Deductibles play a key role in keeping insurance costs low for policyholders. Despite this, insurance providers sometimes use sophisticated tactics to abuse deductibles by applying multiple deductibles to a single loss. Business and commercial property owners must be aware of these efforts to ensure they are not taken advantage of after suffering a significant loss.
The board-certified trial attorneys at Raizner Slania have successfully handled large, complex insurance disputes against every major insurance company. We understand how insurance companies attempt to delay, grossly underpay, and even wrongfully deny valid claims for their benefit. The following provides key details on how insurance deductibles are applied for commercial properties and can be used as tools for insurers to take advantage of their policyholders when they need coverage the most.
Commercial Property Insurance Deductibles
A deductible is the amount of money the insurer and the insured agree to deduct from the value of a loss before the insurance company pays the remainder, up to the limits of the commercial property policy. It is the copay amount a business must pay out-of-pocket when an insurance claim is filed for a covered loss.
Insurance deductibles ensure that coverage for property damage and losses remains affordable for the policyholder, as specific claims can be incredibly costly to adjust. Without these deductibles, the insurance company would have to pay out for every loss, which can lead to increased insurance costs. Although deductibles are used in most types of insurance, commercial property policies work a little differently.
Typically, because an insured pays a deductible out of pocket, it makes sense to keep the amount as low as possible. However, many commercial policyholders opt for higher deductibles to achieve a lower premium rate. A deductible amount that is beyond the means of the policyholder will undermine the purpose of having one, as the insured likely won’t have the coverage they need.
Despite this, insurance carriers have been moving toward offering larger deductibles outright over the last few years due to the increase in catastrophic events like floods, hurricanes, earthquakes, and wildfires. Having the funds to pay for these larger deductibles has become critical for business owners to maintain the stability of their operations.
Insurance deductibles can also vary in how they are calculated. The four most common types of deductibles include:
Flat Deductible
Flat or straight deductibles utilize a specific dollar amount to be applied to each covered loss. The deductible is subtracted from the amount of the covered loss, and the insurer pays out the remaining total. Flat deductibles apply to each damage instance within the policy period. For example, if a commercial property suffers damage due to vandalism and then a fire breaks out at a later date, the vandalism and the fire will each be subject to a separate deductible.
Percentage Deductible
A percentage deductible is applied to perils resulting in catastrophic losses, such as a hurricane, tornado, earthquake, or another natural disaster. For example, when an earthquake is a covered peril, and a loss occurs, the claim payment will 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 damages, such as windstorm damage. The amount is established by the policy terms, usually on the declarations page, and/or by state law.
Aggregate Deductible
An aggregate deductible refers to the maximum amount a policyholder will pay out of pocket within a specified time, often the policy year. For instance, if a commercial property policy includes a $10,000 aggregate deductible and the insured sustains several losses during the policy period that fall within the deductible amount, the business will be responsible for those costs. The insurance company will then be responsible for paying out the third loss in full. By that time, the policyholder will have satisfied its aggregate deductible obligation under the policy.
Waiting Period Deductible
After a significant loss, businesses may need to shut down temporarily or indefinitely. When this happens, the company’s business interruption or income policy can help recoup the costs of running the business while it is inoperable. This includes everything from payroll expenses to company income lost during the shutdown.
In these instances, business income policy forms do not use the word “deductible.” Instead, they often include a type of deductible called a waiting period. This waiting period is the time that must elapse before insurance coverage can begin. Typically, it is 72 hours, and any income lost during the waiting period is not included.
How Insurance Deductibles for Commercial Properties Can Be Manipulated
Despite the many benefits deductibles offer commercial property owners, insurance companies will often employ tactics to manipulate their use to benefit themselves. This typically happens when a commercial policyholder has multiple properties insured under one policy. In some instances, applying various deductibles is appropriate if several properties suffer damage; however, insurers may attempt to confuse a per-building limit deliberately.
For example, say the owner of multiple condominiums experiences fire damage to one of its properties. The fire likely caused extensive damage to the interior and exterior of the property, leading the owner to file an insurance claim under a blanket or flat coverage policy. In this request for coverage, no per-building limitations or exceptions to the coverage are disclosed, discussed, or agreed to by the policyholder. A per-building deductible commonly requires the policyholder to pay a separate deductible for each damaged building rather than a single deductible for the property that suffered damage. Although the insurance company had prior knowledge of these explicitly requested policy terms when it sold the policy to the insured, it can still choose to wrongfully deny the claim by falsely representing that the property would be fully covered under the per-building limitation.
Unfortunately, instances like this are not uncommon in 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.
Commercial Property Insurance Claim Attorneys
At Raizner Slania, we have represented thousands of commercial clients in claims against most major insurance companies that acted in bad faith. If your commercial property claim has been wrongfully denied, delayed, or grossly underpaid, we can help. Contact our experienced team today to see how we can assist you with your claim.