Most commercial policyholders are familiar with the fact that they are only insured for certain losses and in highly specific ways. It’s rare that an insurance policy covers every possible loss on a given property. However, although some difference is expected, the gap between actual and insured losses can be truly staggering when looking at the final numbers.
Attorney Bill Voss has many years of experience working with policyholders to resolve large-loss claims, and he knows that the difference between the costs a business is facing and the check it receives can be a nasty surprise—especially when a property has suffered extreme and extensive damage. To avoid the “sticker shock,” it’s important to understand what your policy covers and what that might mean for you in the event of a large loss.
Why There Is a Gap Between Actual Losses and What the Insurance Company Pays For?
The coverage provided by a commercial insurance policy is often highly specific to the business and property. Each portion of a loss is carefully considered and analyzed, from the costs of fixing flooring to the costs of business interruption. While the best way to get answers about insured losses is to review your coverage with an experienced attorney, here are just a few examples of how insured losses may only represent a fraction of the actual losses suffered:
- The insurance company may pay the value of a loss instead of the higher cost to replace it. For example, if a fire damaged an old HVAC system that is no longer manufactured, the insurance company would only cover the value of the old system instead of the cost of replacing it with a new system at today’s prices.
- The insurance company may cover repair but not replacement. If a structure’s roof is heavily damaged in a fire, the insurance policy may not cover the costs to replace the whole roof, only to repair the covered damage.
- Policies include limitations and exclusions. For example, outdoor features, like walkways and landscaping, aren’t usually covered in fire insurance policies, and there may be limits on the types of indoor features and personal property that are covered. Although these may be lesser priorities for recovery after a fire, the costs can still add up fast.
There are many more examples that could be offered here, but the moral of the story is that it can be very hard to know exactly how much an insurance policy might cover after a large loss. However, the amount the insurance company pays is generally going to be less than the total costs of the damage.
Actual Losses Are Usually Easier to Determine Than Insured Losses
It’s fairly easy to determine the value of everything that was lost on a property. It’s far more difficult to determine the total loss in the insurance company’s eyes, and it usually takes an in-depth analysis to arrive at a final number. This makes the process of recovery planning and loss mitigation extremely difficult. Sometimes, there are even disagreements about how the insurance company covers losses—and for how much. If you are a policyholder and have sustained a large property loss, it’s worth discussing your insurance claim with an experienced attorney who can make sure that your claim is handled and paid fairly under the terms of your policy.
For more information about what to expect after a large loss on a commercial property, request a copy of our free book, Commercial Insurance Claims: The Basics. You can also call, email, or start a live chat with us now to discuss your concerns and get immediate answers to your questions.