It is probable that, at the time it was built, your older building met all of the building code requirements at the time it was originally constructed. In the absence of any recent renovations requiring upgrades to current building standards, it is also probable that your older building does not meet modern building standards and will not be required to meet them until such time that major restoration or renovation are made or become necessary.
Unknown to many commercial building insurance policyholders is an exclusion in their property insurance policy that allows the insurance company to refuse to pay the additional costs associated with performing required building code upgrade requirements at the time of loss.
For example, should lightning strike the older building and cause damage to a small part of the original electrical system, local building code ordinances and regulations may demand that a repair to that damage requires complete electrical re-wiring of the entire building to bring it up to the current standard. The exclusion in the business property insurance policy that denies coverage for complying with local ordinances and building codes would allow the insurance company to pay only for the repair of the damaged wiring and leave the more expensive code upgrade expenses to the policyholder.
If you own a commercial building that is twenty or more years old, I strongly suggest that you consult with your insurance agent or broker to determine if you have (or need to purchase) an endorsement to your policy that provides for the additional expense of enforced code upgrades to protect yourself from this added and significant expense to your loss.
After considering the adversarial posture of an insurance company toward its policyholder in the event of a claim and assuming the best – that you would be successful in recovering the most that your policy provides to restore your property after a catastrophic loss – did you buy enough insurance to actually restore your property?
Some people will negotiate a terrific deal when purchasing a commercial building or residential dwelling and then will insure that building for the amount of money they paid for it. The mortgage lender is certainly happy with that amount of insurance for it fully protects their financial investment, but is the market value of a structure sufficient to rebuild it if it were destroyed? Most likely, it would be significantly less, and it is probably not your plan after a major loss to simply pay off your loan, remove the rubble at your own expense, and live or conduct business on an empty lot.
Even before the current exponential increase in costs for building materials, the market value of a structure did not reflect the cost of replacing all or most of it which, in the event of a major fire or storm, would be the purpose of an insurance policy.
A general contractor or builder in your immediate area will be able to tell you what an average cost per square foot would be to replace all or most of your building today if it were significantly damaged. Take that cost and multiply it by the square footage of the building you are insuring and then add a few dollars for next year’s inflation. This will tell you whether or not your home or business structure is insured for a sufficient amount of money.
Believe it or not, many policyholders will help their insurance company withhold money from them that they might have otherwise been paid. Of course, they don’t mean to sabotage their own insurance claim – but the denial will often rest more upon their actions than those of their insurance carrier.
To better understand how insurance companies allow their policyholders to defeat themselves, it is important to understand three basic points:
1. The policyholder has the burden to prove that they have a covered loss.
2. The insurance company has no duty or obligation to assist the policyholder in their efforts to prove that they have a covered loss.
3. The insurance company has the duty to pay the claim for a covered loss unless they can prove that an exclusion named in the open peril policy applies to the claim. The burden of proof that the exclusion exists rests upon the insurance company.
If you have incurred damage to your home or business, you must present proof of the loss and proof that it is covered under your policy and you must do it without counting on your insurance company to assist you. It is your duty to prove your claim. If you do, they pay you – unless there is an exclusion in your policy that disallows payment for your particular loss. If there is such an exclusion, the burden of proof is theirs to prove that the condition excluding coverage exists. If they cannot prove this, they must pay you.
Refer to these basic points as you read the following few ways that policyholders I have recently spoken to have assisted their insurance companies with the denial of their claim:
A. “A hailstorm struck my neighborhood recently and everyone within a quarter of a mile of my house had their roofs replaced by their insurance companies, so I filed a claim, too,” said the policyholder to the claims adjuster.
This is a common insurance claim which is just as commonly denied by insurance companies. The policyholder, when reporting a “claim” such as this has no idea whether there is any hail damage to their property and, accordingly, has no proof to provide to the insurance carrier.
Their argument that their claim is based upon the condition of neighboring properties is not only inconsistent with their insurance policy but is just as irrelevant and illogical as if their carrier were to tell them “We are not going to accept your insurance claim for hail damage since no one within a quarter of a mile from you reported damage.” The fact that neighboring structures are damaged does not prove that yours is.
It is possible, by chance, that the adjuster might find hail damage to your property although you did not, but don’t bet on it. The damage he might find could possibly exceed your deductible and you might receive some money for that loss. The future adjustment to your insurance premium, however, might be greater than your settlement if your carrier decides that you are a risk to file a claim against your policy with no actual knowledge of damage. Re-read Basic Point #1, above. Know that you have incurred damage from a storm before you file your claim.
B. “I have water leaking through my ceiling. I filed a claim for damage to my roof,” said the policyholder to the claims adjuster.
In Missouri, it has been an extremely rare event for a hailstone to be large enough to strike roofing material with enough force to create a hole in the roof. A roof leak is rarely associated with damage from hail. More commonly, a roof leak is the result of a maintenance issue related to the deterioration of flashing, aged repairs, or other roofing materials. Before filing a claim for roof damage, you (or a trusted roofing professional at your request) should determine the source of the leak and its cause.
If the cause was sudden and accidental (i.e. wind damage or fallen tree limb, for example), photographs of the damage and cause should be included with the insurance claim you file. If the cause was due to wear and tear of aging materials or other maintenance-related issues, however, your claim will be denied because you failed to prove that you incurred damage from a covered loss. It is better for you (and your future premiums) to know this before you decide to file a claim.
Know where the leak is coming from and what sudden and accidental event caused it. If the leak was caused by a covered peril, prove it to yourself first. When you file your claim, describe the damage and the cause and, when the adjuster comes out to inspect the damage, be prepared with your evidence to prove your covered loss to your insurance company.
C. “We had heavy rain for three days. There is six inches of water flooding my basement. I filed an insurance claim.”
Missouri home insurance policies do not cover “flood” damage. Unless you have an endorsement added to your policy for sump pump failure or backup damage, it is probable that water that enters a home from outside of the home (as opposed to a broken water service line inside the house) is not covered under a home insurance policy.
Before filing a claim, know (and gather physical or photographic evidence) where the water came from. When reporting the claim to the insurance company, don’t describe your damage as “flood” damage when it is water damage caused by a broken line or backed up drain from within the home. If you are counting on the insurance adjuster to investigate and prove your loss for you, it is highly probable that you will be disappointed in his results.
After you have presented proof of your covered loss to your insurance carrier, they should pay you – unless they can prove that your loss is specifically excluded by your policy. To assist them with their proof, the insurance company will sometimes hire people who they have worked with and who they know to be skilled in assisting them with finding such proof (i.e. engineers and consultants). Often, the professionals they hire to assist them will go beyond the scope of PROVING an exclusion and go out in search of one. When this happens, the likelihood exists that the forthcoming denial is based on something less than objective facts.
Since the insurance company hires and pays engineers and consultants to assist them with proving that there is an exclusion to the coverage that removes their obligation to pay you, it is clear to see how a policyholder sabotages his own claim by insisting that the adjuster he disagrees with hire an engineer to inspect the damage – as if the engineer will somehow decide to support the policyholder rather than the insurance company paying him.
If you are not comfortable preparing your own claim and presenting your proof to your insurance company, a licensed public adjuster can help you. When you present your own claim and are not convinced that the insurance company’s denial or underpayment is fair, have your claim reviewed by your attorney or a licensed public adjuster to determine the next best step.
Once there was a maintenance man who worked in a famous art museum and was directed by his supervisor to touch up the white paint on the wall of a certain gallery within the museum. As he was ascending his ladder he accidentally tipped over his gallon of white paint and it splashed across the surface of a 550-year-old painting from a world-famous artist that hung in the gallery.
Of course, the painting was insured and the curator immediately filed a claim. The insurance adjuster took a few photos and shared them with his boss who said “We need to send out an engineer.”
The engineer arrived to examine the painting and noted that the framed canvas was designed and intended to hold paint of various colors. Since the canvas and frame were still intact, he recorded that the painting was still “functional”. The painted surface had white paint splashed across the smiling face of a woman named “Lisa” or something, but he reported the damage was “cosmetic” in that it did not interfere with the “function” of the canvas to hold paint. It was, after all, covered with paint … and the gallery was filled with various paintings with random splashes and colors. He concluded that there was no “functional” damage and the insurance company denied the claim.
This story is fictional, of course … but the actions described represent those that are quite common with home and business property insurance claims.
Let’s look at the shingles on your roof, for example. The manufacturer of your shingles produces them in a wide variety of colors, shapes, and styles. When you selected them (or selected the house that already had them), you noted their color and design in context with the features of the rest of the structure, didn’t you? Of course, their designed purpose is to protect the roof from wear and water intrusion but they also were carefully and creatively designed to enhance the beauty of the home.
When a sudden storm pounds them with hail, along with the metal appurtenances, gutters, downspouts, and other surrounding materials, they will often be damaged. When they are damaged, you might contact your insurance carrier to file a claim for direct physical damage or loss to your roofing materials. The insurance adjuster will arrive, take a few photographs, and return to speak to his boss. When the boss does not want to pay you for your damage … he will send an engineer.
The engineer will often look at your shingles and surrounding metals for gaping holes. Finding none, he declares that the shingles and metals are still shedding water as they were designed to do, and the damage to them is not “functional” but merely “cosmetic”. Based on this report, the manager will deny the claim – for this is the very reason the engineer was hired.
When you believe that your insurance carrier is trying harder to deny your claim than pay your claim, you may be the victim of improper claim handling, bad faith, or vexatious actions on the part of your carrier. When this happens, seek the advice of your attorney or a licensed public adjuster.
Insurance fraud is an affirmative defense used by insurance companies to deny claims. The burden of proving fraud to deny an insurance claim is not as stringent as it is to prove insurance fraud for a criminal conviction. This post is intended only to generally inform the reader of the statute that governs the Class E and Class D felonies of insurance fraud in the State of Missouri and describe how insurance companies use this defense to deny insurance claims. It is not to be construed as legal advice.
According to the Missouri Revised Statutes:
375.991. 1. As used in sections 375.991 to 375.994, the term “statement” means any communication, notice statement, proof of loss, bill of lading, receipt for payment, invoice, account, an estimate of damages, bills for services, diagnosis, prescription, hospital or doctor records, x-rays, test results or other evidence of loss, injury or expense.
2. For the purposes of sections 375.991 to 375.994, a person commits a “fraudulent insurance act” if such person knowingly presents, causes to be presented, or prepares with knowledge or belief that it will be presented, to or by an insurer, purported insurer, broker, or any agent thereof, any oral or written statement including computer-generated documents as part of, or in support of, an application for the issuance of, or the rating of, an insurance policy for commercial or personal insurance, or a claim for payment or other benefits pursuant to an insurance policy for commercial or personal insurance, which such person knows to contain materially false information concerning any fact material thereto or if such person conceals, for the purpose of misleading another, information concerning any fact material thereto.
6. A fraudulent insurance act for a first offense is a class E felony. Any person who is found guilty of a fraudulent insurance act who has previously been found guilty of a fraudulent insurance act shall be guilty of a class D felony.
7. Any person who pleads guilty or is found guilty of a fraudulent insurance act shall be ordered by the court to make restitution to any person or insurer for any financial loss sustained as a result of such violation. The court shall determine the extent and method of restitution.
8. Nothing in this section shall limit the power of the state to punish any person for any conduct that constitutes a crime by any other state statute.
Be reminded that acts of fraud, both civil and criminal, include the application for the insurance policy as well as the filing of an insurance claim.
When the policyholder makes false statements or conceals material facts or evidence when applying for insurance coverage or during the course of a claims investigation with the intent to deceive the insurance carrier, it is not necessary for the insurer to actually pay the claim for the act of fraud to be committed. Courts have held that fraud attempted, even when the policyholder argues that he was merely using negotiation tactics, is still fraud.
As for the claim, fraud in any aspect of a claim is a bar to coverage for the entire claim. This means if a policyholder made a material misrepresentation about his loss from fire of personal property but made no misrepresentation about damage to his house, the claim can be denied for BOTH the personal property and the house.
If you are handling your claim on your own and without the assistance of an attorney or public adjuster, it is important to be aware and understand that your words matter. Since misrepresentation and fraud are defenses that allow the insurance carrier to deny a claim, there is a significant financial incentive for the adjuster conducting the investigation to discover or interpret certain acts and information, accordingly. Be truthful, precise, and present to the insurance company only what you know to be true.
Successfully navigating through the insurance claims process can be challenging for a home or business owner who has suffered loss or damage to their property. Knowing the process and its boundaries and setting reasonable expectations will play a big role in achieving success with the minimum amount of frustration. Knowing what to expect (and what not to expect) from your insurance company’s adjuster is important.
Once an insurance carrier has been notified that a loss has occurred to the property that it insures, the insurer will assign one of its employees or an independent adjuster to investigate and gather information about the claim.
Many policyholders begin this process under the mistaken impression that the adjuster’s job is to assist the policyholder with their claim, but quickly learn that this is not true. It is the burden of the policyholder (not the insurance company’s adjuster) to prove that his loss was caused by a covered peril. The adjuster assigned to the claim is tasked to protect the rights and interests of the insurance carrier and assist the carrier in obtaining and presenting evidence of a policy’s exclusion when it exists.
While it is the burden of the policyholder to prove his loss was caused by a covered peril, it is the burden of the insurance carrier to prove that coverage is excluded under the policy. Presumably, both sides are prepared or preparing to meet their burdens of proof. How does the insurance company’s adjuster go about doing this for his employer?
First, he confirms that the damaged property is the property described in the policy and was at the location described in the policy. If you are claiming an item that you did not insure, or if the insured item was not on the insured property when it was damaged, you might not have a valid claim.
Next, he confirms that the loss occurred during the time period when the policy was in effect. If your roof was damaged by hail and the last hail storm in your area occurred two months prior to the beginning of your coverage, his job is to discover and record that fact.
He will then determine whether or not the loss was caused by a peril covered by your policy. There are many causes for damage that are specifically excluded from an insurance policy.
The adjuster will then determine the extent of the ownership interest of the policyholder in the insured property and the extent of the ownership interest of others in the insured property. If the policyholder shares ownership of the property with others, how much of the damage is his loss and how much might be shared with others?
He will investigate to confirm that the policyholder did not commit fraud or material misrepresentation to procure the insurance policy. If the policyholder withheld material information in his application used to determine risk, for example, coverage under the policy may be rescinded.
The adjuster will confirm whether or not the premises were occupied as permitted or required by the policy. Certain policies negate coverage for loss when the property had been vacant for more than 60 days during the term of the policy.
He will also confirm that, at the time of the loss, there were no conditions that would cause suspension of the coverage.
This is the investigation that the adjuster conducts at the same time he is taking his measurements and photographs of the damage to determine the value of the loss, should it be paid. These are the purposes behind his questions as he conducts his investigation to first determine IF the insurance company will pay before determining how much money the carrier might offer.
It is imperative and required by the insurance contract that the policyholder fully cooperate with this investigation and be precise, accurate, and truthful when responding to these inquiries. Fraud and/or misrepresentation of the smallest degree can result in complete denial of the entire claim.
When the adjuster believes that there is a possibility of the existence of an exclusion to the peril that you have reported a loss from, he is likely to seek the assistance of someone the carrier can use as an expert (should you sue) to support their use of that exclusion. This is why the carrier will hire an engineer or other expert to look at the damage. Policyholders who are in disagreement with the carrier’s decision regarding coverage of their claim and do not understand how and why insurance companies use experts will sometimes demand on their own that the insurer pays for an engineer to evaluate the damage that they believe should be paid. In doing so, they are unwittingly providing the carrier with ammunition to use against them instead of meeting their own burden to prove their loss – since the insurance company’s engineer is not going to be paid by the carrier to assist the policyholder to defend against them.
Understand the process, be fully prepared to prove that your loss or damage was caused by a covered peril when you file your claim and seek the advice of an attorney or public adjuster if you are not fully confident in handling the claim on your own or at the first sign of trouble with your insurance carrier.
Filing an insurance claim can be much more complicated than it first appears. To some who have never filed a claim before, there is the assumption that all they must do is notify their insurance carrier of their loss and wait to be paid. They are unaware that the burden to prove that covered property has been damaged or lost due to a covered peril rests entirely upon them. Many mistakenly believe that they are entitled to be paid unless the insurance carrier can prove otherwise, which usually results in frustration and misunderstanding.
Before deciding to file an insurance claim, a policyholder should understand two important points:
1. It is always the burden of the policyholder to prove that a covered peril caused damage to their covered property.
2. It is always the burden of the insurance provider to prove that an excluded peril caused the loss.
Often (actually, too often) a policyholder will note a symptom of damage – such as a leak in the ceiling – and file an insurance claim for damage to their roof. Without knowing the cause of the leak or whether that cause was due to a peril covered under their policy, they will ask their insurance carrier to send out an adjuster to pay their claim.
The insurance company’s adjuster, whose duty is to protect the interests of the insurance company he works for, does NOT have the duty to prove that a covered peril caused the loss. Instead, he is there to collect information and evidence to support (if necessary) his burden to prove that an excluded peril caused the loss if, indeed, it did. When he is uncertain about his observations and the possibility of an exclusion under the policy to apply to the loss, he may seek the assistance of a third party (such as an engineer, architect, or consultant) to assist him.
After his investigation, unlike the typical policyholder who has not prepared his case to prove that a covered peril caused damage to their covered property, the insurance carrier is fully prepared to argue against coverage with any proof that an excluded peril caused the loss that the adjuster may have found.
Thus – knowing that they must first prove that their covered property was damaged by a covered peril – the prudent policyholder will investigate their own claim BEFORE inviting the carrier to begin their investigation of it. This is what I usually recommend:
1. Know, as best as you can, exactly what is damaged and what caused it. If you are unable to determine this on your own, seek the advice of a trusted professional skilled in the material(s) that is damaged. If your roof is leaking, for example, have a roofer find the source of the leak and the cause of that source.
2. Collect physical and/or photographic evidence of the damage and proof of its origin. Obtain a bid from a trusted contractor for the cost to restore the damage to its condition prior to the loss. (Avoid allowing your contractor to negotiate directly with the carrier. A contractor’s lack of knowledge of your coverage and his interest in profiting from the work provides the adjuster with ease in exploiting and manipulating him.)
3. Learn if that damage is covered under your policy. Read your policy, speak to your agent, or consult with your attorney or public adjuster for assistance if you are confused about your policy’s language. Sometimes, it’s tricky.
4. Provide copies of your evidence to the insurance company when you file the claim or, if more convenient when the adjuster visits to inspect the property. (If you are not confident or comfortable in doing this, hire a public adjuster to represent you with this process.)
5. If your insurance carrier does not cooperate with you after providing proof of your loss and coverage, seek the assistance of an attorney or a public adjuster.