A Publication of WTVP

We all buy different forms of insurance to cover parts of our business or needs in our personal lives. The pieces of paper that explain our policies are only as good as the people standing behind those policies to make sure your financial interests are protected. One of the most important parts of that process is the claims process. Insurance adjusters have a very tough job getting to the facts to compensate the customer while following the language of the contract. For this article, I questioned a veteran claims adjuster who runs an independent adjusting firm. Rob Ellis of Quality Claims explained some of the myths about the claims business.

Myth: Claims adjusters are employed to minimize claims by paying as little as possible.

Answer: This is false. Claims adjusters are trained to interpret insurance policy coverages and limitations. The adjuster's job is to determine what an insurance company should pay on a claim, based on the facts of the loss and the policy language. Insurance companies know that by selling insurance, they'll have to pay claims. They simply want to pay what they owe under the insurance contract-no more, no less.

Myth: I have an "all risk policy," so every claim is covered.

Answer: This is also false. All insurance policies have language limiting or completely excluding coverage for specific causes of loss, even "all risk" policies. For example, most, if not all, policies contain exclusions for flood damage, earth movement, and neglect. Some excluded causes of loss can be endorsed back onto a policy for an additional charge.

Myth: I have "replacement cost coverage," so anything damaged or destroyed will be replaced.

Answer: Replacement cost coverage seems to be one of the most misunderstood provisions of an insurance policy. All insurance policies contain a section called "loss settlement" in the "conditions" section. In a replacement cost policy, the loss settlement provision generally states the company will pay the least of the following amounts: the cost to replace the item, the cost to repair the item, or the actual cash value (ACV) of the item until such time as the item is actually repaired or replaced.

For example, a 20-year-old television may cost $300 to replace, but its current value is minimal due to wear and tear and improvements in technology. Let's say $50. If the television can't be repaired, the insurance company will only pay $50 for the damaged television. However, if you replace the television within the time allowed by the policy (generally six months), the company will reimburse the additional $250 it took to replace it. If you don't actually replace the television, you aren't entitled to the additional $250.

Myth: I shouldn't do anything until an adjuster has an opportunity to inspect the damage.

Answer: This is also a common misconception. Insurance policies contain a "conditions section" that outlines the conditions an insured must comply with for coverage to be in effect. The "duties after loss" provision outlines all that's required of the insured in the case of a claim. Among other stipulations, this provision requires that the insured protect property from further damage, make reasonable repairs to protect the property, and keep an accurate record of the related expenses. If an insured suffers a loss and fails to take the necessary steps to protect the property from further damage, the insurance company may have grounds to deny the additional damage. For example, shingles may blow off of the roof, but the insured may make no effort to make temporary repairs. If it rains, any resulting water damage may be excluded due to the insured's failure to protect the property from further damage.

The bottom line is that an insurance policy is a contract between the insurance company and the policyholder. As a small business owner, you should be familiar with your own insurance policy and the protection it provides and doesn't provide. I also recommend that you purchase your policy from an insurance agent who's familiar with your business so you can purchase a policy that properly protects you for risks that are unique to your situation, business, and trade. IBI