May 25, 2021

It’s Not Always What You Say, But How You Say It – Even When It Comes to Your Claims

A rose may be a rose by any other name, right? This is not the case when it comes to managing your insurance claim the right way. To avoid confusion and ensure your claim gets processed the right way, you want to know the right terms to use – and what to avoid. Here are some terms we often see misused:

“Total loss” – Sometimes we hear this term on the news when someone is describing a car wreck. They might describe the crashed vehicle as a “total loss” to signify that it’s completely wrecked. This usage usually means that the damaged item – whether a car or other property – can’t be repaired or salvaged. In other instances, people might use “total loss” to mean the property loss maxed out the limit of insurance. At SMW, we generally avoid using the term ‘total loss’ in our everyday vernacular. Why? For one thing, because it’s not a term that is clearly defined in insurance policies, leaving it problematically vague. Another reason is that “total loss” just tends to mean so many different things to different people. To avoid confusion, when we want to describe an item that can’t be repaired, we refer to it as something that “requires replacement.” If the property loss exceeds the policy’s insurance limit, we either say that “the damages exceed the limit of liability,” or that the item is “totaled to the limit of insurance.” As far as buildings and construction damages are concerned, the state of New Hampshire is a “total loss” state. This means insurers in the Granite State will pay the limit up front for a house fire where the building is destroyed. This is different from states like Massachusetts, where insureds must prove the value of the property at the time of loss and still adjust the claim.

“Flood” – This is a widely misused term. Homeowners often say, “I had a flood” or “my basement flooded”, when they really just had a pipe break, or a dishwasher leaked and water damage resulted. That is not a “flood” for insurance purposes. In fact, unless you buy an actual flood insurance policy, you likely have an exclusion for flood events. If you want flood coverage, you have to purchase specific flood insurance, and that probably doesn’t cover damage to contents or structures that are below grade. So, if you have a water issue and you’re describing it to your insurance adjuster, it’s important to use the right terminology. The good news: you probably DO have a covered loss; you just need to avoid describing the leaky hose or burst water pipe as a “flood” event.

“Code”/“Ordinance or Law” – While generally described as “Ordinance or Law” in insurance policies, we typically describe it as “Code”. In general, these terms refer to building standards required by the local municipality. Be careful when using these terms because: 1. If you don’t have enough code coverage, and you suddenly trigger code requirements by the municipality, you might be stuck picking up those costs yourself; and 2. You have to ensure the local municipality is actually enforcing the relevant code in question. This second piece is key, because if the relevant code is not being enforced, then your insurance policy will not provide coverage for it. This gets tricky when the municipality doesn’t put in writing what codes exist and which are being enforced. So, you have to find out if the municipality is requiring the code, and – if so – how you can prove that to your insurance carrier. From a business interruption (BI) standpoint, SMW is always careful when using “code”, because if there is an additional timeline to make code repairs, that additional time is usually NOT covered under BI. Using these terms correctly will help this balancing act.

“Old”/“Outdated”/“Obsolete” – This is an important one from an inventory standpoint. If some older inventory is damaged in a fire, the carrier may actively try to prove that it has no value (thereby getting out of paying for it). It’s to the carrier’s advantage to call your inventory “obsolete” because then it has little or no value. SMW understands that, to a business, any inventory will almost always have some value. For this reason, we tell clients to avoid using terms like “old,” “outdated,” or “obsolete”, because upon hearing any of these terms, the carrier tries to avoid payment. Instead, we use terms like “vintage,” or “antique,” maybe “back-stock” when it comes to inventory.

“New” – What does the term “new” signify to you – and what does it mean to your insurance carrier? Most people agree that “new” means the item was just purchased, but others might also view items that are 1-2 years old as new. For insurance and depreciation purposes, it really matters whether something is new or not. If the item is still in its package, we describe it as “new in package” – even if it’s 1-2 years old. Moreover, we will note “as priced” if there is still a price tag on it. We encourage clients to tell us how old things are so we can help clarify what’s actually “new” and label all items accordingly. That avoids the red flags of having every item labeled the same way and it gives the insurance company accurate ages so they can apply the appropriate depreciation to the claim.

As you can see from these examples, it’s not always what you say, but how you say it.

Mindi Labella

Mindi is a CPA who specializes in commercial losses, business interruption, extra expense and time element claims. She is an integral member of the SMW team, drawing on her business background to advocate on behalf of our clients.
If you’ve had a fire, flood or other property loss resulting in an insurance claim, and need a public insurance adjuster in Massachusetts, New Hampshire, Rhode Island, New England or anywhere in the U.S. or Caribbean, call Swerling Milton Winnick. We are the oldest and largest public adjusting firm in New England, and our team of experts will give you personalized, 24/7 attention to successfully resolve your residential or business insurance claim.