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Commercial Earthquake Insurance Claims - Lessons Learned and Observations
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By: Emily Walton
Insurers are feeling vulnerable to reinsurers' scrutiny of commercial claim settlements. Without your own geotechnical, structural, costing or accounting evidence, you have little prospect of convincing an insurer to deviate from the information that it has gathered and to consider, let alone accept, your position.
Without a paper trail which justifies a claim settlement for re-insurers' auditors, most insurers won't budge from their starting position. This seems to be especially so for business interruption adjustments. Adjustments allow a business's trading figures to be tweaked so that the policy response reflects, as closely as possible, what the business would have achieved, but for the earthquake damage. To convince an insurer an adjustment is reasonable (on the balance of probabilities) good evidence is vital and negotiation inevitable.
Tenacity and perseverance are needed in this war of attrition (as it sometimes seems). Whether it's a domestic or a commercial insurance claim, the avalanche of claims has almost ground the claims process to a halt. While there is authority that insurers must resolve a claim within "a reasonable time", what is "reasonable" in current day shaky Christchurch is fairly elastic.
Once your claim is on the claim handler's desk - keep it there!
Keep the same claim handler if possible unless you need to go higher in the insurer's chain of command.
Unfortunately, there is no legal ammunition to expedite claims. Positive relationships with loss adjustors and insurers' claims managers can be helpful. The proverbial "squeaky wheel" seems to be an effective way of gaining some priority in the mountain of existing claims.
We've found consistency of approach cannot be expected; in terms of policy wording and even between one claims officer and the next.
While commercial material damage and business interruption policies typically contain similar insuring clauses, exclusions and memoranda, the devil is in the detail. Policy peculiarities often only become apparent on thorough scrutiny when an issue arises. The consequences can be far reaching. For example, business interruption policies have an indemnity period, the period during which loss of profit/turnover or loss of rent is payable. In some policies, the indemnity period runs from the date of damage (the earthquakes). In others, the indemnity period runs from the date of interruption to the business. For businesses who continued to trade after the earthquakes and deferred repairs until, for example, their quiet season, this will have a huge impact. The damage trigger wording may mean the indemnity period expires before the closure for repairs. For businesses occupying leased premises who have no real control of when the landlord may undertake repairs, this is potentially a real problem. The landlord's repairs won't trigger any more business interruption cover for the tenant.
To date, we have not seen a claim where the insurer has agreed to extend an indemnity period beyond that stated in the policy or allow a hiatus of the indemnity period while the business trades between the initial interruption and repairs. That said, if you can point to a delay caused entirely by the insurer, there is an argument to be had.
The automatic reinstatement of the sum insured clauses vary from policy to policy and can have a huge impact, especially if you're under insured. This is important because we've had multiple events. In some commercial property policies the sum insured is reinstated from the date of the event. In others, the sum insured is only reinstated after an earlier claim is paid.
For those with the
rather than the
reinstatement trigger, the ubiquitous delays in claims settlement could prevent the full sum insured being available for each event.
Approach seems to vary as much as the many policy wordings. Whether the wording is applied strictly, or a more accommodating approach is adopted, varies from insurer to insurer, and between claim officers.
To recover the full replacement sum insured under a replacement commercial Material Damage policy, the damaged property must be reinstated.
requires the repair or rebuild to be
to the damaged property. Policies allow some flexibility; location and the type of building reinstated. In our experience, some insurers have agreed to go further; replacing two buildings with one or even replacing one multi-storey building with many residential dwellings. It is worth canvassing all options with the insurer in the hope a pragmatic commercial solution can be achieved.
The availability of cash settlement is a fraught issue. Most policies only anticipate paying the indemnity value of the insured property on cash settlement. Proving an intention to repair or rebuild is necessary to negotiate settlement over the indemnity value. Even then, some insurers insist on acting as "project funder" during reinstatement rather than cash settling, even where Building Consents are obtained and building contracts signed. Given the administration time and cost of remaining involved and the prospect of cost overrun, this is a surprising stance for insurers to take. Conversely, some insurers offer reinstatement cash settlement without much resistance, albeit usually subject to a 'use of money' discount.
In such uncertain times, good professional help is a must. Many insurance brokers have experienced and competent claims advocates to present client's claims and we are aware of many good results. We are finding, however, that when a stalemate is reached, clients often need to engage experienced insurance lawyers for policy interpretation, strategy guidance, and negotiating skills.
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