A Guide to Navigating the Commercial Claims Process
Participants in the Process
When you have a loss there are a number of parties involved who will play a role in your claim.
- The Insured– the risk manager, but also often includes a controller, treasurer, chief financial officer, chief operating officer. These individuals are often charged with overseeing the reporting, reconstruction response and documentation/presentation of a claim against a commercial property policy.
- The Adjuster–a company adjuster or an independent adjuster reporting to a company examiner. They are charged with investigating a loss, recommending reserves, measuring a loss and settling a loss. They will inspect the damage, attempt to quantify the value of the loss, evaluate the coverage for the loss and, assuming they find coverage, measure the loss and settle it. Ideally, the adjustment process will be a positive, courteous, professional experience, but there are times where a difference of opinion may arise in terms of coverage and/or the value of the loss. Remember, a claim is like any other business dealing – it is at its heart, a negotiation. Your ability to convincingly argue your position and support it with solid, factual-based evidence can often sway the outcome in your favor.
- HUB International– we will help you report the loss, coordinate its overall management, serve as your conduit to the adjuster, assist you in developing your claim, present it and negotiate a settlement. In the event a coverage dispute arises, we will serve as your advocate in an effort to resolve the dispute favorably.
Before the Loss Occurs
- Build an Adjustment Team – generally, it is helpful to identify the parties involved in advance of the loss. This means identifying an adjuster in advance of a loss and any other consultants he may use such as an engineer, construction consultant or accountant. We recommend that a pre-loss meeting be held involving these individuals, the insured and HUB so that all may have the opportunity to discuss exposures, account nuances, inspection coordination, and communication and information flow.
- Understand Your Coverage – review your coverage in conjunction with your account manager and the HUB property claim consultant. If you have questions or concerns, the time to reconcile them is prior to a loss.
- Secure Important Documents – financial records, inventory records, appraisals, building drawings etc. can all be critical to the adjustment process. Please make sure they are properly secured in a fire-proofed location or, better yet, stored off-site.
- Identify Key Points of Contact – a serious loss often involves many individuals within the insured organization. It can be helpful to identify who the key players are in advance in sales, operations, accounting and finance, warehousing, management and risk management so that the entire team can interact efficiently and effectively with the adjuster and the HUB property claim consultant.
- Anticipate Your Loss – think about the types of losses you can sustain, the business units at risk, how those units will respond in the face of an event and how they can quickly and efficiently resume operation either in place or off-site.
During and Post the Loss
- Report the claim – report your loss to your insurer and HUB immediately.
- Fire protection – restore fire protection. Replace damaged sprinkler heads, arrange fire watches, and recharge extinguishers. Bottom line – get these systems back in service immediately.
- Prevent further damage – the policy requires that an insured protect and preserve property from further damage. This is an obligation under the insurance policy that an insured must adhere to. If you need to, contact professional vendors to assist you and when in doubt, abide by this general rule – act as if you had no insurance.
- Salvage – inspect all potentially damaged property and separate the damaged property from undamaged property. Take note of what you believe can be repaired/cleaned/dried and what should be replaced and separate these accordingly. Begin developing a full inventory of the property describing the item and recording the manufacturer, costs to repair or clean (based upon quotes), the original purchase price and the cost to replace (again based upon quotes and/or invoices). If there are lead times, make note of these as well. Motors and machinery should be thoroughly dried to protect from rust and before testing.
- DO NOT DISCARD ANYTHING -- Let the adjuster inspect all property and make sure to photograph it. The insurer has salvage rights to damaged property that an insured must protect. Work out a clear understanding of how the adjuster plans on dealing with damaged property that cannot be replaced – will he arrange for a salvor to take it away or will the insured be charged with disposing of it? You may not abandon the property to the insurer’s care without their consent. Undamaged raw materials should be reprocessed and undamaged finished goods repackaged as necessary.
- Make Temporary Repairs – if temporary repairs are necessary to protect damaged property, then make them immediately and advise the adjuster as soon as possible. Be able to explain your reasoning and, when in doubt, use the reasonable person test (What course of action would a reasonable person take?).
- Keep Track of Claim Costs – create a general ledger account called the “loss account” (or something similar) and direct all costs associated with the loss to this account. Use work orders, job accounts and other accounting procedures to capture your costs.
All expenditures should be directed to the loss account and should correlate to the loss account. Claim costs categories can include:
- Protection of property
- Immediate remediation
- Temporary repairs
- Building reconstruction and repair
- Contents repair and replacement
- Expediting expenses
- Extra expenses
- Keep a Daily Log of efforts -- describe in detail what work has taken place, who was involved, what the objective was. Keep track of your labor – hourly personnel should be coded to correlate to the loss account. Describe what work they’re doing, how many hours they worked, what they are paid (straight wage, overtime and variable payroll costs). Note – salaried labor can be present and adjustment issued – we recommend that you attempt to secure the adjuster’s agreement to reimburse for salaried labor before salaried labor is used to repair property or clean up.
- Make Permanent Repairs – the adjuster will want to be involved in this process. He may engage a construction consultant to help develop a scope of work and then ask you to invite two or three contractors to bid that scope of work. All bids submitted should be itemized and presented on a time and material basis. Ultimately, the objective is to develop a consensus and reach an agreed price for the reconstruction work. If contents are damaged, you may need to have vendors to come in to inspect, test and evaluate damaged equipment, furniture etc. If machinery is damaged, you may need to have the manufacturer’s representative come in and evaluate the machinery. In the event of differences of opinion, the insured may need to engage an expert (for example – contractor, engineer, or architect) to support its position. These costs are generally not recoverable under the policy unless policy provisions grant the coverage or the insured can secure the insurer’s agreement in advance to fund them.
- Resume operations – the insured’s ultimate objective is to resume normal operations as quickly as possible. Think about what is necessary to achieve that end:
- Can the insured set up a temporary location and resume operation?
- If a manufacturer, can the insured use idle or underutilized manufacturing facilities or lines to restore production?
- Can the insurer work extra shifts or lengthen shifts to restore production?
- Can the insured purchase product from a competitor to continue supplying customers?
- Can the insured draw down on inventory to continue supplying customers in the near term (note – necessary additional costs associated with restoring inventory levels can be recoverable under Extra Expense coverage)?
- Can other business units of the insured help satisfy customer demands?