Large Loss Adjusting

Large loss does not imply large monetary value, rather it is a claim involving complexity, based on monetary value or stakeholders interaction. Stakeholders are akin to a jugglers’ balls all being kept airborne during the claim progression.

At the outset consider your interaction with:

• building owners and tenants within the building of origin and exposures;

• insurers of stakeholders of interest being manufacturers or trade personnel relating to the subrogated claim to be considered; and

• other insurers, engineers, lawyers, contractors and accountants.

The adjuster is faced with stakeholders who do not have the benefit of insurance, those without suitable limits, and/or parties who have retained independent counsel or public adjuster representation.

Site release

The large loss lends itself to interaction with authorities including the Office of the Fire Marshal, Technical Standards & Safety Authority (TSSA), Ministry of the Environment and Energy (MOEE), fire agencies, building authorities and/or engineering and demolition personnel. Often these agencies were on site and have controlled or altered the site prior to insurer access. Initiate dialogue with authorities as soon as possible.

As the claim progresses other jugglers’ balls to be left airborne include:

• engineering representation relating to cause determination, and/or structural impairment.;

• service contractors seeking access to undertake emergency loss mitigation and/or subsequent claim assessment; and

• the public, including personnel who may have used the damaged facility (church, school or commercial occupancies) and/or operated businesses in proximity to the affected fire or explosion area.

The underlying role of the large loss adjuster is to work with and coordinate the stakeholders within the confines of a policyholder’s interest and to protect that interest. When reviewing authorities’ retention, advise a policyholder of the pending protocol prior to site release. In Ontario, the Office of the Fire Marshal will release the site back to an insured or their delegate. Coordination of access requires pre-planning to release and secure the site. Take steps to protect the site. Review access restrictions relating to the condition of the property (structural and air quality issues) and requirements for stabilization. Consider the ongoing safety issues at all times.

Address causation access, as there are requirements for coordination of the release involving all affected parties who may reasonably anticipate litigation. These include causation personnel of the unit of origin (tenant and building owner) and related occupancies, all of whom will seek timely access prior to the alteration of the evidence. Access to a fire scene must not be considered with a ‘first to the post’ mentality.

Set up email groups to coordinate release of a site and/or agreement on retention of a single security firm to control the site to maintain site preservation. Secure insurer and engineering representations at an early stage to maintain the information portals.

Coordinate review of the evidence to facilitate an opportunity for the known stakeholders to assess the area of origin in situ and/or the altered materials without further alteration. Alteration of evidence may give rise to issues of spo- liation. Consider notification to stakeholders in a large loss scenario. This is relevant in that when dealing with any subrogated claims, all parties should be apprised of the alteration conditions to preclude prejudice to those alleged responsible at a later date. Anticipate litigation. Do not be in a rush to alter a site, as proper notice is critical in protecting the subrogated entitlement.

Timing of the release and coordination of the engineering inspections to avoid spoliation is critical. As additional stakeholders are known (manufacturer or installers of suspect components) notice should be communicated with limited (if any) evidence alteration. The right of subrogation must be considered at the outset. This may entail review of the evidence and notification to the parties. Occasionally, it is necessary to alter evidence. When this is to be undertaken, all steps should be taken to preserve the evidence condition.

What do you insure?

Understand who your principals are insuring and the basis of the coverage provided. Confirm other insurance and have the insured convey notice to the exposed insurers. Review the underwriting criteria. Is the insurer insuring the risk they thought they were insuring?

Adjusting decisions impact the uninsured or under-insured claim components and it is critical the policyholder be apprised of the shortfalls in coverage (including co-insurance implications) in advance of decisions, which may financially impact an insured. Deal with the adequacy of insurance at early stage of the adjustment, if at all possible, as the alteration of the site condition occurs quickly and items to be quantified may be disposed and/or decisions may be made which ultimately render your insured as partially accountable for the monetary exposure.

The policyholder’s authorization to an emergency services vendor is generally undertaken with an insured understanding that indemnity will be available for the services being authorized. Apprize the policyholder of coverage reservations (if any) to facilitate both protection of the vendor, the adjuster and their principals. This protection may be undertaken based on presentation of a clear authorization and or either a Non-Waiver Agreement and/or Reservation of Rights (where there are suspected issues relating to the restriction in coverage).

Undertake an Internet search on the site, clarify web information on any involved stakeholders, secure a map and satellite image of the property, and review media information. The timely media release is relevant in that often weeks post loss certain articles and

other documentation released may not be available. The media is a perishable resource. Media and Internet chat information develops witness leads and observations outside of the official documentation

Managing expectations

Adjusters assist the policyholder in loss mitigation, quantification and coordination. The following approaches may be considered:

• Instruct the insured to provide a single point of contact. Dealing with a large loss at a church, a school or condominium corporation often involves interaction with a board. A single point of contact with authority to make decisions clarifies the information portal to lessen the number of balls remaining to be juggled.

• Explain the role of the insurer, the adjuster and the typical process of adjustment.

• Confirm the vendors assisting the policyholders are retained by the insured. This is relevant with respect to both consideration of GST/HST remittance and payment of accounts where there are coverage shortfalls.

• Advise the insured of options on the repair and that they can utilize their own preferred contractors subject to agreement on scope.

• Adjusters cannot authorize costs outside of specific direction. Know the limits of your authority.

• Include discussion with respect to a Proof of Loss form, and its implications with respect to the Statutory Conditions of the policy.

• Review the role of a public adjuster, as with the media exposure public adjusters will contact your insured. Convey to an insured a balanced approach regarding your role and that of the public adjuster.

• In all cases involving a public adjuster expect to proceed to appraisal.

A successful adjustment involves stick handling insureds’ expectations. Explain the implications of filing a Proof of Loss and insurers’ obligations upon receipt of a Proof of Loss. Confirm the insurers’ obligations for payment, the requirements on the insured to substantiate the amounts claimed and t he protocol with respect to a possible dispute pertaining to coverage or quantification. Review leasing agreements or condominium declarations, as they identify insurable interest of improvements, rights of subrogation and rental considerations. Each lease/declaration must be viewed on its own merits. Select leases will provide full abatement of rent, whereas others may restrict the abatements to include either only base rent or burdens.

Review the privacy considerations. Secure authority to allow dialogue with other stakeholders, insurers, public authorities and related entities. A successful adjustment entails information exchange. Completion of PIPEDA materials facilitates this exchange.

Damage review

Explain categories of damage including:

• costs prior to site turnover;

• costs on an emergency basis; and

• costs to restore.

Costs prior to a site turnover should be considered with representative parties and the insurers they represent. There may be commonality between demolition or shoring costs for adjoining structures undertaken by municipal authorities. Agree on how the costing is to be apportioned. In the case of the Queen Street West fire (2008), there were seven adjoining buildings sustaining varying degrees of damage. Insurers, non-insured owners and municipal authorities were presented with a formula, entailing frontage to pro rate costs taxed to the owners.

Emergency expenditures entail work being undertaken on a time and material basis. These are scenarios where timely remediation is critical, including schools, multiple unit residential occupancies or related facilities. Timely mitigation without a control estimate also mitigates the exposures and protects the site from further loss. Negotiate with the restoration vendor to ensure appropriate cost control. Request:

• an agreed scope of loss with the vendor on what is to be considered as an emergency cost, define the scope, secure a budget;

• copies of all contract agreements with the subcontractors together with their invoicing to which the general contractor may have applied burdens

• clarification that the subcontractors retained on site are not owned by the primary vendor

• reductions in overhead and profit considerations

• sign-in and sign-out criteria

• time cards for responding employees

• your insured’s direct retention of select sub contractors to limit the overhead and profit burdens being generated in the event the vendors are not required to be under the guidance of a general.

Tracking costs from the outset is critical. This entails development of a spreadsheet to assess the costs on a per-category basis. Maintain reserve analysis. As policies have individual segregated limits, these exposures should be tracked to entail building, contents, stock, extra expense, etc. This allows an easier monetary reconciliation. Prepare an ongoing payment reconciliation summary and track the payments. Communicate quantification issues to the insured.

Large losses and the inherent discussions with insurers, insured’s, accountants, lawyers and other claim personnel can be handled in a timely and efficient manner. The challenges relate to communication, evidence retention, file coordination and the management of expectations.

Greg Madill is president of Upper Canada Adjusters Inc., a Toronto-based independent firm that handles predominantly larger liability and complex property exposures.