QUESTION: OUR house was badly damaged during Hurricane Ivan. Part of the roof was blown off. Most of the contents were either destroyed or suffered severe damage. As a result, we were forced to move. We also lost a large section of the retaining wall. The house and contents are insured for $8 million and $2.5 million. What should we do and not do in order to maximise our claim?
E.W., Kingston 8.
Answer: Hurricanes have wreaked much havoc this year. Haiti and parts of North America have borne the brunt of the damage. And the season is still not over. Ivan's insured damage estimates [a fraction of the economic losses] according to my sources, range between US$2 to $3 billion for Jamaica and Cayman. Losses in Grenada were put at US$75 to $300 million. Frances caused losses of about US$300 million in The Bahamas. These numbers tell only part of the story. The 'terrible quadruplets' Charley, Frances, Ivan and Jeanne produced over US$25 billion of losses in the US. When the over 1,000 lives lost in Haiti from Jeanne are added, one begins to get a sense of the mayhem these hurricanes have triggered. We have a lot for which we should be thankful.
RULES TO FOLLOW
Your post-loss actions should be guided by four commandments. They are:
1). Act as though you are uninsured.
2) Report your loss to insurers as quickly as possible.
3). Prove your loss [to insurers].
4). Find out about the 'nuts and bolts' of your policy [or
contract].
Rule number one implies that you do not have to wait for the insurer's rep. to visit your premises to start emergency repairs. A 'reasonable uninsured' will take speedy and appropriate actions to minimise the effects of any damage. Covering a roof opening with tarpaulin, for example, falls under this heading. Costs associated with such repairs should form part of the claim.
REPORT THE LOSS AS
SOON AS POSSIBLE
Your policy assumes that the loss will be reported to insurers as soon as possible. Most contracts have a 30-day limit. Insurers are not being unfair when they make this request. They use the information you provide to help them decide how much money they need to set aside [or reserve] to pay the claim. Hurricanes result in thousands of claims. The numbers of potential claims are critical to them. Investments may have to be sold and/or overseas reinsurers contacted to get cash. These tasks take time. It is in your own best interest to comply. If for some reason this is impossible, tell the company and seek an extension.
Obeying rule three seems fairly easy in theory. Some persons, due to ignorance, feel that once the insured event has occurred, the insurer should pay them the sum insured. If they read their policies they would realise their mistake. It is a cardinal principle of insurance law that policyholders should prove their claim.
Proper proof of the loss involves the completion of the insurer's claim form. The second step involves the submission of detailed estimates for repair, rebuilding or replacement. A competent architect, builder or contractor will suffice in the case of building damage. The builder estimates the quantities and prices of materials and the labour and other costs needed to complete the job. This estimate would form part of your claim.
CONTENTS CLAIMS CAN
CREATE HEADACHE
Contents claims are more problematic. Insurers want a detailed list of each item which forms part of the claim. They also ask for its original price, date of purchase, estimated value at the time of loss and salvage value [where the item has some residual value]. Repair estimates would be submitted where the items could be fixed. Because of poor record keeping, most householders have difficulty in preparing contents claims due to the wide variety of property involved. They also tend to take a much longer time to prepare their claims for building damage.
If you know about the 'nuts and bolts' of your contract it will help you maximise the policy benefits. For example, most persons do not know that household policies will pay a maximum of 10 per cent of the total sum insured [in your case $1,050,000] for costs of finding alternative housing following insured damage. I suggest that you read your policy to get an idea of the other types of benefits to which you are entitled. Furthermore, it could prevent nasty surprises.
Potential problem areas with your claim include under-insurance, the policy excess [or deductible] and the exclusion of certain types of property. I have seen reports in The New York Times and The London Times which suggest that more than 50 percent of persons in the USA and UK have no idea what it would cost to rebuild their houses or replace their contents. A similar situation applies here. I feel that your house and its contents are likely to be under-insured.
AVERAGE CLAUSE
As a result, the average clause will be applied to reduce your claim. Nothing can be done at this stage to avoid this, since the sums insured should have represented replacements value.
Insurers provide only 98 per cent of the coverage for hurricane damage. The insured "covers" the first two per cent. This means that the policy will only operate after the damage [in the case of your house] exceeds $160,000 [i.e., 2 per cent x $8,000,000]. The same condition applies to contents. Of course, loans are available to finance the repairs if the repair costs fall below the excess.
I hope this gives you a good idea of what to do and expect. It is also my hope that it will help you and your family to implement plans to recover from the effect of Hurricane Ivan. Finally, it is very important that you use the knowledge you gain from this experience to plan your insurance coverage for the future.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com
