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How to Claim a Loss on a Property That Doesn't Exist
Catastrophe modelers have learned that commercial property holders do not provide the most complete or accurate property data to their insurers. That's a huge problem for how well their models work, they say. But shouldn't this dirty big secret have been affecting how well risk managers protect their property, especially, say, come claims time?
Just imagine: a tornado tears through town and wipes out one of your facilities, but upon scrambling to check your property policy and schedule, you, the risk manager, find that you had the address completely wrong. You had given your insurer the town and state but not the actual street address of the facility. Or worse, your company just acquired the facility and you hadn't had the chance to add it to the policy. So it is not even on the schedule! Says Bruce Norris, senior vice president at broker Hilb Rogal & Hobbs, if you have only 10 properties in your company's portfolio, you could have a problem collecting on such a claim.
Ben Fidlow, principal and head of the actuarial and analysis practice at Integro, says that this is something "that happens on a regular basis"--insurers paying out on a loss for a property either inaccurately reported, or not reported at all. "It is not something that insurers want to admit," he says. "It sort of makes everyone look bad, especially the underwriter." So, usually an insurance company will capitulate on such a claim, before such issues could lead to a high-profile lawsuit. Indeed, two insurance dispute law firms contacted for this piece declined to discuss the issue. As the spokesperson for K&L Gates said (after consulting with one of the firm's insurance recovery attorneys and coming back with a "no comment"): "He indicated that he wasn't aware of this being a big problem for policyholders in pursuing coverage claims." Fidlow says that insurance companies might expect to recoup the cost of the claim in an upcoming renewal. Then again, the carrier might have factored the faulty data into the last renewal. According to John Dempsey, managing partner at claims and risk management consulting firm Dempsey Partners LLC, insurance companies often take missing and inaccurate property data into account in current policies. A property policy is supposed to cover everything an insured owns. And to take into account the above situation, policies typically include limited liability for miscellaneous unnamed locations. This encourages insureds to report new properties in a timely way, or else they would only get a fraction of their limits should a loss occur there, he says. Underwriters also can use what's called a margin clause, which basically says that, if there is a loss at a specific location, the carrier would pay no more than the reported value plus the margin amount (say, 10 percent) of that value. In either case, carriers are not as lenient as they used to be about bad data. Or as Fidlow puts it, "Insurers don't look as kindly as they used to" on it. Then again, insurance companies might actually be downright assisting (and insisting) when it comes to property data. With important clients, they'll go out themselves to distribution centers and other major locations to ensure the accuracy of the data, says Norris. MATTHEW BRODSKY is senior editor/Web editor of Risk & Insurance®. April 1, 2008 Copyright 2008© LRP Publications |
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