Maximizing Business Insurance Coverage Benefits After a Fire

Farella Braun + Martel LLP
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Farella Braun + Martel LLP

Unfortunately, we again write while wildfire is devouring homes and businesses in Napa and Sonoma, and threatening many more. We’ve previously posted tips about first steps that you should take in the event your business has suffered a fire loss. We want to provide this refresher, as prompt action is important to preserve your business’ rights under its insurance policies and to maximize its ultimate insurance recovery. If your business has sustained a fire loss, below are steps for you to take in working with your insurers to ensure that you receive the maximum benefits under any applicable insurance policies.

Step 1 – Locate Insurance Policies

It is very important that you understand the coverages provided by your insurance policies, so it is critical to have complete copies of your policies.

  • If your policies are lost/destroyed, contact your agent/broker or insurer.
  • If you can’t remember who the agent or insurer is, look at bank/payment records. Your mortgage company may also have records.

Step 2 – Contact Your Insurer

You should contact your broker or agent and let them know the details of your specific situation. They are there to help you. If you don’t have a broker or agent, contact your insurer directly.

  • Ask your insurer for an advance to cover immediate expenses, such as the cost to board up/fence your business property to prevent vandalism, and for removal of debris. If you operate your business in a rental property, you should still seek an advance for costs necessary to protect your business personal property and inventory.
  • If your insurance coverage extends to loss of business income, you may also be entitled to costs you incur to avoid or minimize the suspension of your operations. Such costs could include the cost to relocate and equip a replacement location, to expedite repair or replacement of property or inventory, the cost to restore lost information in paper records or in electronic form, and cash to pay bills and payroll during suspension of operations. Request an advance from your insurance company for any such costs you incur in order to continue your business operations.

Step 3 – Documenting Your Loss

Make notes and lists as you remember property that was lost.

  • Don’t sign anything that indicates it’s the full amount of your claim. It will likely be weeks or months before you will be able to document your full loss. Your insurer may require you to sign a notarized “Proof of Loss” form when you receive advances on your loss. Be sure to review them carefully and seek advice if necessary before signing.
  • Don’t worry about trying to value all items at this stage. Final valuations will be worked out later. It is likely that your property loss will be resolved sooner than your business income loss, which will vary depending on the length of the suspension. You may need to involve your accountant to help document the loss.
  • You may be able to receive payment for damage to some inventory or stock (e.g., bottled wine) based on the retail selling price (as opposed to replacement cost). Be sure to obtain the maximum valuation for such items available under your insurance policy.
  • Keep receipts for everything you buy and what you spend on repair/replacement of property/inventory and business continuity expenses.
  • Keep track of how much the insurance company gives you and what it’s for.
  • As you submit to your insurance company costs you incur as a result of the fire, continue to ask for additional advances corresponding to such amounts.
  • Document everything. Create a folder or binder with expenditures due to the fire, repair estimates, claim reports and all communications with and submissions to your insurance company.
  • Don’t wait for permission from your insurance company to make repairs once you are ready to do so. Just be sure to keep your insurance company informed and given the opportunity to inspect the property to avoid disputes down the road.

Know When to Get Professional Help

For large or complicated claims, consider getting professional legal advice sooner rather than later. It is almost always cheaper and quicker to get professional help before the claims process hits difficulties than wait until complications arise. This is particularly true for claims with a business interruption component. You may also need to seek guidance as to whether your insurance company is properly meeting its obligations and what your remedies might be if it is not.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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