Insurance Claim: to file or not?

Question

Hello all. I’ve taken over management of a commercial shopping center (from my dad who passed away) over the last 2 years. Steep learning curve. This week we had a water line rupture. Several of our tenants had to close for the day while we shut off water and dug up the parking lot to find and repair the break.

Looks like the cost will be 9-10k. My insurance deductible is only 1000, so my initial thought is to use the policy. However, in the back of my mind I’m wondering if that would be a mistake. My policy is very expensive (per my property manager who is comparing it to a few other centers she manages). This last cycle we looked for alternatives, but the agent she has worked with said he didn’t find anyone who would insure it due to the tenant mix and the lack of a sprinkler system. My family has used travelers forever (20+ yrs). The only claim was in 2009 but it was a big fire impacting 2-3 of the ~10 units and the payout was ~600k.

My worry is that if I use the policy for this relatively minor incident, do my already high rates go up? Do I risk getting dropped in the next cycle (with few or no alternatives)? Is the 9k payout just not worth it? Not sure if this is a factor, but our free cash flow is typically 5-15k per month after all expenses and mortgage payment.

Thanks in advance for your help!

Zane Cress · Answer

If you can pay for it with a month of cash flow that would benefit you more compared to the future years of increased payments due to a new claim. If the tenants come back wanting to be "made whole" for a loss of sales then you might have to rethink the whole situation.

Account Closed · Answer

I was told by my agent to make sure the claim is worth it. Your thinking is right on the mark. Once a claim or even possible claim has been communicated to your agent, they enter it into a National "claims database" that goes against both you and the property. So, according to him, you don't even want to inquire of your agent unless it's substantial. The word "substantial" means different things to different people and he didn't provide a number so I can't help you on a specific number.

Melissa Bovee · Answer

The insurance guy that my property manager used to get quotes was a broker. The policy I’ve been renewing is from an agent at travelers. But the actual policy is from a local insurer in Las Vegas.

Melissa Bovee · Answer

The center is in Las Vegas, northeast of the downtown area. Zip code 89101. On a 2.15 acre lot. 1985 construction . Below are some excerpts from the last appraisal in 2008 and a drawing and some pictures included in that appraisal.————

In brief, the subject property contains 21,728 square feet of commercial retail shopping center space divided between two individual buildings. The center is comprised of an "L" shaped inline center which includes 18,800 square feet of rentable area and a 7-11 convenience store which includes 2,928 square feet of rentable area. The inline retail space is currently 100% leased by 14 individual tenants. The 7-11 convenience store is under a long term lease and is generally located at the immediate corner of Pecos Road and Washington Avenue. The convenience store includes (2), two-sided fueling stations dispensing three grades of gas. In addition to the two commercial buildings there is also a water dispensing kiosk site leased.

…

The subject inline building has generally been constructed of a partial masonry block

exterior wall which extends approximately halfway up the building height. The

remaining portions of the wall have been constructed with wood and metal framework

and the exteriors are generally finished with an exterior paint. Portions of the subject

do include decorative wall coverings which include a stone or gravel finish covered with

exterior paint. The rooflines are generally flat, finished with a built-up composition over

plywood sheathing and wood trusses and steel framing. The interior frame structure of

the building is steel, set on round steel posts. The posts are supported by reinforced

concrete footings and the flooring of the project is poured concrete slab. Primary

access located along the southern and eastern elevations include storefront style

entryways with dual pane glazing set in aluminum or metal framework. The rear

portions of the building, identified as the west and northern elevations, generally

include single entry metal doorways. As discussed, the subject is "L" shaped and, as

such, includes two end caps and a larger corner unit.”

Henry Clark · Answer

Need to understand the property to understand the coverage needed.   Also types of tenants.

The policy requires a deep read.  Cliff notes won’t work.

Is your insurance person an agent or a broker?

Insurance companies give free inspections every few years.   Ask them to do a heat or wall sensor inspection.  Ask about other services for free inspections.

Do you have a picture of the facility, overall dimensions?  Value add ideas.

Has anyone reviewed the lease contracts?  All your contractors do they supply you a copy of their insurance showing you as an additional insured?  Or a copy of their coverage?      Use the lookup function.  Type my name self storage. “what happens if you die”.

Recommend you contact a CFO service and have them do a business review.

Melissa Bovee · Answer

@Henry Clark

Thanks for this input… I just (literally) inherited this policy that may have been created 30 years ago. Below are the cliff notes of the policy from the travelers site. Please let me know if anything stands out as out of whack.

Coverage limits across all locations

Coverage

LIMITS

DEDUCTIBLE

Property Deductible

---

$1,000

Building Glass Deductible

---

$250

Business Income

Actual Loss Sustained for 12 consecutive months

---

Employee Dishonesty and Forgery

$25,000

$1,000

•

General Liability

$1,000,000

EACH OCCURRENCE

$2,000,000

GENERAL AGGREGATE

$2,000,000

PRODUCTS & COMPLETED OPERATIONS AGGREGATE

Coverage

LIMITS

Medical Expenses

$5,000

Damage to Premises Rented to You

$300,000

Other Coverage

Coverage

LIMITS

Hired Auto Liability

Included

Non-Owned Auto Liability

Included

Additional Insured

Add or Manage

Henry Clark · Answer

Please describe your property and location.  Square footage, eave height, roads, parking, etc.  If you have a picture.

Melissa Bovee · Answer

Shopping centers don’t have association dues… we have CAMs and I can tell you that for my older center, I can’t really raise CAMs enough to cover all the common area maintenance because it makes the total output for the tenants too far above market rent. I hear you on getting something out of my expensive policy… I just know I’d be in a world of hurt if they drop me. I’d probably be forced into a sale because I couldn’t meet the requirements of the mortgage. A sale is a hard thing to accomplish if no buyer can get insurance on it.

In the end I did submit it… and the result is that it is not covered. Big bummer because now I have the worst outcome: no payout and an entry into the database. I’ll have to see how this all shakes out. …Maybe I should put my toe in the water for a sale 😬 The equity I have may be able to do more with less management effort in a different investment.

Henry Clark · Answer

You need your policy reviewed.

No business has a deductible of $1,000.  Ask your agent for the exact same policy with $20,000,  $50,000  deductibles.

Business come loss coverage?

How many months?

Dollar coverage?

D&O liability?

Prevention practices?

Sprinklers as mentioned, firewalls, extinguishers, install dry sprinkler system, snow ice removal program, road/ sidewalk cracks, additional insured on tenant policies, pest control, lighting, positive negative air flow, credit cards, tenant losses, etc   If you have a deductible of $1,000 you need our whole policy reviewed.

Who does your agent represent?  Are they a broker or agent?

John McKee · Answer

I think you should file the claim.  Just think about all of those premiums you have paid since 2009, it's time you get some of that back!  It's why you have the insurance in the first place.  In fact your tenants SHOULD be paying into an association fee that covers maintenance and insurance premiums.  If the insurance happens to go up so do your association dues to the tenants.

Insurance Claim: to file or not?

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