Large Loss

Tread carefully when adjusting a large loss property claim so as to not make any commitments to the insured that cannot be kept.

For instance, when at a fire scene, until it can be determined whether the fire was accidental or not, do not make any promises to the insured, said Ian Daunt, executive general adjuster with Crawford & Company (Canada) Inc.’s global technical services division. “The insurers can’t rely on an arson defense if you, as the adjuster via company or independent have done something that basically gave the impression there was no issues with corroboration and the company was covering this loss.”

Daunt was speaking at the ASAP Education and Training Resources Seminar in Toronto on Jun. 7, 2011.

Using a claim he worked on at a pork and meat plant in Ontario as an example, Daunt explained the process of adjusting tricky large property losses. In this claim, two separate fires had occurred just over three hours apart. After the fire department put out the first fire and cleared the scene, a second fire broke out in the cooler room, which developed into a five-alarm fire. It took 24 hours to put out the second fire and another five days before the fire marshal would release the building back to the insured.

Talk to observers

Despite not being able to enter the building to investigate, an adjuster can still do a lot of work outside. Part of this includes retaining the right people, including a cause and origin expert and, in this case, counsel. In this particular instance, in part because the gas lines in the boiler room had been disconnected, which could have created a massive explosion, the police were also called in because it was a crime scene.

Talk to people around the scene, including the fire marshal, and, more importantly, the insured. This might be the only opportunity to speak with the insured. For Daunt, a three-hour conversation at a local Starbucks while the building was still burning was the only time in five years he had the opportunity to speak with the insured. Right after that, a lawyer was retained. “When you go to a fire scene you can never spend too much time there, but, more importantly, spend time with the insured and do it early,” Daunt said. “If the guy will stay with you for 10 hours, stay with him for 10 hours until you get all the information. You might get one shot and one shot only.”

Don’t commit

Despite not being able to get inside the building, the expectation still existed that Daunt and the insurance company would remove a consignment of beef which was being housed inside the plant. The meat inside the building was becoming a health hazard, but the building was structurally damaged and it wasn’t safe to enter. The insurer was being asked to get the meat out, pay for it and sort everything out with the insured later. “We told them until we can get in to do an investigation, we can’t make any commitments,” he said. To boot, the building was burning in an urban area and the police and fire department want it secured – they wanted it fenced and boarded up. “I was under a lot of pressure to basically make commitments.”

To get the process started, Daunt determined the best way to get the meat out of the building. First up was to determine if it was spoiled (most likely) and the second step was to determine where to take this meat (be it to a rendering company or to the dump). Daunt connected the insured with a company who could remove the meat  and bring it to the dump. He explained to the insured that until he could get in to do a thorough investigation, the insurer could not commit to paying for the removal and disposal of the meat. The insured would need to retain the company to remove the meat and take it to the dump, along with a special license required to dispose of the meat. An accounting firm was brought in to weigh and document all the meat that was removed from the building, so there was a record in case the claim ended up going to appraisal on the quantum end.

On the fourth day after the fire, with 20 trucks lined up along a busy street in Toronto in the middle of rush-hour traffic, the insured initially did not show up as arranged. When he finally did, he explained the bank was “pulling the plug” and he would not be paying for the removal of the meat, Daunt said. It was decided by the Ontario fire marshal that the city would have the meat removed and the cost would be charged to the owner’s property taxes. Again, the expectation was that the insurer would pay for the limited demolition required to make it safe to enter the building to remove the meat – again Daunt had to explain the insurer could not make any commitments of the sort until an investigation could determine the cause of the fire.
“If I had committed to any one of those things, it would have ended up that the insurer, if they turned around and said this is an arson and we can prove the insured did it, it could have been estopped,” Daunt said, explaining again the need to remain non-committal (but still being polite!) until an investigation can be completed. “You’ve got to be strong down there, because you will be kicked all over the place and you’ve got to stick by your principles and say: ‘Look, I’m sorry, I don’t like giving this message.'”

Handling hiccups

On the fifth day, the fire marshal told Daunt the investigation would likely be complete, and he would release the building back to the insured. However, because Daunt didn’t have a non-waiver agreement, the lawyer for the insurer wrote a reservation of rights letter to the insured explaining Daunt and the experts would be going into the building to do an investigation and that the insurers were not waiving any rights. However, when the fire marshal released the scene and agreed to walk the insurer’s cause and origin engineer through the building the insured would not agree unless he too could walk through the scene.

The fire marshal would not agree to this, and after five days of waiting, Daunt and the other experts were being denied the one opportunity to start an investigation. In an attempt to ensure his expert could get in, Daunt suggested the insured’s expert be allowed to go in, as well. Unfortunately, this would have to wait until after the weekend – another two days lost.

At this point, the fire marshal has been on scene for five days and Daunt has not received any information about the site or what evidence has been removed. To get the process going, the cause and origin expert must focus on the incident: document the two fires and document the boiler room where the gas lines were cut or disconnected. From there, structural engineers need to go in to determine whether it is safe and the extent of the damage. Is it a total loss? A rebuild? Once a scope is defined, a price can be set. Cleaning companies and environmental engineers needed to be brought in to determine whether the smoke could be cleaned, what’s economical and what needs to be done to clean it to Canadian Food Inspection Agency (CFIA) standards?

Coverage issues

There were also coverage issues on the file. Three separate companies were named under one policy: a landlord (owner) for the building, an operating tenant (the pork and meat plant) who had leasehold improvements and equipments and a smaller house on the property with another tenant. The tenant operating company was placed in receivership by the bank, to add insult to injury. “Receivership makes a huge difference because the receiver is looking to get huge money from the bank,” Daunt said. “They are going to be claiming for whatever they believe is their property and they are going to be arguing it’s not the landlord’s, it’s theirs.”

Both the tenant and the landlord claimed ownership of more than $2 million in leasehold improvement, plus additional claims for business interruption. The receiver went back through 10 years of financials for the operating company and the landlord finding the landlord had spent
roughly $5,000 on leasehold improvements, whereas the operating company had spent several million. “The receiver claimed the operating company paid for this and as a result it’s the operating companies,” Daunt said. “The public adjuster argued [on behalf of the landlord] otherwise.”

Appraisal

If the two parties could not agree, it would need to go to appraisal. Right before appraisal some progress was made in terms of who owned what. During appraisal, damages were agreed upon and the money was divvied up between the landlord and the tenant. In the end, $1.4 million was paid on the building for the mortgage clause; the landlord received $1.7 million, and the receiver was paid $1.6 million for leasehold improvements and an additional $500,000 for business interruption and payroll.