Owning and operating a commercial property is no small feat, particularly when insuring it against potential property damage. This is especially true for rental property owners and/or landlords who must mitigate damage while ensuring their tenants are safe and taken care of.
Well before a storm or disaster event hits a rental property and causes damage to the exterior and/or interior of the building, property owners should already be well-versed in understanding what they can claim under their insurance policy.
Rental Property Storm Damage
When a severe storm such as a hurricane, tornado, or hailstorm causes damage to an apartment or rental property, there are many considerations to keep in mind before filing an insurance claim. For example, both the landlord and their tenants may have separate insurance policies in place that cover different events.
Renter’s insurance generally covers damage to the renter’s property on or within the rented space. The insurance that the landlord or property owner maintains, however, can cover a broad list of items under multiple different insurance policies, particularly when it comes to property damage from a storm or natural disaster. Rental property owners must know the type of damage their policies cover well ahead of a potential storm, and having the right insurance coverage in place is essential to running a rental property.
Like any other commercial property, when a rental property is damaged, it can leave the business at a standstill until the proper repairs can be made. Because of this, landlords and rental property owners will likely need to obtain multiple policies to adequately cover potential storm damage, including:
Landlord Insurance
Landlord insurance policies cover damage to the structure of a building or buildings due to covered perils. These can include fire, snow, and vandalism, among others. Additionally, this coverage also insures appliances and other items within the property that belong to the property owner.
Similar to business interruption coverage, landlord insurance also covers the loss of rental income if the property is uninhabitable due to damage. In certain instances, this is included within a standard landlord insurance policy; however, it can also be purchased separately as an endorsement or rider.
Flood Insurance
When a severe storm impacts a commercial property, the possibility of flooding can be a great concern. However, despite being one of the most common and expensive perils for commercial properties, coverage for flood-related damage after a storm is often not included in a landlord policy or a commercial property policy and must be purchased separately. This is especially true in Texas and other coastal states with high flooding activity throughout the year.
Flood insurance coverage can be purchased through the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program or through a private flood insurer.
Windstorm Insurance
As with flood insurance, coverage for wind and hail damage to a rental property may need to be obtained separately from landlord or commercial property coverage. This is especially important for rental properties located in areas that are prone to hurricanes, hail, and windstorms. These policies typically cover physical damage to the property  as well as personal belongings within it. In addition, some insurers will impose separate deductibles for hurricanes, named storms, and/or windstorms on commercial policies.
Commercial Property Insurance
While some landlords may not think they need coverage under a commercial property policy, it’s very important to have. This is especially true for rental properties like apartment complexes that are often owned by larger corporations. This specific type of insurance covers damage to the premises of the rental property as well as items located within it, including equipment, furniture, supplies, and fixtures, among other items. This coverage can also cover the costs associated with the repair or replacement of stolen, damaged, or destroyed property.
When running a rental property, property owners must review their lease obligations in terms of insurance. While tenants are responsible for insuring their property within the space, in certain instances, they can also be responsible for insuring the building or for continuing to pay rent even if the space is inoperable or unusable. Reviewing these documents with legal counsel can help confirm whether existing insurance coverage is adequate.
Property Insurance Appraisal Clauses
If a rental property suffers damage and the landlord has all the necessary insurance coverage in place, they can still face major hurdles with the insurance appraisal process. When the policyholder and the insurer cannot agree on the amount of the claim, an appraisal clause can be invoked to help maximize the value of the claim.
Appraisal clauses are present in nearly every commercial property policy. The clause can be utilized when there is a dispute over the cost to repair the damaged property once a claim for loss has been filed. Appraisals are binding contractual processes used to settle valuation disputes. However, disputes concerning coverage or causation issues cannot be decided by appraisal.
Under a typical commercial property insurance policy, an appraisal may be requested by either party. Then, each party will select a competent and impartial appraiser within a limited number of days after receiving a written request from the other party. Following this, the two appraisers will choose an umpire. A property insurance umpire refers to a competent, disinterested, and impartial individual charged with deciding the property value or amount of loss. However, in the event the appraisers cannot agree on an umpire within a certain amount of time, either party can typically ask a court to appoint one.
For commercial property owners to fully maximize insurance claims, it’s important to hire experts who understand the process from start to finish. Understanding whom to select as an umpire is particularly crucial, as they must be entirely impartial to the issue to have a successful commercial property appraisal. If not properly executed with impartial experts for both appraisal and umpire roles, an appraisal can quickly compound claim problems and result in further costly delays for business owners.
Despite the potential benefits of invoking an appraisal clause for valuation disputes, an appraisal is not always an appropriate course of action. For instance, if a claim presents disputes involving overall policy coverage, provisions, deductibles, or how much was previously paid on the claim, an appraisal is probably not a good option. Additionally, because an appraisal is not free (i.e., the appraisers and umpires must be compensated for their time), the difference in the disputed amount should be substantial enough for the appraisal to be worthwhile.
How to Track Property Insurance Claim Costs
When a landlord suffers storm damage to one or more of their properties, many things need to be considered when it comes to tracking the costs associated with a property damage claim. Tracking or calculating a commercial loss, for instance, requires many steps to complete. When determining the value of a claim, business owners will need to obtain several key elements regarding the damage, including:
- The total amount of damage to both the property and its contents
- Any applicable policy limits for each type of insurance coverage
- The coinsurance percentage
- Any applicable deductibles
- Whether the property is insured on a replacement cost or actual cash value basis
- The value of the covered property at the time of the loss
Determining the Cost of Damaged Items
Well before the property and its contents are damaged, landlords and/or property owners should track the costs of the property and its contents at the time of purchase. This information can be easily obtained by maintaining business expenses such as keeping receipts and referring back to company credit card charges related to the property and its contents.
Following a covered instance of property damage, the insured should take photos and/or videos of the damaged property as soon as possible. These items, in addition to copies of receipts and financial statements, will be utilized by the insurance company during the claim investigation. Additionally, the insurance company will provide the policyholder with a proof of loss form. This form gives the insurer the specifics of the loss as well as a detailed breakdown of the amount being claimed. Once the insured has filed this with their insurer, the total damage amount will then be determined.
Policy Limits
While having the total damage amount on hand can be helpful, landlords should keep in mind that the total amount of damage can sometimes exceed the limits of their policy. Policy limits must be calculated along with any potential coinsurance penalties that may apply, as the final payout cannot exceed these limits. Commercial property owners must not lower the total damage amount to match the policy limit, as they could eventually be penalized once any applicable deductibles are subtracted.
Coinsurance
Coinsurance refers to the act of splitting or spreading the amount of risk among multiple parties. With regard to commercial property insurance, this applies to both property and contents coverage following a loss. Coinsurance ensures policyholders have insured the property for an appropriate value and that insurers receive fair premiums in exchange for the risk. For instance, if a building is valued at a $1,000,000 replacement cost with a coinsurance clause of 90%, it must be insured for no less than $900,000. The building with an 80% coinsurance clause must be insured for no less than $800,000.
To calculate coinsurance costs, the insured would begin by dividing the actual amount of coverage on the property by the amount that should be carried, which is normally 80%, 90%, or 100% of the property value. Following this, the insured will then multiply that amount by the loss figure to determine the total reimbursement. In the event the reimbursement value is greater than the specified policy limits, a secondary coinsurer can supply the remaining funds.
Deductibles
The policy deductible is the amount that must be paid by the landlord or policyholder before an insurance provider will pay for any claim expenses. While a commercial property policy may have different deductibles for different covered losses, in most cases, only one deductible can apply to a single loss event. When a loss involves damage to more than one covered property, separate limits can apply. These losses cannot be combined when determining the application of the deductible, meaning the deductible can only be applied once per occurrence.
Misrepresentation and Insurance Policies
Unfortunately, insurance carriers that are often focused on profits will allege that policyholder misrepresentation or fraud was committed at the inception of an insurance contract, during the coverage period, and/or when making a claim to avoid paying claims. Most often, policyholder misrepresentation at inception is cited as an erroneous and invalid reason an insurance carrier uses to deny paying out on an otherwise valid claim.
When a landlord and/or property owner claims commercial property damage under their insurance policy, a carrier may try to find something suggesting the insured misrepresented information when they took out the policy. The insurer may argue that if the insured had stated or written things differently, it would have acted differently and/or not insured them at all. These types of insurance misrepresentation and fraud are serious problems, and it is never appropriate for an insurance company to falsely assert fraud to gain an advantage on a claim.
Various parties involved in insurance transactions can be alleged to have committed fraud, including insurance applicants, policyholders, third-party claimants, and professionals who provide services to claimants. An agency can also commit insurance fraud when an insurance company employee knowingly tells a consumer false information to get them to purchase a policy. Some common insurance agency misrepresentations can include:
- A representative providing the wrong information regarding coverage and/or cost despite understanding the implications.
- An agent claiming the policy contains coverages that it in fact does not have.
- Including arbitration clauses in policies without clearly disclosing these provisions to the policyholder.
Commercial Insurance Claim Attorneys
While there are differences between owning and running a rental property versus a standalone commercial property, both generally require much of the same insurance coverage, particularly when it comes to storms and other natural disasters. They also often grapple with the same tactics insurance providers use to avoid paying what is rightfully owed to the policyholder.
If you are a commercial property owner of a rental space and have filed a valid commercial damage claim only to have it be wrongfully delayed, grossly underpaid, or denied, the insurance coverage attorneys at Raizner Slania can help.
