A company that discovered water damage at one of its rental properties learned an expensive lesson about starting repairs before notifying its insurer.

After finding damage from a plumbing problem, the company hired a handyman and contractors who demolished and repaired the bathroom. It did not report the loss to its insurer until 46 days later.

By the time an insurance adjuster inspected the property, the bathroom had been gutted. Compounding the problem, the contractors had taken no photos or videos of the bathroom before demolition.

A federal court ultimately ruled that the insurer did not owe coverage, finding that the company failed to provide prompt notice and that the demolition prevented the insurer from conducting a thorough investigation.

The lesson for businesses with commercial property insurance is clear: Report property losses promptly and don’t begin permanent repairs without first consulting your insurer. Failing to follow these rules can leave a business out of pocket for a claim that the insurer likely would have paid.

 

Why prompt reporting matters

Commercial property policies typically require policyholders to provide prompt notice of a loss. What qualifies as “prompt” may depend on the policy, applicable state law and circumstances surrounding the loss.

Waiting can jeopardize a claim, particularly if the delay makes it harder for the insurer to determine what caused the damage, when it occurred and how extensive it was.

That’s why businesses should contact their insurer or broker as soon as possible after discovering property damage, even if they don’t yet know the full extent of the loss.

 

Don’t destroy the evidence

After a fire, water leak, storm or other loss, a business’s first instinct may be to start cleaning up and rebuilding as quickly as possible. Getting operations back to normal is important, but moving too quickly may create problems with the insurance claim.

The insurer may need to inspect the damaged property before repairs begin. Removing damaged materials, tearing out walls, replacing equipment or otherwise altering the loss scene could eliminate evidence the insurer needs to determine the cause and extent of the damage.

If an insurer cannot adequately investigate because evidence was removed or destroyed, it may dispute portions of the claim, reduce payment or, depending on the policy and circumstances, deny coverage.

Businesses should also avoid signing major repair contracts or authorizing extensive work without discussing the plans with their insurer. A policy may contain requirements governing repairs, documentation and the insurer’s right to inspect damaged property.

There is an important exception: Businesses may need to take reasonable emergency measures to protect property from further damage. These measures may include shutting off water after a pipe breaks, boarding up broken windows or temporarily covering a damaged roof.

Even then, document everything. Whenever it is safe to do so, take extensive photos and videos before moving or discarding damaged property and save receipts and records of emergency expenses.

 

After a commercial property loss

Businesses should have a claims procedure in place before a loss occurs. Consider the following:

• Take reasonable steps to prevent additional property damage.
• Photograph and video the damage extensively.
• Notify your insurer or insurance broker promptly.
• Preserve damaged property and materials when practical.
• Keep receipts, invoices, estimates and other records.
• Consult your insurer before beginning demolition or permanent repairs.

 

The desire to reopen quickly after a property loss is understandable. But starting reconstruction before the insurer has had an opportunity to inspect the damage may result in your claim being denied or contested.

When in doubt, call us before authorizing repairs. We can help you understand the claims process and the steps you may need to take to protect your business and your claim.

Tags: Measured Risk Insurance Services