Whether it’s damages from a tenant, fire, water, winds, etc, if you own enough properties, at some point you will likely have to file an insurance claim at some point. The process can be super meticulous and involved. Theo will explain what to do and how to do it when it comes to filing your insurance claim. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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TRANSCRIPTION
Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners, and welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.
Each week we air two podcast episodes that are focusing on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes – or if they’re a part of a larger series – we offer a document to you for free. These could be PowerPoint presentations, these are Excel template calculators, they’re PDF how-to guides… Some sort of document that accompanies the episodes or the series, that you can use to help you further your apartment syndication business.
All these documents, which again, are free, as well as the past free Syndication School series, can be found at SyndicationSchool.com. And in this episode we are going to talk about insurance. This is everything that you need to know about filing an insurance claim.
A few Syndication School episodes ago – maybe about a month ago, or if you’re listening to this in the future, it’s probably 20-30 episodes ago – we talked about the SOS approach to a major issue that occurs at your property, and it was talked about in the context of Hurricane Harvey; what do you do if a massive hurricane comes and smashes into your apartment community? And we talked about the SOS approach, which is Safety — I can’t remember what the other two were, but basically we talked about the high-level process that you as the investor want to do. I think it was Safety, Ongoing community, and then Solution.
So first you figure out “Is everyone safe?” Then you figure out the condition of the property, and then you communicate that to your investors, and then you have some sort of solution in place… And most likely, that solution, if there is a big issue, is gonna be filing an insurance claim. So this episode will be very helpful in explaining, going into more detail on that third S in the SOS approach. Or for anyone that owns a property and needs to file some sort of insurance claim, they need to know if they should file an insurance claim, what is covered by the insurance claim, and things to not do to avoid delaying your insurance claim. So those are the three things we’re gonna talk about – the claims process first, then what a typical commercial property insurance policy covers, and then we’re gonna talk about tips for avoiding a delay.
The process, typically, the commercial property insurance claim entails restoring the property to the pre-lost condition, within the limits defined by whatever insurance policy you purchased. Then it should also help you maintain the business during the time it takes to rebuild or repair that property. That’s the overall purpose of the insurance claim. So it should 1) bring the property back to its pre-loss condition, and 2) while it’s being brought back to its pre-loss condition, it shouldn’t impact the business, which is really the money coming in.
Here’s a general overview of the process. Again, it depends on what actually happened, your insurance policy, but in general, this will what will happen. First, some sort of catastrophe happens; a hurricane, a flood, a fire, a storm… Something like that. Once that happens, step two is called mitigation of damages. So you are required to protect the property from additional damages, to mitigate the extent of physical and economic losses. What this means is that you may need to make temporary emergency repairs out of pocket. For example, if there’s a crazy hurricane and a bunch of windows shattered, trees fell through your roof, maybe doors blew off the hinges, you are gonna be required to go in there and cover with a board any windows, any doors, any roofs, any sort of opening, because if it rains, the animals can get in there, people can get in there, which would result in further damage done to the property. So you need to mitigate ongoing damage that occurred from some sort of catastrophe.
Number three is gonna be evaluation of coverages. Once a catastrophe occurred and you’ve mitigated the damages, covered up all the holes, then you want to review your insurance policy to understand the terms and conditions, including the coverage limitations, how they value certain things, the time limitations, and then your duties and responsibilities for filing the claim. Basically said, three is read your policy.
Four is the evaluation of damages, claim preparation and documentation. So before anyone touches anything, you’re gonna wanna document the extent of the damage. If there’s a hurricane, you’re gonna wanna take pictures of all the shattered windows, of all the doors blown off the hinges, of all the holes in the wall, of all the water damage, of all the trees that have fallen on the roofs, things like that. Take a lot of pictures, from as many angles as possible, for each of the damaged areas or items.
You wanna write detailed descriptions of the damages for each of those pictures, and then you wanna include when this actually happened, and then include any questions or concerns you have about any potential hidden damage. So overall, there’s no such thing as too much documentation. The pictures, questions, written explanations, predictions on what else might be wrong…
Additionally, you’re gonna want to reach out to licensed contractors and obtain estimates and bids to repair these issues. Because you’re gonna be required to submit an itemized, detailed claim, with expert reports and estimates to your insurance broker, or who your insurance provider is. This should include information about the property damage, as well as any sort of business interruption, loss of income, rents, as well as any extra expenses needed to continue operations. Include that in your claim to your insurance broker.
If your ten units are down because of this hurricane, and those people need to move out, how much rent are you using? And then are you putting these people in a hotel? How much money is that costing you, to put them in a hotel? So the loss of rent would be an example of the loss of income, and then the example of extra expense would be putting these people in a hotel until everything is fixed.
And then we’re going to give away a free document, because this is Syndication School, and it’s going to be a sample claims report. It’s gonna be something you can take a look at that is an example of what you need to prepare and send to an insurance broker. This is commonly referred to as a proof of loss statement. So that’s number four.
Number five is negotiations and settlement. Once you submit your claim, your insurer will audit your claim and detail and make any adjustments based on whatever policy that you have… Because every single thing may not be covered by your insurance policy. And then also based off of the expert opinions.
Number six is going to be restorations of the property and the operations, which is the last step. Do not proceed with any permanent work until you’ve reached an actual agreement with your insurer. Once the negotiation and the settlement is reached, then you can begin to restore the asset to its pre-loss condition. That’s kind of the overall six-step process of how it’ll work.
If something bad happens, you make sure nothing extra bad happens, you evaluate the damage that occurred from that bad thing happening, you figure out how much it’s gonna cost to fix the damages from that thing happening, you have a negotiation back and forth with your insurer to come to agreement on the costs and what will be covered, and then you actually fix the property.
So what types of things are typically covered by your insurance policy? Again, you’re gonna wanna read your insurance policy, you’re gonna wanna have a conversation with your insurer before you even accept their insurance. You wanna figure out specifically what is covered by your insurance policy. Sometimes they’ll have a nice little simple one-page cheat sheet they can send you, that says “Hey, if you’ve got this insurance policy, here’s every single thing that’s covered.” But obviously, in your very long policy, your book-length policy, it goes into a lot more detail on what that actually means. But here are some of the most common things covered – and I’m gonna go through this pretty quickly, because most of the things are pretty self-explanatory.
Number one is property damage. This includes the buildings, fixtures, machines, the furnishing, raw materials and inventory.
Business interruption – which is intended to place an insured business in the position it would have attained had the loss that caused the interruption not occurred. So it should provide funds necessary to sustain the ensured business whilst operations are suspended as a result of damage caused by a covered peril. It typically pays a business’ profit and continuing operating expenses, including payroll for a specific period of time.
Something else is extra expense, which covers expenses incurred in mitigating the business loss, which I gave an example of earlier. Or increased costs in continuing a business in the wake of a catastrophe. It can reimburse a policy holder for money spent, moving a covered business to a different location while the covered property is restored, is intended to offset expenses associated with returning to normal operations.
Equipment breakdown coverage is often available with this coverage and should be purchased if a customer’s business is dependent on certain equipment. That’s not necessarily important for apartments unless you’ve got like a maintenance [unintelligible [00:11:15].01] that gets destroyed, with a bunch of maintenance equipments in there.
Something else is contingent business interruption, which is usually an extension of the business interruption coverage. Contingent business interruption provides the insured with benefits to cover lost profits and extra expenses resulting from damage to a third-party’s property, typically in four situations. One, when the insured business relies on a third-party to deliver materials or product. Basically, this is business interruption based off of a third-party you’re using. Let’s say you’re using a property management company who’s also affected by the hurricane. I’m not gonna go into more detail on examples of that. It’s basically just third-parties as well.
Something else is ordinary payroll coverage. Pretty self-explanatory. It provides for salaries as a continued expense. Loss of rents – self-explanatory. Extended period of indemnity – it provides business interruption and extra expense benefits beyond the period of restoration defined in the standard business interruption policy.
Something else that might be covered is extended period of indemnity, which provides business interruption and extra expense benefits beyond the period of restoration defined in the standard business interruption policy.
So you’ve got business interruption, which is during the time it takes to get the property restored; there’s contingent business interruption, which is something that covers third-parties while it’s being restored, and there’s also the extended period of indemnity, which extends this business interruption beyond the time it takes to restore the property, if you’re still negatively impacted.
Civil authority coverage provides business income benefits when a civil authority prohibits access to the insured property due to direct physical loss or damage at the property. It’s most commonly triggered during mandatory evacuations.
You’ve got utility services, which extends business income and extra expense insurance to protect against losses caused by interruption of services from a specific utility; that provides a business with water, power, communications.
Then lastly, loss of ingress or egress, which provides benefits when as a direct result of a covered peril. Ingress to or egress from real and personal property is prevented.
So those are all examples of things that are covered. Obviously, there’s more than just that, and then obviously not every single policy is gonna cover all of that… So again, make sure you’re reviewing your policy, so that you know what is and isn’t covered.
The last thing we’re gonna talk about is just some tips to avoid having your insurance claim delayed… Because if you have a major issue, you’re gonna wanna get it fixed as quickly as possible, so you can get back to your normal operations. So here are things you can do to make sure you get the claim done as quickly as possible.
Your policy does state that your insurer is legally bound to process your claim and pay you what is owed from your damages in a timely manner, but timely manner is pretty subjective. It’s not saying “Within 10 days or within 30 days”, it’s more subjective… So it can be delayed for lots of different reasons, and again, here are some things to do to avoid some of the most common reasons why a claim will be delayed.
Number one is to know your policy, which is pretty self-explanatory. Your property insurance policy is going to be packed with enough legal jargon to make anyone’s head spin. Even seasoned claim professionals routinely argue over business insurance policy interpretation… So it’s very important for you to read and understand what your policy covers, what it includes, what it obligates you to do, and the process you must follow to settle your commercial property insurance claim successfully.
If you have gaps in your understanding of your policy, then seek help from a business insurance claims professional, which is probably what you’re gonna wanna do anyways, to help you create your claim. These are called licensed public insurance adjusters, and they can review your claim and advise you on how to achieve the maximum settlement under the terms of your specific property insurance policy.
Number two is to take immediate steps to mitigate additional damage, which you’re required to do; to make temporary emergency repairs to prevent additional losses resulting from the original damage. So this is a no-excuses step you must take, as your policy provides coverage for the cost. Make sure you’re mitigating the damages… Because if you don’t, then this is gonna delay your claim.
Three, collect abundant documentation of all the damage. We’ve kind of mentioned this – before anyone moves almost anything from your damaged property, make sure you take pictures, as many as you can, from all different angles, of each damaged area and item; write detailed descriptions of the damage you observe, that correspond with those pictures. Include when the loss occurred, and then have any extra questions you might have, or reasons you have, to suspect that there may be hidden damage somewhere else.
This additional documentation is gonna be very valuable when you develop your proof of loss statement that you submit to your insurer.
Number four is to get multiple bids from repair contractors. Some insurance carriers may encourage you to believe that you have to select a specific contractor from their list of preferred contractors. Others may suggest that you’ll save a lot of money by using their chosen providers… But just because they say that doesn’t mean it’s true, and you have the right to pick your own provider as long as they’re licensed. So just like you did when you did your interior and exterior renovation budgets, get multiple bids and make sure that you are not necessarily going with the contractor that’s the cheapest, but the ones that are able to return your property to the pre-loss condition the best, and the fastest.
Number five is submit a proper proof of loss statement. Developing this proof of loss statement, the thing that you submit to your insurer, is one of the most important steps that you can do to make sure you get your claims process resolved quickly. Your company will send you a proof of loss form, which you will then need to fill out accurately and thoroughly. This is a time in the process where people knowingly or unknowingly short-change themselves — well, I guess they wouldn’t knowingly do that… But they unknowingly short-change themselves on their claim settlement amount, because they provide insufficient information, they didn’t document properly, they don’t have enough evidence for their losses.
So when you’ve taken all of your pictures, you’ve got all of your written descriptions, your questions and reasons for things that might be hidden, you wanna organize all of these photographs and written explanations of your damages to show what happened, when it happened, where it happened, the resulting damage to the property, to your inventory, equipment, personal property etc. You wanna provide copies of the estimates you obtained and the value for the full extent of your losses. And this – as I mentioned earlier – is where a licensed public adjuster can be very helpful; to fill it out properly, to make sure you’re maximizing the money you get back to cover all the issues that have been found.
Number six is to keep a journal. Filing a claim takes a lot of time, a lot of effort, a lot of knowledge, determination and communication, so throughout the process it’s wise to keep a claims journal, so when you need to go back to any step in the process, you have detailed notes on what happened, when it happened, who said what and who did what. And then whenever possible when you communicate, try to communicate as much as possible through email. If you are contacted by someone or speak with someone on the phone, make sure you note in your claims journal the date and time of the call, the person’s name and title, what you have talked about, the conclusions that were reached, any additional steps needed, who is responsible for taking those steps, and any deadlines set.
Get that person’s personal email address, and follow up with the call by emailing them a summary of that call, and then ask them to review it and then kind of reply back and say “Yes, this is what happened” or “No, this is not right. Here’s what’s right”, so you have documentation and evidence of everything.
If you’re talking to someone and they say “Well, we’re gonna cover this” and then you didn’t really have any documentation of that, then when the time comes and it’s not covered – well, if you didn’t document it, if you didn’t get them to agree that that’s what they said in writing, then you’re kind of out of luck.
And then lastly – and this is just a general advice, which can really be applied to anything – be respectful, but firm. Achieving a fair settlement for damages to your business is not gonna be a very easy process. The insurance company is not just gonna give you whatever you want… So remind yourself that if you are having issues, if they aren’t giving you what you want, take a deep breath and remind yourself that you have the right and the obligation to stand up for yourself and your business. The more organized, direct, respectful and firm you are throughout your entire process, the better chances there are of avoiding delays and achieving fair compensation for your loss.
So just because they tell you something, don’t just take it at face value. Just because they say “Well, this is not what this actually means. Business interruption doesn’t mean you get this, this and this.” If you believe that that is the case, then be firm about it; just say something, don’t just accept it. So that’s the last thing that I wanted to talk about.
Again, make sure you check out the episode about the S.O.S. approach – Safety, Ongoing communication and Summary – because that will give you an idea of how to approach a major issue to your investors… But this episode is focused more on “Okay, something bad happens [unintelligible [00:20:29].27] now what happens?” Well, this is what happens – you file an insurance claim. This is everything you need to know about filing an insurance claim on your apartment community. And then again, you’ve got that free sample proof of loss statement that you can download for free in the show notes, or at SyndicationSchool.com.
Until tomorrow, make sure you check out some of the other Syndication School episodes about the how-to’s of apartment syndications and download that free proof of loss statement document. All that is available at SyndicationSchool.com.
Thank you for listening, and I will talk to you tomorrow.
