In today’s hard insurance market, Board Members and Property Managers alike should be scrutinizing their claim-filing procedures now more than ever. With insurance carriers becoming ever more choosy about the risks they decide to insure, claims are one of the main things carriers evaluate when deciding whether to take on a new risk or stay on an existing risk.
Questions you should ask yourself before you decide to file a claim:
Is the damage a covered loss?
Insurance is designed to cover sudden and accidental losses. Long-term damage that is a result of long-term wear and tear/lack of maintenance or deterioration is excluded on every insurance policy that I have ever seen. Typically, if you cannot pinpoint the exact time of the damage, there are likely to be coverage issues.
What about a leaking roof?
If a roof leaks and there is no direct physical damage to the roof (i.e., shingles were blown off during heavy winds), then the claim will likely be excluded for the “wear and tear” exclusion previously discussed. If this is a building with a flat roof, insurance carriers will almost always consider this wear and tear, providing no coverage for the roof repairs or any resulting water damage.
What if the roof drains are clogged by debris during a storm, and cause interior water damage?
This would also likely be an excluded claim under most policies. The carrier will likely sight the “lack of maintenance” exclusion.
What about wind-driven rain causing damage to the interior of the building?
Typically, this is excluded unless there is damage to the roof or exterior wall first. However, some insurance companies’ policy form covers interior damage without there being damage to the route for exterior walls. They are the exception and not the rule.
Can we ask our Agent if a claim is covered before filing?
The only way to know for certain if a claim is covered or not is to file a claim and have a representative from the carrier come out, investigate, and make a coverage determination. We can give our OPINION on whether we think the claim is covered or not based on the policy language and our experience, but the only way to know for certain is again to file a claim. If we are told to file a claim in writing, we are obligated to report it to the carrier at that point.
Do the damages exceed the policy’s deductible?
If the damages do not exceed the policy’s deductible, there is no reason to file a claim. The deductible essentially says that the association is responsible for the first X amount of damages under the policy. If the policy has a $10K deductible and you only have a water stain on a ceiling, the carrier is not likely to make any payments on this claim.
How do I know if the damages are under the policy’s deductible?
It is perfectly acceptable to call in a contractor you trust to evaluate and give you an estimate for the damages, and use that to decide whether or not the damages will exceed the deductible.
Don’t I have to report to damage to the carrier immediately?
Insurance policies do not have a specific time limit on when claims need to be reported. Most of the time, they read, “Give us a prompt notice of the loss.” You are allowed to evaluate the damages before filing a claim, but once you feel the damages exceed the deductible, file the claim ASAP.
I am scared if I do not file a claim and there is mold growing down the road. What about mold?
The policy will state to some effect that you “Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim.” Simply put, have the loss properly mitigated. This means making sure the affected areas are dried out. If the areas are dried out and confirmed with a moisture meter, then there will likely be no mold growth, as mold only grows in moist areas. Document this process thoroughly with pictures. That way, if by some chance mold does grow and you need to file a claim with the carrier, you have proof that you took reasonable steps to prevent further damage.
What if the damages exceed the deductible but only by a few thousand dollars?
While this is an internal decision by management and the Board, it may be prudent in this hard insurance market to avoid filing a claim for a payout of less than $5K. Any claim that gets paid out regardless of amount is a negative mark against the building’s insurance and could have a negative effect on future premiums.
Has this property had a lot of claims in the recent past?
Claim frequency is a big factor when underwriters are scrutinizing your property for coverage renewal and possibly moving coverage to a new carrier. In short, the fewer claims you have, the more favorable your risk appears to insurers. Most insurers even view one large “shock loss” that is in the 6-figure range as more favorable than five small losses that pay out a few thousand dollars each. Recurring issues are also looked at unfavorably by carriers. If you have five claims for broken pipes, the carrier will likely conclude there is an issue with the building’s plumbing and may choose to either substantially increase your premium or get off the risk altogether.