By Finley Harckham
When a major construction accident knocks a project off track, developers and contractors naturally ‘pull out all stops’ to get things moving again. One of those ‘stops’ should be insurance. It is vitally important to move expeditiously first to preserve the right to recover under what may be a myriad of insurance policies and bonds, and then to pursue claims effectively in the face of all-too-frequent foot-dragging on the part of the insurance company.
Keeping the claims process from getting bogged down is the focus here. Determining what policies may respond to a loss is a subject for a different article. In brief, it is essential to 1) analyze not only your own policies, but also those issued to others which might cover you as an additional insured, 2) give prompt notice on all potentially responsive policies to avoid "late notice" forfeiture; and 3) assemble an insurance recovery team with the necessary expertise to conduct a thorough coverage analysis.
Once your company has determined the policies under which to pursue coverage, the key to getting insurance claims satisfactorily resolved within a reasonable period of time is for policyholders to take control of the process and to demonstrate a resolve to secure the coverage they paid for. This requires hard work, but it will pay handsome dividends. Key steps are outlined below.
BE PROACTIVE IN SETTING A TIMETABLE FOR CLAIM RESOLUTION
Policyholders must be proactive to avoid a claim adjustment process that resembles an endless nightmare. Decide on a reasonable deadline for resolving all aspects of a claim — and tell the insurance company that an agreement must be reached by that date.
The deadline should provide the insurance company with sufficient time to evaluate the claim after all relevant information has been submitted. In some states, by submitting a proof of loss the policyholder can trigger a 30- or 60-day deadline in which the insurer must provide a coverage determination. Some insurance companies complain that submitting a proof of loss during their adjustment of a claim is a hostile act. While insisting upon timely payment of a claim should not be viewed as inflammatory, a less aggressive but often effective strategy is to tell the adjuster that he or she must agree to a schedule for resolving the claim or else proofs will have to be filed.
Trying to impose a deadline for claim resolution will only work if the insured does everything necessary on its end without delay. Be proactive in providing information to the insurance company. Ask the insurance company adjuster what information he or she will need early in the process, so it can be gathered and provided as soon as possible. Collect and submit loss data as it develops, without waiting to create a complete package involving all aspects of the loss. For example, the period of restoration for a business interruption loss might be several months, or longer. During that period property loss claims can be submitted and paid.
DOCUMENT EVERYTHING THAT HAPPENS — AND FAILS TO HAPPEN — IN THE CLAIM ADJUSTMENT PROCESS
To help avoid lengthy delays in claims adjustments, record everything that happens — and does not happen — and present that written documentation to the insurance adjuster on a regular basis. Insurance companies are notoriously slow in resolving claims because they do not devote the resources needed and they have a financial interest in holding onto money for as long as possible. They are concerned, though, about possible extra-contractual bad faith liability for dilatory claims handling. A simple, matter-of-fact email or letter to the insurance company’s adjuster every time a deadline has been missed, a meeting adjourned or a claim payment is late, will make the point that such behavior is not acceptable and that you are making a record that, if necessary, can be used in a bad faith lawsuit.
Also, do not be shy about claiming any losses that result from an insurance company’s dilatory handling of a claim. For example, a failure to pay repair costs in a timely manner may extend the time necessary to complete a project, resulting in added soft costs and contractual delay penalties. The insurer may be liable for and should be put on notice as soon as it’s apparent that such losses may be incurred.
DEMAND PARTIAL PAYMENTS
Insurance companies like to pay as little as possible in so-called "advances" on claim payments, and hold as much as possible for a final negotiation after all aspects of a loss have been fully submitted and addressed. This serves two purposes for them. First, they enjoy the time value of the money that is ultimately paid out. And second, by leaving a large sum unpaid, they maximize the leverage they have in a final negotiation with an insured that may be desperate for cash. Insureds need not tolerate that approach since they are entitled to partial payments and the undisputed amounts of any claims where the amount of the loss is not agreed on. And, they are entitled to those payments within a reasonable period of time after the losses have been substantiated.
Therefore, each item of loss should be presented to the insurers as soon as it can be proven and quantified, and a request should be made for prompt payment without any delays associated with the time needed to address other elements of the loss. For example, a claim for repair costs incurred in the first month after an accident should not be delayed by waiting to fully calculate a business interruption or delay in opening loss, which may not occur until after the project has been completed. If the insurers will not agree to this approach, consider filing separate formal proofs of loss for each item claimed. Filing proofs will trigger the insurers’ obligations under unfair claims handling practice statutes in many states and is sure to get their attention.
BE MINDFUL OF LEGAL AND CONTRACTUAL SUIT LIMITATIONS
Most property insurance policies and bonds require that any suit against the insurer be commenced within a certain period of time after the commencement of the loss. Typically the period is two years, but some policies require that suits be filed in as little as one year. In many states such provisions are not enforceable if the suit limitation period is shorter than the statutory minimum. However, such statutory overrides often apply only to "policies of fire insurance" and it is unclear whether they apply to losses that are not caused by fire. Law books are full of cases in which insureds have forfeited their insurance coverage because they have failed to commence a lawsuit within the required period. Importantly, some courts will not excuse a late filing on the ground that the parties were still negotiating when the deadline arrived, or even that a business interruption or delay in opening loss had not ended at that time. Obtain legal advice on the limitation applicable to your policies and if it appears that the claim will not be resolved within that period, either obtain a written extension of time from the insurance company or commence a lawsuit.
Some insurance policies also require that formal proofs of loss be submitted within a specific period of time. Often those deadlines are unrealistic and the insurance company’s adjuster has no interest in receiving proofs until the claim has been settled. Obtain a written agreement from the insurer that the deadlines will not be enforced.
LITIGATION OR APPRAISAL?
If a claim cannot be resolved through negotiation, you may have the option of proceeding either to appraisal or litigation. Appraisal is a form of arbitration provided for under many insurance policies that either party can demand be used to resolve disputes over the amount of the loss. It can be a quick and inexpensive way to quantify the claim. However, appraisal is not required and may not be appropriate when there are coverage issues to be resolved. For example, if the parties disagree over whether contractor overhead and profit during a period of reconstruction is covered, the policyholder would be entitled to have that coverage issue decided in court. Appraisers, who typically are in the building trades, generally are not qualified to address such issues. Also, bad faith claims fall outside the scope of an appraisal clause and will have much greater value if placed before a jury. The policyholder must carefully consider the options and not necessarily feel compelled to agree to an appraisal simply because the amount of damages is one issue in dispute.
The key to a successful insurance recovery is assertiveness on your part. Think of it as peace through strength. Meeting all deadlines and complying with all reasonable requests for information will simultaneously predispose the insurance company to be more responsive and signal that you are not a customer to be toyed with. Those signals reduce the likelihood that litigation will be necessary while positioning you to build a winning case if necessary.
Finley Harckham (fharckham@andersonkill.com) is a senior partner in Anderson Kill & Olick’s New York office. The firm is an AGC member in New Jersey and New York. Harckham regularly represents corporate policyholders in insurance coverage matters and has successfully litigated, arbitrated and settled hundreds of complex coverage claims, including those involving business interruption, property loss, directors and officers liability, professional liability and general liability claims.
Associated General Contractors of America