Insurance Claims: The Adjusting and Appraisal Process

May 01, 2017

Written by Ed Beckmann, Hellmuth and Johnson & Tom Klaers, Clean Response

This article is the third in a series regarding climate change and the risk to commercial properties. The first article in this series was published in the Autumn 2016 BOMA Newsletter and focused on the impact of climate change on insurance claims. The second article was published in the Winter 2017 BOMA Newsletter and discussed how to prepare for and mitigate these types of insurance claims. This third and final article is an overview of the claims and adjusting process for any kind of loss to property, be it from fire, hail, wind, or water.  In this article, we will refer to any of these events as “loss events.”

After a loss event, a property owner should immediately notify the insurance carrier.  It is not necessary for property owners to know every detail in calling in the claim.  Insurance policies require notice as soon as possible, and a property owner ought to honor that commitment with a phone call immediately.

If the loss event left material exposed to further damage, maintenance or remediation companies should also be immediately contacted.  Insurance policies require property owners to mitigate their losses.  Property owners should not stand by and watch further damage take place.  Open valves that spew water or sewage must be immediately shut off.  Holes in the roofs causing rain water to enter should be immediately closed.  Insurance companies may not cover damage resulting from a failure to act.

Any serious repair should await the review of the property by the insurance company.  Insurance companies have the right to assess and adjust the loss.  This includes their review of the evidence to determine the true cause of the loss.  If insurance companies do not have this opportunity, they can claim that the evidence was “spoiled” by the property owner and deny coverage.

The insurance company is obligated to generate a comprehensive adjustment of the loss.  A property owner should have its own contractor create an estimate.  Often, the adjustment and estimate show differing scope and pricing.  What follows in that case is a negotiation to resolve the amount of the loss.  It is wise for the property owner to submit its contractor’s estimate as an attachment to the insurance company to a proof of loss.  A proof of loss is a document signed before a notary whereby the property owner attests to the full scope of the damage and how much it believes it will cost to repair it.  When the proof of loss is submitted, it triggers a deadline for the insurance company to decide what to do with the claim.  This a deadline is helpful in moving the claims process forward as adjustments can languish.

Property owners and insurance companies who are unable to negotiate the amount of the loss can decide the matter in an out-of-court dispute resolution process.  The process is known as an insurance appraisal.  This process is more like arbitration than what most people think of as an appraisal.  The property owner nominates a person to serve as an appraiser, the insurance company nominates another person, and these two individuals nominate a neutral umpire.  These three people constitute an appraisal panel and determine the amount of loss with finality.  In Minnesota, this includes determining the cause of the loss.  It is a process that has been mandated by state statute for 100 years and can be a very cost-effective manner to resolve the scope of any loss.  In an appraisal, the property owner submits all its evidence about the amount of the loss.  Sometimes engineers are consulted to describe what caused the loss and the scope of repair.  Witnesses are cross-examined.  The process functions much like an arbitration; as indeed, the fairness of the proceeding is governed by the Minnesota Arbitration Act.

When the appraisal panel renders a decision, a written award is generated and sent to the insurance company.  The award triggers a deadline under the policy to issue payment.  That deadline can be as short as five days.  The deadline is triggered at that time because the written award resolves all disputed facts with finality.  For that reason, property owners need to submit to the appraisal panel all evidence that pertains to the loss. 



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