, based on the information you’ve been provided, is not entirely accurate or that there are other options available that work better for you and your situation. Your broker may be an excellent resource, but public adjusters or other insurance consultants also are available to provide input to include how property claims should be handled. Few people contemplate having to understand a policy if a building is completely destroyed or how to properly handle a property claim. Do not assume your insurance policy provides the required coverage for all damage you may sustain in a loss. Learn about any specific damages that are not covered and why – requests for coverage information and clarification should be in writing. Does the policy include a 2 percent deductible or greater for hail or wind damage? If so, be sure you know the amount the owner is responsible to pay before receiving any funds from the insurance company. You should know what the insured’s duties are after a loss and how the insurance company will assist in recovering. It is important to know if your insurance company will work with your selected contractor to reach an agreement on a reasonable and defendable scope of repairs, how the insurance company determines depreciation and the amount being withheld, and how the coverage limits and deductibles are set. Further, you should know if the property is insured to value and when a co-insurance penalty might apply, and if you are able to request coverage not found within your policy for an additional premium. You should ask if your insurance company will issue an advance payment to assist with immediate temporary and emergency needs, or issue payment to relocate tenants or residents to minimize a business income loss, and be sure to ask how the extra-expense coverage is utilized. Another important piece to consider is if your building has adequate coverage for increased costs of construction to adhere to applicable building codes. Changes are being made constantly to building codes in an effort to make structures safer and more energy efficient. Older buildings may not have a fire-sprinkler system or Americans with Disabilities Act accommodations. If the building is damaged, costs to install fire sprinklers and meet ADA requirements may be enforced. Since the sprinklers and accommodations did not previously exist, the costs would fall under a separate coverage for code upgrades. If the limit is not sufficient to address all code costs, the owner will be most likely incur out-of-pocket costs. Keep accurate records regarding on-going maintenance at the property. Assess risks at the property annually – risks that might impact coverage of the property and risks that might impact tenants and the public. Maintain copies of all written communications with your insurance company regarding coverage and information you have requested. Assessing and better understanding your property insurance coverage in 2018 is a worthwhile resolution.