CREJ - Property Management Quarterly - January 2017
Whether you have recovered from time spent with distant relatives over the holidays or you continue to reflect on a wonderful time had with said family, it is likely that laughter was common and smiles plentiful if word games were played. While playing these games, like Scrabble, Hangman and Pictionary, you might have followed the rules and directions, but there was little harm to anyone if you didn’t. Words can provide entertainment in the context of games – but words are very important in many aspects of our lives. And while rules may seem inconsequential within these games, rules regarding the wording in your insurance policy are no laughing matter. In the context of an insurance policy, certain words and phrases, as chosen by the insurance company, have special meanings. Trying to resolve an insurance claim is not a game – rules and directions are limited, but there may be significant monetary or coverage penalties if those available are not followed. There are only a limited number of words and phrases defined within your policy – these words or phrases may appear in bolded text or quotation marks throughout the policy. Many policies contain a property definitions section. Whether a homeowner, building owner or property manager, knowing how your policy defines the limited words or phrases before you need the benefits of the policy is important. Insurance companies use standardized forms in their policies, but there are many standardized forms – they chose which words are defined, yet the definitions may still vary. You may believe you know the common-sense meaning or definition of most words, including those in an insurance policy, but you may come to learn common sense or generally accepted definitions do not apply to insurance claims. A word may have multiple meanings. If the word is specifically defined within your policy, that is the definition that applies. Even if defined, ambiguity may exist – and, if ambiguous, the language is to be construed in favor of the policyholder. Policy language and provisions change. It is important to review the records you receive each year as the policy is renewed to learn of changes to include definitions. Contact your broker, agent or other insurance consultant with questions whenever you have a one regarding coverage, benefits or claims. For example, look for the definition section in your policy – you may be familiar with words or terms such as “replacement cost value,” and “actual cash value” and the definition for both may include the word depreciation – but “depreciation” is not among those defined in the policy. Records used by insurance company representatives in the handling of a claim may refer to or define “depreciation,” but it is not defined in your policy. Ambiguity in a proper assessment and proper application of depreciation allows insurance companies to withhold funds that are payable on the claim – and the amount withheld may be improperly excessive. In looking to protect the building owner and tenants, other defined words or terms of significance include “business income,” “extra expense,” “ordinary payroll expense,” “period of restoration,” and “tenant improvements and betterments.” These definitions impact payments issued on claims, expenses that are covered, repairs that are covered and the length of time payments are available. You also will want to carefully review leases with tenants to know the obligations of the tenants’ insurance companies and your insurance company. Know if and how your policy on behalf of the owner is different and how betterments are addressed. One definition within a lessee’s policy is as follows: Tenant improvements and betterments means fixtures, alterations, installations or additions made part of the building you occupy but do not own and that you cannot legally remove; and that are made at your expense; or that you acquired from the prior tenant at your expense. Understanding the components of a building or structure and any specific improvements to the property by a tenant is best captured in writing. Should a claim involve multiple carriers and tenants, a coordination of efforts will be required. If damages are sustained to a building, considerations should be given to how the claim is to be adjusted and how the loss will impact your tenants and your business relationship with each based upon terms of the leases. Two more words to contemplate, neither of which are found or defined in your policy: reputable – meaning in good repute, having a good reputation, well thought of, and respectable; and ethical – pertaining to or dealing with morals or principles of morality, pertaining to right or wrong in conduct. Insurance claims are important. Insurance companies and their representatives should be reputable and ethical. Games should not be played – not with words or efforts to properly resolve a claim.