Just like many standard insurance policies, deductibles play an important role in keeping insurance costs low for commercial policyholders. While deductibles can help insureds in several ways, insurance providers can utilize sophisticated tactics to abuse the use of deductibles by applying multiple to a single loss. Business owners should be aware of these tactics to ensure they are not being taken advantage of in their time of need.
How Commercial Property Insurance Deductibles Work
Commercial property insurance deductibles refer to a portion of the loss that is the responsibility of the policyholder. Deductibles work to ensure that coverage for property damage and losses remains affordable for the policyholder because certain claims can be incredibly costly to have adjusted. Without an insurance deductible, the insurer would then have to pay for every small loss, which can lead to insurance costs increasing.
When a commercial property damage claim is filed, the policyholder will have to pay the deductible before the insurance company will pay its portion of the claim. While deductibles are seen in most types of insurance, commercial property policies work slightly different.
Typically, because an insured pays a deductible out of pocket, it would make sense to want to keep the amount as low as possible; however, many commercial policyholders will opt for a higher deductible to achieve a lower premium rate. Having a deductible amount that is beyond the means of the policyholder will undermine the purpose of having one altogether, as the insured will in reality not have the coverage they need.
Deductibles can also vary in the way they are calculated. The two most common types of commercial property deductibles are:
Flat or straight deductibles state a specified dollar amount that applies to each loss. The deductible is subtracted from the amount of the covered loss and the insurer then pays the remaining total. Flat deductibles apply to each occurrence of damage within the policy period. For instance, if a commercial property suffers damage due to vandalism and then a fire happens at a later date, the vandalism and the fire will each be subject to a separate deductible.
A percentage deductible is applied to perils that can result in catastrophic losses, such as a hurricane, tornado, earthquake, or another natural disaster. For instance, when an earthquake is a covered peril and a loss happens, the claim payment will then be reduced by a deductible on a percentage basis. This means the deductible may be a percentage of the policy limit or the value of the damaged property.
For example, a percentage deductible for a hurricane-related loss is often expressed as a percentage of the insured value of the commercial property. However, a percentage deductible for a hurricane, will not apply to other types of damages, such as damage from a windstorm. The amount is established by the terms in the policy, usually on the declarations page, and/or by state law.
The Manipulation of Commercial Deductibles
Despite the benefits that deductibles hold for commercial property owners, insurers will often utilize tactics to manipulate their use to benefit themselves. This often occurs when a commercial policyholder has multiple properties insured under one insurance policy. While in certain instances, the applying of multiple deductibles is appropriate if several properties did indeed suffer damage, insurers will deliberately confuse a per-building limit.
An example of this occurred in 2018, when the Cambridge Condominium Owners Association in Dallas, Texas suffered fire damage to one of its properties. The fire resulted in substantial damage to the roofs, exteriors, and interiors of multiple buildings at the property. Following the fire, Cambridge filed a claim under its policy for the damages to the property and its contents.
Cambridge sought a policy with blanket or flat coverage. Under this policy request, no per-building limitations or exceptions to the coverage were ever disclosed, discussed, or agreed to by Cambridge. A per building deductible requires the policyholder to pay the deductible amount on each building damaged in an event (here, by a fire) rather than a single deductible for the entire property damaged by the event. The insurer had full knowledge of the policy terms requested and sold Cambridge a policy to provide commercial coverage for potential damage caused by fire and other such catastrophes.
Unfortunately, after the fire, the insurance company proceeded to conduct an unreasonable and inadequate investigation of the claim in an attempt to avoid responsibility to fully indemnify Cambridge for the damage. This included a wrongful denial and a delayed payment of the claim for property repairs. As it turned out, the insurer had falsely represented to Cambridge that its property was fully covered for fire damage. The insurer denied the claim based on a per-building limitation, which was used to avoid full payment of the claim, despite the exclusion and limitation never being disclosed to or agreed to by Cambridge.
Instances like this are unfortunately not uncommon when it comes to commercial property policies. In the event an insurance company wrongfully attempts to deceive a policyholder to avoid rightfully paying a valid claim, the insured should consult with experienced legal counsel as soon as possible.
Texas Commercial Property Damage Attorneys
At Raizner Law, we’ve represented thousands of clients in claims against most major insurance companies for damage to commercial properties. Contact our office today to see how we best can assist you with your claim.