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Managing your risk by Michael Kelly

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 41 years of risk management/ insurance experience, he holds the CPCU - Chartered Property & Casualty Underwriter, ARM-P - Associate in Risk Management for Public Entities, CRM - Certified Risk Manager, ARe - Associate in Reinsurance and CIC - Certified Insurance Counselor Professional Designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124.  For archives of this column click here.

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Aug 29

Property Damage Claim Handling Lessons

Posted on August 29, 2013 at 9:19 AM by Chris Baucom

On August 27th, 2011, Hurricane Irene made landfall along the North Carolina coastline at 7:30 am and, while it was a relatively low energy storm, it did provide some lessons for handling property damage claims that are worth reviewing. While there are checklists from numerous sources you can get to be prepared for a storm, this month’s article is more focused on the actual claim process. Specifically, I want to touch on nine items. If you pay attention to these nine items, it will greatly decrease your headaches in getting paid for your damages as quickly as possible – be it from the NCACC Liability & Property Pool or your standard insurance carrier.

One of your immediate responsibilities after you have sustained damage is to take reasonable steps to prevent any further damage as soon as you can. This means, for example, that if a roof has been torn off, exposing the contents of a building, temporary repair can and should be made to make the building rainproof again, buying some time to allow an adjuster to arrive. Common sense prevails here, but you have the pre-authority to do the necessary repairs, as it will lessen the total ultimate amount of the loss and is in the financial interest of both the county and the insurance company.

Documenting before, after and during these temporary repairs are made will also help – as it may take a day or two before an adjuster can actually make it to your location to begin estimating the extent and cost of damage. If at all possible keep damaged items, such as roofing materials, duct work, ceiling tiles, wall board, flooring, etc., that have been removed to make temporary repairs and make them available for inspection by the adjuster, or mandate that the contractor keep such materials until they have met with your insurance adjuster. 
Contractors will be anxious to “get started” and, if unsupervised, will proceed with tearing out damaged materials that they think should be replaced whether damage was actually caused by the storm or not. Try to resist this pressure, as absent good documentation, it will cause immediate problems with an adjuster trying to first determine the scope of damage actually caused by the storm. In reality, you may in fact want to replace an entire roof, mainly due to age and condition, but it is the replacement of only the part actually damaged by the storm that is supposed to be financed by your insurance program. 

Do not let a contractor prepare the estimate for damage – instead, arrange for the contractor to be present while the insurance adjuster is on site, so together they can determine and agree on the scope of damage. If there is agreement up front between the adjuster and the contractor on what is going to be replaced, it will greatly simplify the process. Doing so typically produces a more accurate repair timetable, since real, permanent repairs should not begin until the adjuster is completely finished with their assessment. Often, if there is a sizeable amount of damage (typically over $50K to any one building), it will necessitate including a structural engineer in the process, and the adjuster will facilitate their presence. Again, coordinating it so the contractor, adjuster and engineer work together at the time of the damage estimate should reduce if not completely eliminate any question of the scope of damage or extent of expected repairs. This one point is truly an excellent example of doing the work to take the proper steps on the front end and having it REALLY make a difference on the back end!

The final person who should be present during the initial estimate phase of your property loss claim is someone representing your county. Their goal should be to make sure ALL properties are reviewed for possible damage while the adjuster, engineer and contractor are there. Remember, no one will know your county’s property locations and pre-loss condition better than YOU. If you know for example that your administration building has a 25 years old roof, make sure you check with those who are located there when assessing damage, as sometimes it is not always apparent, and it is often tough to get the same adjuster back quickly if something is missed initially. Oftentimes, this may be your own building inspector or risk manager, but someone from your county should be present through the entire damage inspection/estimate process.

The nature of how property insurance claims are funded is important to understand. Initially a check is cut for the actual cash value of the property, which is defined as replacement cost less depreciation for age and condition. This gives you up-front cash to begin repairs, and this initial payment should happen quickly. Then, once the repairs are finished and an inspection is made, a second check is generated for the difference between the initial amount paid and the total cost to actually do the repairs. 

It is for this very important reason that you should have your Finance Officer be a part of the claim process, and make sure that all receipts for any initial repairs to prevent more damage, as well as the actual reconstruction invoices paid as your properties are repaired, be sorted by building and saved. This is because the insurance carrier will require this by-building documentation in order to cut the final check. Proper documentation for expenditures though your finance department will facilitate getting the actual replacement cost portion of the loss paid. The point here is that, if in fact you elect to NOT repair or replace the damaged property, then you will receive only the initial actual cash value portion. In order to receive the additional supplemental portion of the insurance claim, which covers replacement cost, the property must actually be replaced, and you must have documentation including all associated costs to prove you have actually done so. 

Lastly, if you have any ongoing construction projects that are nearing completion during the time a storm may hit your area, address the issue of coverage with the building contractor through their builder’s risk coverage or your own carrier early. Typically it is not possible to add new buildings, contents or even automobiles if under the immediate threat (within 72 hours of expected landfall or inside specific longitude/latitude coordinates) of a named storm.  
So, to summarize, here is my condensed claim handling checklist:
  1. Take reasonable steps to prevent further damage
  2. Document damage and repairs made through photographs and location sorted receipts
  3. Let the insurance adjuster do the damage estimate – NOT a contractor
  4. Have the contractor present at the time the adjuster is doing their assessment for agreement
  5. Have a county employee present during the entire phase of damage assessment
  6. Make sure to review ALL property locations – while the adjuster/engineer is there
  7. Understand process for payment – ACV first, then supplemental balance after work completed
  8. Finance Office to keep and document receipts by location of all payments made for any repairs/construction for insurance company proof of loss documentation
  9. Pending arrival of a storm, make sure coverage is solid on any ongoing construction before it is too late to add to your own insurance program

The only additional item, aimed specifically at the members of the NCACC Pools, would be to make sure I have your county manager’s cell phone number beforehand. If I do, it is possible to communicate via text even during a storm – and in fact a great deal of texting communication took place during Hurricane Irene which gave me insight as to who was in the worst shape quickly. Texting allows close to real time communication without having to physically answer the call if you happen to be engaged at the time. If you have no service, a text may stay in cue until it can be forwarded for your review later. Please send your relevant cell phone number(s) to me at michael.kelly@ncacc.org – I promise to keep this information confidential and use it as described. 

Cross your fingers – with some luck we will skate by this hurricane season without an event.  If we do experience a major storm, following these suggestions will make the process of recovery MUCH easier.