Insurance Case Study: You Have a Water Loss to Multiple Units... Now What?

Co-authors:

Mary Alemán, CIC®, ACSR® Senior Account Executive—Property & Casualty Division, Quest Insurance mary@questinsurance.us, Phone - 571-367-7972

Sami Satouri, RHU®, ChHC® President, Quest Insurance ssatouri@questinsurance.us, Phone - 703-961-8886

Your mind is racing. You’re worried about the safety and happiness of the unit owners above all else. You’re worried about the impact this claim will have on the insurability of the Association. And the big one, how is this going to impact the premium for the insurance policies for the Association? This, of course, will determine how happy or unhappy the Association’s Board of Directors is with you.

You are in your PJ’s, all settled in with a glass of wine to watch Hugh Grant in yet another romantic comedy on Netflix when your phone rings. The unit owner in 301 has called the emergency hotline to say that water is gushing into their unit and into unit 302 from the unit above. No one is answering the door from the offending or source unit. As a Property Manager, a water claim is likely the last situation you want to deal with at 9 p.m. on a Friday night! What do you do?

Take a deep breath, you can handle this…

FIRST and foremost, mitigate the damage. Did you know that 210 gallons of water can pass through a 1-inch pipe per minute? You should know where the shut-off valve is and who is available to take care of this immediately. There shouldn’t be just one person with this knowledge and responsibility. If you need to get into the unit immediately and the unit owner is not answering the door, there should be someone available immediately with access to the unit who can take care of this. Oftentimes, a Board member or volunteer serves as an onsite point of contact to assist with emergency situations. Managers and Board members should discuss emergency protocols to prepare for situations like this. SECOND, you should have a list of vetted restoration contractors.

Call one of these companies to come out and immediately start the clean-up process. They shouldn’t be repairing it yet because in the event of a severe loss, it may need to be reviewed by adjustors before repairs are initiated. Some residents may have a difficult time understanding the process, so it’s good to review these protocols on an annual basis at an open meeting. THIRD, have a plan in place to make sure any displaced unit owners have a place to go. Rarely will an association’s policy cover temporary housing for displaced residents so be prepared with information that may help residents. Suggest contacting their insurance carriers for temporary housing or have a list of nearby hotels displaced residents have used in the past.

NEXT, complete an incident report. Take pictures and take reports from all unit owners involved.

That will get you through Friday night and you can go back to spending time with Hugh Grant and that glass of wine. Monday morning, contact your insurance agent.

Contacting your agent doesn’t necessarily mean that you must file a claim. Your agent is there to help you. Talk with them about how much damage there is and what your deductible is. Forward the pictures, incident reports and copies of the insurance policies/certificate of coverage for each of the involved unit owners to your agent. If you do not have an incident report, your agent can get you a template that you can adapt to the particular needs of your Association.

If this is a large claim and you do decide to file the claim, the adjuster will contact you to make an appointment to survey the damage. The adjuster isn’t in the business of denying the claim. They just need to evaluate what happened, the extent of the damage, and study the policy to determine the next steps. Establish good communication with the adjuster.

Now it is time to repair the damage. Go through your list of vetted contractors. In addition to the quote, ask the contractor to add the Association as an Additional Insured on their certificate of insurance. If they only list you as an Additional Insured for their ongoing operations, your interest in their policy ends when the work is complete.

What happens if the work is complete and there are complications as a result of their work? The certificate should also indicate that a waiver of subrogation is included in favor of the Association. What does that mean? The Association does not want to be held liable for the damages that the contractor has caused. When the contractor waives their right of subrogation, the contractor is prevented from seeking a share of any damages paid. This waiver of subrogation eliminates potential conflicts between you and the contractor.

Make sure that the contractor has forwarded their estimate to the adjuster and that the contract includes a warranty for their work.Co-authors:

The repairs are complete, and all unit owners are safe and happy back in their homes. Now what?

Now, let’s be honest, there will likely be more claims like this. How can we stack the odds in your favor? Take a hard look at the building. Does the building include outdated polybutylene, metal, or galvanized iron piping? If it does, do you have a reserve study in place that addresses the need to remediate this situation?

Are the water supply hoses to the washing machine inspected regularly and replaced as needed? Are the water heaters regularly maintained and inspected or replaced when the water heater reaches 10 years of age?

Are sprinkler systems in place and regularly serviced?

Revisit your bylaws. Do they include the requirement for all unit owners to carry insurance on their units? Do the bylaws include a requirement for a reserve study? Is there consensus with the Board of Directors as to when to file a claim or self-insure the loss?

Should you increase your deductible on your insurance policy to mitigate future premium increases?

Just like that Hugh Grant romantic comedy you were watching, everyone wants a happy ending to their story! Through the establishment of proper procedures, ongoing preventive maintenance and taking appropriate mitigation measures when needed, you too can have a story with a happy ending!

This is a lot to think about and is by no means a complete answer to the question as to what you should do when you have that unavoidable water claim. Additional information, claim examples and how they impact associations was the topic of discussion at CAI’s Breakfast webinar on May 19th. This article serves as a recap and offers the key takeaways from that webinar.