California on Fire: Tips for Filing Claims Relating to the Wildfires

This article is a revision of a version that originally appeared in the November 2020 issue of Risk Management Magazine.

Fire destroys your business. Fortunately, you’re fully insured. And, after all, the insurance company is your partner, right? This is what they say in their ads. Sadly, for all too many, it just doesn’t work that way.

This year’s wildfires have devastated large parts of the West Coast, destroying 4.5 million acres in California alone. Smoke and ash have also caused substantial damage and loss.

Fortunately, property insurance may cover much of your losses. When and how you present your claim can materially affect how much you recover and when. This can be extraordinarily difficult at any time and especially so when a fire has destroyed everything.

This article provides a focused plan for policyholders when considering filing insurance claims as well as what to do after filing. While coverage terms may differ, these tips apply to a wide array of businesses with claims under commercial property or business interruption policies.

1. A Tip for All Policyholders – Whether or Not They Have Claims Today

Any insurance claim requires a detailed compilation of the damaged/destroyed property. This is the last thing anyone wants to do when trying to deal with the aftermath of a tragedy. And it is extraordinarily difficult for anything prepared after a fire has struck to be complete.

Why wait? Before disaster strikes, take a video of your business property capturing the contents. Be expansive – you can decide what you will submit if and when the need arises. Prepare a detailed compilation. Include photos of your insurance policy’s declarations page. Load everything onto the cloud. This way, if there is a disaster, you can focus on the health, safety, and other needs of your employees and customers and have the documentation you need for promptly submitting a comprehensive claim, expediting, and maximizing payment.

2. Ensure You Have Your Insurance Policy<

If you don’t have a copy of your insurance policy in your go-bag, request a copy from the insurer. The policy is a contract delineating what they agreed to cover and their limits and deductibles. (Even if your business hasn’t been affected, talk with your broker about available coverage extensions which might enhance your coverage and avoid post-fire surprises).

3. Understand Your Insurance Rights for Wildfire Claims

You don’t need to know whether your policy covers specific types of damage before submitting your claim.

While wildfires cause a wide variety of damages, with the actual property damage caused by fire, ash, or smoke the most common, businesses incur many other types of potentially covered losses. These could include bills from the fire department for the cost of responding, the cost to move property to another location to avoid the fire, and business interruption loss whether arising from property damage/destruction, blocked access or damage to the supply chain. These are just examples – the coverage is broad and you should consult your policy with respect to all your losses.

Talking to others in your community is natural and can help. But policies differ, and it’s important to understand what your specific policy covers and the limits. Understanding the policy is critical to assessing your rights and insurers’ responses. Professionals can help in this process.

4.  Preparing Your Claim

A. Timing - Submit Your Claim as Soon as Reasonably Possible

Policyholders often ask – When do I need to submit? While the policy will often contain specifics, and different policies will provide different timelines, it is best to submit your claim as soon as possible. Note that insurers commonly cite late submission as a basis for denial.

B.  Level of Detail – Make Your Claim as Detailed as Reasonably Possible – You Can Always Supplement

Insurers have a right to reasonable documentation of a claim before paying. The sooner they have it, the sooner they can consider your claim on the merits.  Do you submit in hard copy or on line? The policy will tell you. But either way, keep a copy.

What do you need to submit? It varies by insurer. It’s good practice to provide as much information as you have available at the time you submit your claim. This includes details of the items destroyed or damaged (photos are helpful), estimates, and other documentation.

While some supplementation can be expected, back-and-forths associated with repeated insurer requests for more information take time, and time is not your friend as you are rebuilding your life and business. The sooner the insurer has the information it really needs, the sooner you are in a position to settle. Talk with the insurer about staging payments – paying where they have sufficient information while you develop additional information in other areas.

C.  Accuracy is Important – Do Not Overstate Your Claim

Your credibility is vitally important in achieving the best possible settlement.  Claim what you are entitled to. Overstating or padding in the expectation that insurers will take an unreasonable position is not advisable. Your credibility will go a long way in securing a favorable outcome. Mistakes are a different matter – when discovered, correct them.

5. Post-Claim Interaction with Claims Adjusters

Assume the best – that they want to be your partner in the process. Give them a chance to do the right thing. Trust, but verify. But don’t confuse their being friendly for having your best interests at heart.

Many claims adjusters will try to do the right thing by you. But even the best are dealing with thousands of claims from people facing the same horrible situation as you. It can be a blur for them too, so take careful notes of every communication.

What can you do to try to build and support this relationship? Be empathetic. Treat them with respect. Understand the number of claims they are handling. Respond to reasonable requests for information as soon as possible.

6. Incurring Expense and Insurer Consent

Some actions just won’t wait. Insurers typically will understand and reimburse as required by the policy. But when it comes to non-immediate actions, give insurers a reasonable opportunity to participate in the process – after all, you are looking to them to pay. Businesses will want to get up and running again, hiring contractors and starting repairs or rebuilding.

However, many policies state the insured must seek the insurer’s approval to repair or replace anything. And if you don’t try to get their consent, the insurer may refuse to pay for expenses “voluntarily” incurred.

7.  What Do You Do When You Get Insurer’s Coverage Position and Their “Offer”

The first response you receive after submitting your claim typically is an insurer’s acknowledgement of receipt of your claim.

Shortly thereafter, the insurer will provide a longer response identifying any additional information it needs to further evaluate your claim and/or its position on whether your claim is covered. Read this communication carefully. What is the insurer agreeing to pay? What is it rejecting? Is it leaving the door open for further payment upon receipt of more information?

Try to provide as much of the requested information as reasonably possible. This said, sometimes insurers request more information than they legitimately need – reach out to discuss their requests and the burdens associated with compliance. Confirm agreements in writing.

If the insurer denies coverage for your claim or doesn’t pay what you believe they should, you may want to seek the opinion of a lawyer specializing in maximizing insurance recovery. They can review the insurer’s position, provide their view on your rights, and help you negotiate with the insurer.

8. Insurer Lowballing

At some point in the claims process, the adjuster will typically make an offer. Sometimes the offer may fully compensate you for your loss and if so, congratulations – job well done. But sometimes, the insurer may lowball your claim in the hope you will simply take their word as respects claim value, or fold because you need the money. While highly inappropriate, recognize that for many insurers, this is part of the process. As difficult as it will be, think of it as a business negotiation (which, at least for them, is exactly what it is). Determine what they have missed (often the case) and respond in a balanced fashion – it is easy to be angry, but acting on this anger can be counterproductive. Policyholders’ lawyers can help in this process.

9. Conclusion

The wildfires are causing enormous losses for innumerable Californians. Often, you should be able to work with your adjuster to reach a satisfactory resolution. But where needed, you may wish to reach out to policyholder-side lawyers – whether to test what you may be entitled to or to help maximize recovery.

Scott P. DeVries is special counsel with Hunton Andrews Kurth LLP’s insurance coverage practice. sdevries@hunton.com 

Michael L. Huggins is an associate with Hunton Andrews Kurth LLP’s insurance coverage practice. mhuggins@hunton.com