Claim Facts: Will Insurance Cover My Company's Repairs and Refurbishments?

When dealing with insurance companies, many organizations find themselves with a number of questions, especially when it comes to whether their company's repairs and refurbishments, such as floor coverings, build-out of break rooms, offices, display shelves, and other capital improvements, will be covered. Here, we'll answer some of those questions, so the next time you're dealing with your insurance company you won't be in the dark.

3 Common Questions Regarding Repairs and Refurbishments

Your company property may be damaged by a variety of incidents, such as water discharge from a plumbing fixture, weather event, theft/burglary, fire, or other accidental direct physical loss.

Let's look at the answers to three common questions that tend to come up when conducting repairs:

1. Do we have to seek approval from the insurance company prior to performing repairs?

We have two things to consider here. Not every company has a trained facilities manager onsite to initiate mitigation measures, coordinate repairs, or be in a position to hire a vendor without the landlord's consent, so first, determine your expertise and contractual obligations to perform repairs. Secondly, consider your insurance policy and what is does or doesn't cover.

Of course, you should do what is contractually required, take "reasonable measures" to protect the property from further damage and document your actions, decisions, and costs.

While you don't have to seek approval from your insurer prior to the restoration, you may not recover all costs. For example, there may be costs for an excluded repair item due to wear and tear or defects, but the resulting damages to covered property should be covered.

Similarly, you can't expect your insurance company to fully reimburse you for the refurbishments, but you may be able to be partially reimbursed. Whether a cost is covered will depend on the policy coverage, limits, and reason for the work to be done.

2. Can we proceed with the refurbishment and expect the insurance company to fully reimburse us?

Every cost and decision should be supported and submitted to the insurer for consideration; it never hurts to ask, but in the end, they will only pay for what is covered.

The insurer will evaluate the claim submission in accordance with the policy terms. Some things will not be covered, such as the replacement of a subfloor or an overloaded circuit breaker that caused a fire, but you may still have to replace them per your lease/contractual obligations.

In a property policy, loss mitigations costs for emergency response to a covered loss are usually covered and do not require insurer approval, however, the insurer may decide the costs are excessive and not reimburse 100% of the costs. These emergency vendor invoices are usually negotiated between the vendor and adjuster after the work is completed.

There are some policies that have favorable wording for the insurer, and the insurer may still deny in part what they believe to be excessive charges. On pollution/environmental cleanup costs policies, the coverage are more restrictive, and timely notice of the even to a crisis hotline, and prior approval of all costs may be required by the insurer to avoid a denial for pre-tender costs. The expertise of a claim consultant and timely notice to your broker and insurer is key to successfully securing recovery for these costs.

3. Can we replace non-damaged areas and include it in the claim, or do we need a report from the manufacturer or expert to support our decision?

You may be wondering if you can replace the non-damaged areas, such as the matching flooring that extends into common hallways or other rooms, or if you need a report from the manufacturers or expert supporting your decision.

The answer is yes, you may need to replace the non-damaged areas to achieve a reasonably uniform appearance, but it would be in your best interest to provide detailed documentation to the insurer explaining that, for example, the existing flooring is no longer available or the repair is not acceptable to the landlord.

In this example, I recommend you obtain the flooring expert's findings, recommendations, and costs for the proposed actions you want to take, send them to the insurer for consideration, review their comments, and seek their approval with the plan.

Your insurance policy will only respond to and pay for damage that's covered under your policy. Therefore, any preventative work you perform, although it may make sense at the time, will not necessarily be covered by your insurer.

In any claim scenario, while our answers may not apply in every situation, it's important to keep in mind that whether or not you go through with the plan to perform preventative maintenance is a business decision that may not result in a payment from the insurer.

Make the Most of Your Documentation by Providing Some Background

I mentioned the importance of documentation multiple times in the section previously.

When submitting documents to an insurer, you'll want to ask yourself three major questions:

1. How can I best explain what I am submitting?

I recommend referencing the document by name, or referencing the tab on the Excel spreadsheet, and outlining what the adjuster should pull from the documentation. Don't leave it to the adjuster or their expert to "read your mind," or expect them to know what your internal system screenshot is attempting to document.  

2. Why am I sending this, and how does it relate to the claim and resulting damages?

I recommend stating the obvious, like so:

Attached please find an Excel document that summarizes our claim cost in tab 1. Tab 2 is our payroll information for the employees we paid overtime to respond to the claim, tab 3 contains a detailed inventory list of our damaged business personal property with current replacement costs and tab 4 is our production and sales records calculations in support of our business interruption loss. Additionally, you'll find a PDF document with copies of all our estimates, invoices, quotes and payroll records in support of our claim costs.

3. What do I expect from this, and how much am I expecting to be paid?

Again, I do not recommend leaving it to the insurer or their experts to measure your loss and arrive at the same figure you anticipate for settlement, since they may lose an invoice, enter data incorrectly or make some other mistake.

Instead, I recommend you specify how much you anticipate for your settlement, request a portion of the settlement as a partial payment advance so you can pay the vendors, and allow up to two to four weeks for the insurer to complete their analysis and present an offer.

Since you have already prepared and tracked your costs and losses, you'll be in a position to determine if the settlement offer presented is reasonable in comparison to your loss measure. If there are significant differences, engage with the adjuster on a line item by line item review of your submission in comparison to their allowed amount.

This way, the documents you submit will be accompanied by a comprehensible explanation and a clear purpose. Thus, your insurer will be more likely to quickly identify and categorize your claim cost to the applicable coverage and reimburse you for eligible costs.

FAQ Cheat Sheet Summary

Here's a cheat sheet on this matter, so you can get quick answers to your questions when they arise.

Q: Do we have to seek approval from the insurance company prior to performing repairs?

A: No, but you may not recover some of the costs involved in the repairs.

Q: Can we proceed with the refurbishment and expect the insurance company to fully reimburse us?

A: In general, no. However, it depends on what's covered by your insurance policy terms, and you may receive partial reimbursement.

Q: Can we replace non-damaged areas and include it in the claim, or do we need a report from the manufacturer or expert to support our decision?

A: Yes, you can replace the non-damaged areas, but be sure to thoroughly document the entire process and request where in the policy it supports the partial denial, if applicable.

When pursuing an insurance claim, it's important to understand your coverages and the process. Most policies have flexibility for allocation of costs, costs and repair methodologies are negotiable, and recovery is a function of the degree of documentation, the supporting basis why the repair is warranted and connected to the covered event, interpretation of the policy coverage clauses, and persistence of the claim advocate.

Communication with your broker, tenant, and/or landlord/property manager, and ongoing discussions with your adjuster and vendors are paramount to a successful recovery of the restoration costs on a claim. If you have questions or concerns, your claims consultants at Woodruff Sawyer have the expertise and relationships with the insurers to help you negotiate a fair settlement on your claims.