Audit, Compliance and Risk Blog

Recent storms on the US east coast have once again highlighted the importance of having at least some understanding of insurance law, in particular the procedures for making an insurance claim in the aftermath of a catastrophic event.

If your house was damaged or destroyed by a state declared catastrophe, and you have an insurance policy, you will be dealing with an insurance adjuster. This is usually fairly easy because of the number of claims the adjuster is required to deal within a short time.

The insured person must understand that both the insured and the adjuster have duties. The following list outlines the most important of these duties: 

1. You should be sure there is no unnecessary delay in reporting the fact of the discovery of damage to your insurer as a claim.

2. You and the adjuster should establish that there is no unnecessary delay in responding to any fire, firefighting, flood or water-related cause of loss where "mold" may result as a natural result of water, warmth, and existence of mold spores in the building.

3. You may be asked to sign a non-waiver agreement.

4. You may receive a reservation of rights letter advising you of your duties under the policy, the conditions that apply or might apply, and the exclusions that may apply to the facts of the loss.

5. You, as the insured, should readily, and without objection, sign the non-waiver agreement or accept the reservation of rights as an expression of the status quo.

6. The adjuster should remind you to preserve and protect the damaged property and to mitigate the loss with due diligence and dispatch.

7. You can request from the adjuster the name of professional contractors experienced in reconstruction or the drying out of buildings and the prevention or restriction of further loss including mold growth.

8.  Follow up regularly with the adjuster to ensure that he or she is meeting contractual obligations since a catastrophe often makes communications difficult.

9. If you have failed to protect the property from further loss, the adjuster must remind you, in writing, of your failure and how that could affect your claim.

10. The adjuster should consider advance payments to avoid any unnecessary difficulties so that you and your family will have a place to live while your house is being rebuilt.

a. You can expect an advance of $10,000 to $20,000 if your house is destroyed to carry you over.

b. Even if your house was not damaged you are entitled to additional living expense payments if you were ordered out of your house by the state government, federal government, Homeland Security, or the local fire department.

c. Remember that additional living expense coverage does not pay all of your post-loss expenses, only those over and above your normal expenses. 

You and the adjuster must meet in person and work to establish a personal relationship to resolve the problems caused by the damage to the structure. 

Once the rights, obligations and duties of the insured and the insurer have been stated, and the initial investigation is complete, the insurer is obligated to conduct a prompt analysis of the policy wording and the law to determine whether coverage exists for the damage claimed. Once the investigation is complete and the decision made, it is the adjuster’s obligation to advise you, promptly and in detail, of the decision of the insurer. 

The notice of loss should include the following information: 

• Your full name.

• The location of the property.

• The policy number.

 • The effective dates of the policy.

• The date when damage first occurred.

• The type of property damage.

• The cause, or causes, of the damage.

• How the adjuster can contact you.

• That you need immediate contact from the adjuster. 

By providing the information to the agent, the broker and/or the insurer, you have fulfilled the first obligation under the policy: to provide immediate notice of loss to the insurer. If the insurer is working effectively, and has a catastrophe team of adjusters in place, you should receive contact from an adjuster within 24 hours of the notice.  If possible, you or the adjuster should arrange to have one or more contractors present at the first meeting to determine the extent of the damage 

Your first contact with the adjuster is usually an informative meeting where you discuss the cause of the loss, the type of loss, when the loss was discovered, and make an initial effort to agree on a tentative scope of loss. 

You should expect the adjuster to do the following: 

1. Ask for a walk-through inspection of the entire dwelling or building.

a. You should make every effort to point out each item of damage or suspected damageduring the walk-through inspection.

b. You, or your representative, should assist the adjuster in viewing both the damage and the source of the damage;

2. Ask you to submit to a recorded statement;

3. Ask you for the identities of each family member, or vendor, who can give the adjuster information about the loss;

4. Ask for the recorded statements of the persons identified;

5. Ask permission to allow experts retained by the insurer to inspect the property and do minordestructive testing to establish the appropriate methods of reconstruction and repair; and

6. Ask permission to contact others who know information about the loss and to obtain from those people within your control a detailed recorded statement and documents relating to their knowledge of the loss and the extent of the loss. 

The more information you provide, the sooner your claim will be settled. If the adjuster is unable to complete a thorough inspection, he or she should prepare a scope of the loss report, a brief listing of the findings of damage determined at the initial inspection of the damage. Agreeing to a scope of loss is not presenting a claim. 

The "scope of loss" should include the following: 

• Degree of damage.

• A description of each location where damage was observed.

• A description of the adjuster’s and your own best estimates of the type of damage observed.

• A list of all personal property damaged or destroyed.

• Quality of the materials and workmanship; and

• Measurements needed to calculate quantities, including length, width, and height of rooms and the number of "openings" (windows and doors) in each room. 

The scope of loss differs from the finished estimate in two ways: the scope does not necessarily list any prices, and, the scope does not list the calculated quantities, just the raw counts and measurements needed to calculate quantities for the estimate. 

Dos 

• If you believe that your property was damaged or destroyed by a peril insured by your policy you should call or write immediately (or as soon as is practical) to report your claim.

• Follow up the phone call with a fax, an email and a letter. Take detailed notes of every conversation. Confirm all agreements in writing and insist that appointments and deadlines be honored. Keep all notes, letters and business cards from everyone involved in your claim. 

• If you prepared an inventory of your contents, provide the adjuster with the inventory and any photographs or videotape. Photograph, videotape and inventory all damaged property after the loss. Make sure you record the date of the photos and videotape.

• Act in good faith. You have a contractual obligation to cooperate with the insurer but you never have an obligation to allow yourself to be abused. In most states the insured and the insurance company have a mutual obligation to act in good faith and deal fairly with each other.

• Make available various documents related to the claim, including bank statements, investment reports, receipts and other personal financial documents. You are required to produce any documentation reasonably related to the insurer’s investigation of the claim. That can include tax returns.

• Comply with reasonable requests. Provide a recorded statement, an EUO, a sworn proof of loss, or documents reasonably related to the insurer’s investigation. If not you may give the insurer a valid excuse to deny the claim based on your breach of the duty to cooperate.

• Thoroughly investigate the qualifications, license and references of your insurance company’s approved contractor.

• Make sure you know all the deadlines that may cut off the right to file a lawsuit.

• Report all Unfair Claims Handling to the Department of Insurance or an Insurance Regulator.

 Don’ts 

• Do not allow futher damage to occur, if possible, since every policy requires that the insured protect the property from further loss.

• Do not throw anything away until the permission of the insurance company is obtained and you have documented its condition, unless the damaged property presents a hazard to the health or safety of your family or others.

• Never attempt to deceive. In most states, a material misrepresentation, concealment, or omission made in connection with the claim will give the insurer a valid reason to reject the entire claim.

• Never sign a release, waiver, indemnity, or "hold harmless" agreement without proper legal advice.

If you do not have the time or ability to deal the the insurance company, it would be appropriate to retain the services of a public insurance adjuster who will do the work for a negotiable percentage of the recovery (as low as 3% and as much as 15%). Attorneys will also represent you for a fee based upon the hours worked or on a contingency. 

Many insurers involved in catastrophes provide their adjusters with policy limits authority and instruct them to be generous. If your house was one of those totally destroyed, and coverage is available, there is a good probability that you will receive the full policy limits immediately. 

Almost all claims will be handled promptly and fairly. A person knowledgeable about insurance claims can better deal with an insurance company. Don’t take advantage of your insurer and don’t let an insurer take advantage of you.

About the Author

Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He also serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and is the author of Insurance Claims: A Comprehensive Guide, Mold: A Comprehensive Claims Guide, and Construction Defects: Litigation and Claims.

Barry Zalma can be reached at any time at 310-390-4455 or by e-mail at zalma@zalma.com. You can also visit his website or his blog.