Take it from us: Starting a property loss claim without representation or an understanding of the scope and cost of repairs never goes well. As public adjusters (PAs), we get a lot of calls from home and business owners who have experienced a property loss. Ideally, these clients call us immediately when the loss occurs – even before they call their insurance agent or the carrier holding their insurance policy. This is the best-case scenario.
Unfortunately, some people don’t know about PAs, and they allow the insurance claims process to start without our guidance. In these instances, the insurance carrier might, for whatever reason – they’re busy, understaffed, or have an inexperienced person handling that claim – tell the building owner to start repairs right away. “Start the cleanup and demo,” they say, “and send us the invoices.”
Sounds good, right? The insured goes out, starts repairs on their damaged property, and does the necessary work. This is great – until they submit the invoices for repayment. It’s at this point that we often see the carrier tell the policyholder, “We won’t pay for that.”
What!?!?!
The insured is just doing what the carrier’s adjuster told them to do. Maybe they spent $100k to repair custom cabinets or replace granite countertops. Because there was no agreed upon estimate, this becomes a situation where the carrier is only willing to pay, for example, $50K. This is the danger of doing repair work, in an insurance claim context, without knowing beforehand what the budget is. Let this be a lesson: You must have a scope of work, as well as costs associated with that scope, before you hire any vendors to do repairs on your damaged property.
This is another instance where the typical homeowner is out of their depth, and should rely on the expertise of a PA. If you‘re not in the insurance industry, and you don’t have knowledge of the construction industry, you can’t possibly know what your building repairs will cost. All too often, homeowners just trust the insurance company. They believe they can spend what they genuinely believe is a fair cost for repairs, and that the insurance company will cover these expenses. This is a way for homeowners to get torched!
It’s even more perilous on the commercial side. Businesses are often so eager to reopen and get back to work that they are prone to rush the reconstruction before finalizing agreements with the insurance carrier.
We worked with a fancy restaurant on Newbury Street in Boston that had a sizable fire on the premises. The owner was smart, and she called us right away. SMW was on the scene literally the next day. The restaurant owner wanted to start doing demo and rebuilding ASAP – understandable, considering that every day she was closed was a day without customers. But we didn’t yet know what kind of budget we could get from the carrier. The restaurant didn’t own the building – they were tenants – and the water wasn’t even extracted from the basement. We had not yet assessed what she owned and what needed doing.
Against our advice, the restaurant owner went full steam ahead with demo and reno. She understood the risk – we explained it to her carefully – but she said she didn’t care about the cost, she just wanted to get operational. Three months later, she submits construction bills for $300K to her insurance carrier. The carrier replies that they will pay only $100K. That is a massive shortfall. What do you do then?
Again – if we had an agreement up front on the scope and cost, the restaurant could have proceeded without a problem. Instead, she submitted her construction bills, some of which the insurance company reviewed and deemed “upgrades” rather than like-for-like replacements. As PAs, we make sure to get highly detailed on every cost on every single bill. We want to handle claims the right way. At the same time, we recognize these are business owners, and even though their policy will cover their lost income through Business Interruption coverage, they want to get back open. It’s a fine line – for us and the insured – on how to go about it.
If the business has a high-profile name, they risk losing their customer base by staying closed. An extended shutdown could cost millions – money that could be wisely spent funding a rapid reconstruction. Even though we’re understanding of that business rationale, we’re also highly cognizant of what insureds can get back. The insurance company doesn’t always see that tension.
It’s a balancing act and a dilemma. There’s always a business decision that needs to happen. Businesses can get to a point where they can’t wait any longer. So maybe you make the decision to move on and risk not getting full coverage. Either way, it’s critical to take this step only when a compelling business decision justifies it.
