We all saw the terrible news of the building collapse in Welland in February. Once we learned everyone onsite was OK, the next thought was probably, “I’m sure the project had builders risk insurance, so all will be taken care of.”
But how should these types of claims be handled? In this article, we will discuss the best practices for reporting claims on a builders risk insurance policy to help you avoid some common pitfalls.
Contact your broker immediately
The first step in reporting a claim on a builders risk insurance policy is to contact your broker as soon as possible. Your broker designed the policy and has an intimate understanding of what it is meant to cover. Your broker will review the coverages bound versus the damages reported, the limits of your coverage, the deductible, and any exclusions or limitations, and let you know if you have a claim worth filing with the insurer.
If your broker determines the damage falls within the scope of coverage or is sizeable enough to claim (deductibles for certain types of damage, like water damage, can be much larger than other perils), the broker should then report the claim to your insurer and ensure an adjuster is assigned promptly.
It is essential to report the incident immediately. Waiting too long to report a claim can delay the process and may even result in a denial of coverage.
Document the damage
To support your claim, it’s essential to document the damage. This includes taking photos or videos of the damaged property, equipment, or materials. You should also keep all receipts, invoices and other documents related to the construction project, such as your construction contract. Providing detailed and accurate information will help your insurer assess the damage and determine the amount of coverage you are entitled to.
If your property or equipment has been damaged, it’s essential not to make any repairs or changes without consulting your insurer. Making changes or repairs can alter the evidence of the damage, making it difficult for the insurer to assess the extent of the loss. There are of course emergency situations where you can and should make best efforts to mitigate any further damage from occurring as your insurer will expect you to where safe and practical. In these situations, just be sure to document the steps taken.
Consider hiring a professional
In some cases, it may be necessary to hire a professional to help with your claim.
Shawn Malik, a veteran independent adjuster with McLarens Canada with specialized builders risk experience notes: “Typically, your insurers will retain consultants to assist them in the adjustment process such as forensic engineers, schedule consultants and forensic accountants. The loss adjuster retained by the insurer will manage these consultants and be your point of contact to ensure proper flow of information, keep you apprised of status, assist you in preparing your claim to be submitted to the insurers.”
An adjuster with the proper experience and skillset should be identified from the inception of the policy.
If the insurer does not have in-house adjusting staff with sufficient expertise, it would be a wise idea to consider a control adjuster that does have this experience. Identifying that need from the onset of the project will help the claims process go as smoothly as possible. Your broker can work with you and your insurer to agree on the control adjuster that best fits your needs.
Keep track of your expenses
It is vitally important to keep track of your expenses related to the damage or loss. This includes costs associated with repairs, replacement of equipment or materials, and any other expenses incurred as a result of the incident. Keeping track of your expenses will help you document the amount of coverage you are entitled to and can help you avoid out-of-pocket expenses.
Indirect costs
In addition to property damage coverage, builders risk insurance policies can also provide coverage for soft costs and delay in start-up expenses. Soft costs refer to expenses that are not directly related to physical damage, such as additional project lending costs, legal, accounting, marketing and other miscellaneous expenses or fees.
Delay in start-up coverage provides protection for the loss of revenue that would have been derived from the completed project (such as rent, leaseholds or profit from a manufacturing facility’s operations), had it not been for the insured loss occurring. These types of coverage help mitigate the financial impact of project delays and unexpected expenses.
Other considerations
Whether you are a project owner, general contractor or subcontractor, you will have different responsibilities, roles and desires when damage occurs to a project. The prime construction contract will determine who is responsible for purchasing the builders risk policy.
Whichever party that was identified as being responsible for purchasing the builders risk policy will typically also be responsible for reporting claims under that policy. While it may be tempting for a contractor to repair damages themselves and/or try to claim any project damages on your own insurance policies, this is usually not a good idea. Doing so can slow down the claims process and possibly cause further unnecessary project delays. The best place to claim insured physical damage to a construction project is the builders risk policy.
Ultimately, each party has a unique role in reporting a builders risk clam, and all parties should work together to ensure that the process runs smoothly and efficiently.
Reporting a claim on a builders risk insurance policy can be a complex and time-consuming process. Working with a broker who has specialized construction insurance professionals will help you avoid many of the pitfalls that can be encountered during both the placement of the insurance, but more importantly when a claim occurs. As you do with all of your project partners, choose your broker wisely.
Peter Toole is a vice-president with FCA Insurance and has spent his entire career assisting contractors and project owners with their insurance and risk management needs.
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