The Broker–The Policyholder’s Advocate

Some large brokerage firms are under siege by New York Attorney General Eliott Spitzer as his investigation scrutinizes the legality of the longstanding practice of Placement Service Agreements (PSAs). This is really about conflict of interest and disclosure. Brokers need to watch their flanks and pay attention to client relationships whether a school district, university or a municipality. Be well-versed with the property insurance contract, otherwise called the policy. Invest time in the relationship with your clients, coaching them to actually understand their “duties after a loss,” and they will take that most important step when a loss occurs—they’ll call you. This is a relationship business.

As a broker, your role should go well beyond taking the distress call and reporting the loss to the insurance company. Facilitate the recovery process for your client, the insured. In a catastrophic loss, a broker may need to coordinate the efforts of the insured’s finance director, facilities department or risk manager. Developing these contacts proactively is advisable, as the aftermath of a major loss is chaotic.

The recovery process is somewhat akin to a “12-Step Program,” like Alcoholics Anonymous, perhaps with fewer steps. There is an element of chaos and unmanageability, and a need to turn for help. The first two critical steps following a loss are “give prompt notice” and “protect property from further damage.” These first two actions are critical to the recovery proceedings, so make yourself indispensable to your clients by implementing a 24/7 telephone hotline where clients can immediately call to report a loss. Distribute pre-printed forms that clearly spell out the emergency steps to mitigate the loss. The insurance company needs to inspect the loss site, for purposes of determining causation and measuring the loss. Therefore, it is critical that any permanent repairs wait, unless approved. If the insured must move forward with permanent repairs, advise them of the risks and take extra measures to document the process.

Once this first phase is complete, the insured, along with the broker’s assistance, should follow through on the remaining steps:
– Prepare a detailed inventory of damages.
– Separate the damaged from the undamaged.
– File a proof of loss.
– Depending on the nature of the claim, there may be additional steps, such as submitting to an examination under oath, subrogation cooperation, etc.

A surprising number of policyholders, both private companies and public entities, fail to promptly report their claims and mitigate their loss, frequently because they are focused on safety issues or are simply trying to get the facilities up and running as quickly as possible. Unfortunately, in these instances, the insured can significantly impair the recovery. This is an area where the broker can add value. Always being accessible is critical. You can act as a sounding board for the insured with questions as to whether a claim should be pursued. Assuming a claim is filed, the broker should make certain the insured complies with each step, and recognize the significance of pace.

Mitigating the loss can be very tricky because the insured needs to hire the right experts and take proper measures without prejudicing the insurance company’s right to inspect the site.

For example, if a tree falls on the roof of city hall, leaving a gaping hole, and it rains the following day, the additional damage caused by the water may have coverage issues because the mayor’s office didn’t mitigate the loss by covering the hole. A good broker will have an extensive file of various restoration contractors who can get to the property at a moment’s notice and understand where the emergency work ends and repair work begins. It’s certainly a delicate balancing act. Many property losses end up encountering settlement difficulties because the insurer was unable to properly inspect the loss. Brokers should make sure that vendors providing restoration and emergency services have a protocol for separating temporary from permanent work, and can even document work necessitated by moisture as opposed to mold. It’s not an exact science, for sure, but brokers can raise the bar on the procedures by opting to refine their role in the claims process.

Consider the following checklist.
1. Develop relationships with the best restoration contractors. Inspect their work and define your expectations with them so they will understand exactly what “emergency” work entails.
2. Establish a 24-hour claims hotline.
3. If a significant loss occurs, inspect it. Brokers have claims departments, so have a claims person visit the loss, take photos and develop a feel for the claim.
4. Meet with your client to discuss the claim. If there is a large deductible, should the claim be pursued? Will it impact renewals?

Assuming the insured pursues the claim, you need to assist with the next step. Prepare an inventory of damages, compile building estimates and business interruption calculations, and anticipate the insurance company adjuster’s position. This is a tall task. If the insured needs a public adjuster, make sure you have a relationship with a good one. In many large losses, the insured and insurer are served well if a good public adjuster is directing the process.

Obviously, most of the practices discussed are contingent upon the broker getting involved immediately following the loss. This way the claim can be filed in a timely fashion. However, there are a number of catastrophic events that can interfere with even the best-laid preparedness plans, such as: hurricanes and tornadoes, fires, haz-mat incidents, and of course, the 9/11 World Trade Center disaster. The settlement of claims can take several months to several years. Ideally, a public entity’s risk manager will work closely with the facilities department to administer emergency repairs and also be cognizant of the claims process. In practice, this doesn’t always work.

Consider for example the claim experience of the Philadelphia School District following the extensive property damage to 350 schools caused by Hurricane Floyd in Sept. 1999. The damage at the individual schools ranged from simply cosmetic to an estimated $50,000 to $2 million at a single location. To re-open the schools, the district’s first concern was safety for its students and staff, so it was imperative to get the repairs done quickly and ensure safety. As with most municipalities and public organizations, the school district has its own facilities department, which essentially acted as their own restoration contractors. So the facilities department made the repairs it deemed necessary to re-open the schools and maintain a safe environment for the students and staff.

Then, of course, the district’s insurance company wanted a detailed estimate of all the damage, which meant doing a school-byschool analysis of the damage. That was tricky because the facilities department had completed repairs of both emergency and permanent nature before the insurance company was able to complete its inspection. This resulted in their insurance company reserving the loss at about $1 million, far below the actual damage costs.

This is a situation where the broker could have truly made a major difference in how this claim was handled right from the beginning. As it turned out, six months later there was a large disparity relative to the measure of loss, and the insured had to go back to square one. A team of 30 claims professionals, including engineers, coverage counsel, environmental experts, forensic accountants, restoration experts, adjusters and former facilities department personnel, assembled to comb through the schools in order to determine the damage from a quantitative and qualitative viewpoint. Working closely with the insurance company’s adjusters, each building was jointly evaluated and the insurer altered its recovery payout from $1 million to $8 million. If this method were deployed from the early stages, the settlement would have been greater.

That’s just one example of how critical it is to follow the claims process right from the outset. Adherence to these steps can increase the settlement amount and significantly reduce the time frame of the process. It’s up to the broker to first build the relationship with their clients, to educate them about their responsibilities, and then be fully available to assist them in the process.

Franklin S. Horowitz, CEO of Claims International, is a loss advisor who has worked with brokers on significant property and business interruption losses suffered by corporations, private companies, religious institutions, cities and school districts. Horowitz has handled losses ranging from Hurricane Floyd in the School District of Philadelphia to the 9/11 WTC attacks and the Florida Anthrax incident.