Managing Your Risk
Your role in getting 'back to normal' after a loss

By Michael Kelly
Risk Management Director

So the worst has happened and you have sustained a loss … now what? Anyone who has gone through the process from discovery to reconstruction knows that regardless of whether you are fully paid on a replacement cost basis, the hassle, time and effort inherent in settling an insurance claim can be taxing. I have often told clients that even though it may be possible to essentially put you back in the exact same financial position as before the loss occurred, there is nothing an insurance company can do to erase or eliminate the problems getting there.

This month's column is a chance to take a look at what is typical in the expectations of an insurance carrier when working through the claims adjusting process. Considering that Hurricane Irene recently ripped through the eastern part of our state, touching on this topic seemed exceedingly timely.

Referring back to an earlier column published in May 2011, "How to Read an Insurance Policy," this process was referenced in broad terms under the "Conditions" section of an insurance policy. Now as an example for a property type loss, let's walk through what you will need to do in order to get paid.

Generally the steps are clearly stated in the property insurance policy and follow a basic process, with the first step requiring formal notice given to the insurance carrier as soon as it is practical to do so. Most policies will require said notice be in writing, but it can be reported initially via telephone.

Once it is obvious you have sustained damage, it is most important at this point to take any logical steps necessary to protect the affected property from further loss or damage. An example of this may be the purchase and application of tarps or other coverings to protect an opening in a roof or wall, or even moving contents of a building that has not yet been damaged but if left will most certainly be (such as from rising water).

Common sense prevails here, but an insurance company will be willing to reimburse clients for extra expenses incurred when protecting against further damage for a covered claim. This includes recovery for damage to the property inside and from the process of moving or relocating it in an effort to protect it from further damage (specifically called "Removal").

The next step is to separate the undamaged property, put it in the best possible order and then generate and furnish a complete inventory of the lost, destroyed or damaged property. This list should provide the necessary detail as to outline the quantities, initial purchase cost with supporting documentation if possible, and the respective replacement cost amount – if known – for said items.

Once this is done, the carrier will require you to complete and return what is known as a sworn proof of loss form. This form typically includes details such as the time and origin of the loss, the insured's interest in the damaged property, and both the actual cash value and replacement cost of each item. If there are any other applicable contracts of insurance that affect any proportion of the loss being shared by another carrier, it will denote this as well. Any changes in the title, use, occupation, location, possession or exposures of the property since the effective date of the policy also are outlined. The proof of loss form's primary purpose is to detail the specifics of the claim and delineate how the total amount to be ultimately paid is derived.

You will be expected to cooperate with the insurance company and allow its adjusters to inspect the damaged property. Sometimes depending upon the scope and amount of damage, repairs are made before an adjuster can get out to inspect the damage. In such instances, common sense will rule. It is imperative that you provide documentation of the damaged property to help "prove up the loss." The best documentation is usually clear, close-up digital photographs. Changes or repairs made (except those that are temporary to lessen the ultimate loss) before an adjuster has time to inspect the actual damage will often greatly complicate the process and should be avoided if possible. Again, common sense will dictate what a reasonable course here is.

Cooperation may also extend to helping your carrier subrogate (to seek reimbursement for what is paid to you as the insured from the party responsible for the damage) in an effort to shift the final cost to the party that actually caused the loss (e.g. damage from another person accidently running into your building with their automobile).

In instances where it may become necessary to sue a third party that is responsible, personal related expenses associated with cooperating should be reimbursed as well. Assuming your carrier is successful in getting full recovery from the responsible party, it should reimburse you as the insured for any deductible you paid as a part of the original claim.

Finally, know that it is not possible to abandon the property and essentially walk away from the situation with the expectation it will be made whole by your carrier. You must cooperate; else the company's legal responsibility to provide reimbursement may cease or be severely reduced.

As I said, it is not possible to eliminate the trouble and general hassle getting back to square one after a property loss. Recovering the respective money for that which was destroyed will still not erase having to clean up the premises, inventory the stuff that was damaged and the related effort to protect any undamaged property that may still be subject to loss. However, a good insurance company (or in our case the NCACC Risk Management Pools) can do a lot to make the process as painless as possible and give you the benefit of doubt whenever logical. How an insurance carrier responds after an event like a hurricane will illustrate its value to you and provide the carrier with the chance to underscore why you purchase insurance in the first place.

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 33 years of risk management/insurance experience, he holds the Associate in Risk Management for Public Entities, Certified Risk Manager and Certified Insurance Counselor professional designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124. Archived versions of the column can be found online at www.ncacc.org/managingyourrisk.html.