The aftermath of a fire is an overwhelming time for business owners. Many proprietors will face cash-flow problems, rebuilding and construction issues, and extremely difficult decisions as they are waiting for an insurer to pay a claim. Attorney Bill Voss explores the many forms of fire damage losses, as well as what owners can do before filing a commercial property damage claim to maximize their insurable payment.
The Need for Commercial Fire Insurance
According to the National Fire Protection Association (NFPA), nearly 500,000 structure fires occurred in the U.S. in 2017, costing approximately $10.7 billion in property damage. Fires in commercial, institutional, or public buildings accounted for 1 in every 4 fires, most commonly involving manufacturing and industrial operations.
It is not just the high likelihood of fires that pose a risk to businesses, but the variety of damages that fires can cause. The majority of fire insurance claims involve:
- Structural damage. Rising flames can cause significant damage to a property in a matter of minutes, while the heat generated by a fire can cause walls to buckle and masonry to crack. Any materials that are not incinerated may be warped, melted, or partially damaged, causing the need for replacement to prevent damage in the future.
- Smoke and soot. Smoke damage to walls and flooring is not just an eyesore, it has the potential to cause lung damage or irritation for your employees and guests. Your property may have to be tested for the presence of carbonaceous particles or other harmful irritants that may not be seen by the naked eye.
- Fire suppression losses. Unfortunately, the efforts undertaken to stop fire damage can also cause damage to the property. Firefighting materials such as water, foam, or powders can cause further losses to both burned and unburned items. The amount of coverage for damage caused by fire suppression materials varies by policy, as does coverage for fees charged by the fire department for their services.
- Aesthetic damage. Scorch marks or a burning smell can affect the perception of your business, costing you customers and causing your employees to look for other opportunities.
- Business interruption. In many cases, business closures are more costly than the property damage caused by a fire. If structural damage forces the company to scale back operations or to shut down entirely, owners may struggle to retain key employees or fail to meet fulfillment deadlines—and income losses are typically not covered by basic fire insurance.
Fire Damage Can Cause Ongoing Business Losses
Fire is not just the most common cause of claim for small businesses, it is also one of the most expensive. While standard commercial property insurance policies usually cover damages caused by fire, not all policies provide the same amount of protection.
For example, fires may be more costly for certain businesses depending on their:
- Size. The larger your commercial enterprise is, the greater the potential of suffering a large loss. From hotels and apartment buildings to large-scale manufacturing facilities, a fire can lay waste to millions of dollars of furniture, appliances, inventory, and mechanical equipment (as well as the structure that houses them).
- Location. The location of your business can increase the likelihood of a fire, such as if your building shares a wall with a restaurant or bar or if you live in a state that is prone to wildfires.
- Age. Older buildings can cause a variety of problems during the rebuilding process. First, the presence of older construction materials (such as lead paint or asbestos) will require hazardous materials cleanup before construction can begin. Second, buildings that qualify as historical properties may need specialized paints, glass, or roofing materials that increase costs of construction. Finally, the structure will need to comply with current safety and construction codes after it is rebuilt—potentially adding thousands of dollars in building code upgrades with each year that has passed since its original construction.
- Depreciation coverage. Insurers are often unwilling to cover the full replacement cost of lost items, operating on an actual cash value (ACV) basis. An ACV policy deducts the amount of depreciation from the full cost of covered items, essential leaving owners with far less than they need to purchase replacements. In many cases, the only way to receive full value for lost items is through replacement cost coverage or a policy that allows for recoverable depreciation.
- Industry. The type of business you are in could play a large role in your fire damage losses. For example, heat from the fire and water from firefighting can ruin phones, computers, and electronic equipment—potentially costing millions for businesses who rely heavily on technology. Your policy should be tailored to the specific needs of your business—in the above example, this means extra equipment coverage and data loss insurance.
- Fire prevention methods. Insurers may be unwilling to pay out on claims if the policyholder did not take adequate precautions against fire losses. Owners can protect their employees, property, and future insurance claims by installing smoke alarms and fire suppression systems, ensuring that fire extinguishers are regularly inspected, and training workers on the steps they should take if a fire occurs.
- Policy extensions. A few carefully-selected optional coverages can greatly improve the strength of a property damage policy. One of the best ways to prevent ongoing commercial fire losses is to increase the amount of business interruption and extra expense coverages. This insurance can help cover unforeseen costs, open a temporary location to continue business operations while your building is under repair, and continue to pay employee salaries despite interrupted income.
- Recordkeeping practices. Unlike other forms of damage, a fire can reduce your property and its contents to a pile of ashes, making it difficult for you to prove the type and extent of your losses. Owners who have comprehensive digital files of receipts, purchases, inventory lists, updated “before” pictures of their locations, and payroll records are much more likely to get fair payment for their claims.
Let Us Advise You on Your Fire Damage Claim
If you have taken all the necessary steps to file a commercial insurance claim and you still aren’t being treated fairly by an insurer, we can help. Our insurance litigation attorneys will work to maximize your insurance claim, and we do not collect our fees until your case is resolved. Simply fill out the form on this page today to contact an insurance attorney at the Voss Law Firm or order a free copy of our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.