Most buildings destroyed in the Camp and Woolsey wildfires were residential, not commercial, yet included important lessons for business owners.
At the top of the list is getting paid — promptly and reasonably — by your insurance carrier(s).
Insurance policies spell out the steps required to prove your loss. Most losses are partial losses, therefore, listing each piece of equipment or other personal property damaged or destroyed and proving its replacement value make good sense. However, if you don’t replace an item, you still receive payment based on each item’s actual cash value (replacement value less depreciation based on its age and condition.)
However, most wildfire losses were total losses. Little personal property was salvaged. So, why should an inventory be required? Shouldn’t the personal property limit on the policy simply be paid by the insurer?
Yes! At least most of that limit.
Some insurers were “insightful” and waived the inventory. They quickly wrote a check for 75 percent (or more) of their policy’s personal property limit.
Simple. Sensible. Satisfactory.
Last November, California Insurance Commissioner Dave Jones wisely asked other carriers to waive their inventory requirement in total losses and pay at least 75 percent of a policy’s amount of personal property insurance. Almost all now are reported to have done so.
In addition, advance payments for hotel bills, restaurant costs, etc. and costs incurred for debris removal were usually voluntarily paid in advance by insurers.
That really helps!
So, how does this residential insurance overview translate to your business insurance?
If a business sustains a total loss of its personal property, why shouldn’t waiver of the inventory be requested with at least 75 percent of the amount of personal property insurance paid upfront without delay?
If not volunteered, you should ask for it.
Secondly, where debris removal, business income and extra expense claims are in order, why shouldn’t at least partial advance payments be requested — and checks written?
Ask for them.
In partial losses, two questions remain:
• How can we proactively prepare for a major fire, earthquake or other disaster to minimize, if not eliminate, delay or denial of payments due us from our insurance carriers?
• Also, what can we do to enable us to remember each piece of equipment or other items after each has been destroyed beyond recognition?
One popular solution is to photograph (or video) your organization’s equipment and inventory and store the images online in the cloud or elsewhere for safekeeping. An insurance broker friend in the Woolsey fire said: “Photos have been terrific evidence for proof. Most of their supporting documents went up in flames!”
Another is to work with your insurance broker to draft a step-by-step plan (or checklist) to be monitored by you with your broker as you each work together through this process alongside the insurer’s claim adjuster.
This article focuses on personal property risks. Real property risks are addressed very differently and more objectively with competitive (or negotiated) contractor bids based on architectural designs and specifications. This process is more straight forward than adjusting personal property losses.
Business income claims can be difficult as well. Direct damage is usually required to trigger coverage; however, many businesses near a wildfire were forced to shut down because of intense smoke and/or evacuation orders. This is something to explore in depth with your broker, viz., law and ordinance, contingent business income and dependent property income coverages.
As one broker in the Camp Fire commented to me, “Our carriers consistently received high marks for trying to interpret coverage in favor of our insureds.”
Another in the Woolsey Fire said concerning the future: “Our issue now is nonrenewals, especially those in the (wildfire) area who did not have claims. Carriers need to remain on many of those accounts.”
Finally, the task is to continue to work through the risk management process with your broker to be certain that:
1. All risks are identified and measured, especially earthquake (plus earthquake sprinkler leakage as these claims are reported to have exceeded direct earthquake losses in the 1994 Northridge earthquake).
2. All reasonable cost-effective steps are taken to avoid — or at least mitigate — losses, not only to buildings and equipment but also to money, data (cybersecurity), business income, mobile equipment and other property risks.
3. All significant risks are either (consciously and intentionally) assumed or transferred to insurance carriers (or to others by contract) with adequate amounts of insurance on each type of property.
Then you’ll enjoy one of several benefits of sound risk management, viz., a quiet night’s sleep.
John Pryor, CPCU, ARM, is a risk management consultant with CSU Bakersfield’s Small Business Development Center and author of “Quality Risk Management Fieldbook” for small-business owners published by International Risk Management Institute in Dallas and available on Amazon.com.