Determining whether property damage on a project site is covered by insurance can be a daunting task.
The first challenge is determining which insurance policy could provide coverage. Reading through each policy can be tedious and confusing. The second challenge is determining what property damage and related losses are covered and how to approach calculating delay costs.
When property damage occurs during construction, the first place to look is the builder’s risk insurance policy, which provides broad coverage for property damage losses. Typically, delay-in-completion coverage can be added by endorsement to cover the delay costs and related expenses caused by the covered property damage.
Documenting a claim and working with an insurance adjuster while keeping a project moving forward can be difficult. Here are some tips to help prepare a builder’s risk claim and maximize recovery:
Read the insurance policy
This should always be the starting point when seeking insurance coverage for a loss, but the importance of this step is even greater with builder’s risk policies because they can vary greatly. Generally, the policy outlines the types of costs that are covered. Delay-in-completion coverage is commonly added by endorsement to a builder’s risk policy, and the endorsement usually will specify the soft costs that are covered and not covered. Typically, delay-in-completion coverage includes reimbursement for interest expenses on construction loans, costs for additional permits and licensing, project administration costs, and additional equipment rental expenses, among other things. Knowing up front what is covered and what isn’t will help save time and resources on maximizing recovery.
Establish a claims handling team
Oftentimes, many people are involved with the claims process; these include the project manager, contractors and subcontractors, claims consultants, and others. Typically, these people have many other responsibilities – and dealing with insurance claims is not a part of their daily lives. Designating a specific group of people to be responsible for documenting the claim and clearly defining each person’s responsibilities can help ensure that tasks get completed and the claims process stays on track. It can help to retain a lawyer early in the process. Coverage counsel can take the lead on communicating with the insurance carrier and can provide guidance on internal email communication and whether it is appropriate to send litigation hold notices to preserve documents. The claims team should avoid emails that opine on damages and coverage because, in the event of litigation, those communications could be used as evidence at trial. While the claims handling team takes responsibility for collecting information, documenting losses, and communicating with the insurance carrier, the rest of the construction team can focus on the project schedule.
Establish separate accounting codes to track losses
It is critical to differentiate normal project costs from losses caused by the covered property damage. After all, the workers on-site for the project often will also be the workers handling the repairs. Using separate accounting codes will make it easier to identify covered losses and help avoid some of the nitpicky questions the insurance adjuster will ask about whether certain losses are normal project costs. Remember that many builder’s risk policies also provide reimbursement for the internal costs of documenting a claim and calculating losses, so track those costs separately as well. Setting up separate accounting codes can save a lot of time and mitigate some of the frustration that often comes with trying to recall (and prove) months or years after the fact what costs are related to the claim.
Be vigilant about collecting and organizing documents
Insurance adjusters request a lot of documentation when evaluating a builder’s risk claim. Frequently, this is the most daunting part of the process. It doesn’t have to be. Chances are the general contractor is already collecting most of the documents that will be necessary to prove a claim. Required documents often include daily reports, meeting minutes, site inspection and progress photos, payment applications, and schedule iterations. Insurance adjusters analyze those documents to determine where the project was at the time of the loss, where it was heading, and how the loss impacted the project schedule. To save time and work effectively, it may make sense to ask the insurance adjuster what documents to collect and how it wants information organized. After establishing a filing system for claim documents, be vigilant in updating and logging those documents so there is a clear record of what was provided to the insurance carrier to prove the claim.
Document all communications with the insurance carrier and adjuster
It is easy to lose track of which documents and information have been provided to the insurance carrier. The insurance carrier’s financial consultant may call to ask specific questions about the delay claim and then forget to share that information with the adjuster. To avoid providing answers to repetitive questions – or worse, contradicting oneself – it is critical to document all communications with the insurance carrier and its team. That means sending “summary emails” after phone calls or in-person meetings that describe what happened, including any requests made by the insurance carrier and any information or documents provided.
We hope that all projects are completed without a hitch and that these tips are never needed. If an accident happens, a review of the above checklist can help lessen the headache of managing insurance issues and should allow more focus on job one: completing the project.
Guy Thompson is an attorney in Stoel Rives LLP’s construction and design practice group. Contact him at 503-294-9278 or email@example.com.
The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the DJC guarantees the accuracy or completeness of any information published herein.