Coverage and Adjusting Issues Coverage issues: • Proper Application of Deductibles and • Verifying EQ as the Proper Cause of Damage. Adjusting issues: • Your Personal Safety and Preparedness, • Working With the Many Experts Involved in EQ Losses, • Securing and Preparing Proper Loss Documentation, and • Communicating With Insureds Likely to Be Under Considerable Stress.
Experience Tells Us • Earthquakes differ in both intensity and type, causing different kinds of damage to structures. • Variables include the location in relation to the epicenter, effectiveness of local building codes, the predominant soil type (sand, clay, rock, gravel, organic), and general preparedness of the population.
What Is An Earthquake? Earthquake - a sudden, rapid shaking of the earth caused by the breaking and shifting of rock beneath the surface. • This shaking can cause buildings and bridges to collapse;disrupt gas, electric, and phone service; and sometimes trigger landslides, avalanches, flash floods, fires, and huge, destructive ocean waves (tsunamis).
Higher Risk Structures • Most at risk are buildings with foundations that rest on unconsolidated landfill, old waterways, or other unstable soil. • Also at risk are buildings, trailers, or manufactured homes that are not tied to an anchored, reinforced foundation. Otherwise, they can be shaken off their mountingsduring an earthquake. * Courtesy of FEMA
Earthquakes Occur... • At any time of the day or year.
Earthquake-Prone Regions • Red - most earthquake-prone White - least earthquake-prone * National Seismic Hazard Mapping Project - Golden, CO
First, Let’s Look at Safety • Following an earthquake, state and municipal authorities “tag” buildings to indicate hazards or potential hazards.
Buildings are usually tagged within a matter of days after the quake. • Do not enter a building that appears to be untagged. • Look for the tag to be displayed on or near the front door of the building.
Do Not Enter The Universal Tag System - Red Red Tag- Do Not Enter.Extreme danger. Building is unsafe, structurally unstable, and likely to either collapse or become a serious hazard.
The Universal Tag System - Yellow Yellow Tag - Limited access. Certain areas of the building may be hazardous. Warning:Enter with Extreme Caution
The Universal Tag System - Green Green Tag -No hazards noted by inspectors. Continue to use caution during inspections. Enter with Caution
Contact the Local Buildings Division... Or similar local authorities for • A copy of the report relating to any building’s safety tag status, • The reasons for the determination, and • Any conditions that must be met to change the status of the building. Warning!Do not rely on the insured as the authority on a building’s safety status.
Earthquake-Affected Neighborhoods Typical hazards: • Unstable building components overhead • Power transmission lines • Underground utilities • Uneven sidewalks and road surfaces
Unstable Building Components Parts of buildings can fall several days after an earthquake. • Do not assume that any area is safe to enter, even though the area is not cordoned off by public safety officials. • Look overhead before entering any affected area. This chimney could easily fall during a mild aftershock.
Damage Caused by Fallen Chimney • This chimney fell into the house nearly one week after the quake as a result of an unobserved crack, shearing it at the roof line.
Power Transmission Lines • Poles may be damaged or moved after an EQ, causing lines either to sag or to stress near breaking points. • Not all hazards are corrected by utility crews (or sometimes even identified) prior to entry by adjusters.
Underground Utilities • Avoid walking near or standing on manhole covers. • Gas explosions can occur at any time following an earthquake. Warning!Practice exercise extreme caution at all times.
Ruptures Can Occur Any Time After a Quake • Buried as much as 6’ below the surface, high-pressure water mains can burst, resulting in unexpected geysers.
Uneven Sidewalks and Road Surfaces • Carefully examine the path to any inspection site before moving in. • Be mindful of the debris on the ground before making a close inspection. Even minor quake intensity can cause sidewalks to heave.
Wear Sturdy, Protective Shoes • Avoid injury from broken glass and debris. • For maximum protection, wear thick-soled shoes or boots to cover your entire foot and ankle.
Anticipate After-Shocks • After-shocks can occur weeks after the initial quake and can rival the original intensity. • Following an earthquake on January 17, 1994, Northridge experienced 13,726 separate aftershocks.
Keep Safety Equipment In Your Trunk • Cell phone • Drinking water • Fire extinguisher • First-aid kit and handbook • Portable radio with extra batteries • Flashlights with extra bulbs and batteries
Health Supplies Canteen of water Sunscreen First Aid Kit Prescription medicine Personal hygiene supplies Clothes Hard hat Dust mask Gloves Safety vest Knee pads Sturdy shoes Personal Items Cards and ID’s • Driver’s license • Official identification • Credit cards • Safety glasses
Non-Electronics Pens/pencils Clipboard/Paper/Notebook Tape measure Coveralls Street Maps Field Passes Names, numbers of emergency personnel Electronics Portable battery-powered radio Cassette tape recorder Calculator Flashlight with extra batteries Laptop PC Camera Video camera Personal Field Equipment
Assorted Hand Tools Hammers Handsaws Crowbars Wire Cutters Wrecking Bars Levels 2’ Level String level Torpedo level Magnetic Compass - To orient diagrams. Swiss Army Knife - For taking samples of materials. Cards(3 X 5) - Use these to identify the subject being photographed. Personal Equipment (continued)
Remember... • Personal safety and preparedness is your primary responsibility.
Provided as an endorsement to the standard property insurance forms. Standard forms do not cover loss resulting from earth movement or earthquake. Earthquake forms are adopted by individual states and differ accordingly. Earthquake forms usually have multiple deductibles, often expressed as a % of the involved limit of coverage. Earthquake Coverage
Coverage Verification Process Review all endorsements before: • Reaching any coverage conclusions, or • Establishing contact with your policyholder.
Be Aware... • Each of a policy’s coverages has its own deductible, usually a % of the amount of coverage, such as Coverage A. • Losses involving Coverage A, Coverage B, and Coverage C will involve separate deductibles for each.
Avoid Bad Faith Accusations • To avoid bad faith accusations, apply coverage in ways that benefits the insured.
For Example... • Is an in-ground pool an APS? Or is it part of the building since it is connected by a patio and plumbing system? • Glass breakage may be better covered under a basic policy versus an earthquake form.
Follow the UTPA UTPA - Fair Trades Practices Acts • Keep a current copy of the state’s Fair Trades Practices Act. • Follow its letter and intent.
Lessons Learned From Quakes • As a result of reactive-adjusting responses, many losses became “long-tailed files.” • Long tailed files are costly to conclude and often involve litigation and insurance department complaints. • In nearly every case, the initial adjuster investigation and accounting of loss proved to be inadequate.
A Typical Reactive Adjusting Response • An adjuster limits the loss inspection and notation only to items and areas shown by the insured. • The adjuster then assumes the claim is below the deductibles and is happily off to the next loss.
Earthquake losses tend to have large, multiple deductibles. Earthquake damage can be subtle, yet extremely costly to repair. Example: Cov. A deductible $15,000 Cov. B deductible $1,500 Cov. C deductible $12,000 Don’t Assume That... The Loss Will Not Exceed Substantial Deductible:
Suddenly! Six Months Later... • A big claim arrives. • It involves reported damage that the adjuster failed to inspect, photograph, videotape, diagram, summarize, or otherwise note. • Often, the repairs are completed!
Earthquake Story - The Phoenix Business Group Consumer Advocacy Services Northridge Earthquake - “A family thought they had only ‘cosmetic’ damage to their home…. The building inspector tagged their home green…. Their insurance company sent out an engineer who, after a one hour inspection that did not include entry into the crawl space or attic, reassured them the damage was ‘cosmetic.’ * An excerpt from their web-site: www.consumer-protection.com/cosm.html
Earthquake Story (continued) “The adjuster informed them they would receive a check for $6,500 within the next 60 days, reflecting their $10,000 deductible. As time passed, they began to worry. At night the roof groaned. The upstairs floors were squeaky and wavy, resembling a fun house. Windows that worked before the EQ were now stuck and would not open.”
Earthquake Story (continued) “A contractor and an engineer performed a subsequent inspection and found the following damage after the claim had been ‘settled’: • The foundation wall under the house had 11 vertical cracks, ranging from hairline to 3/8 in. wide. • North wall with stuck windows was out of plumb. Stucco on the north wall hung like a curtain, disconnected from the wall. • Rafters were no longer attached to the ridge beam. Four rafters separated and sunk by four inches, pushing the north wall out. • The fireplace with no cracks in the fire box sheared beneath the roofline. The chimney could have been pushed over by hand.”
Earthquake Story (continued) “The contractor estimated the real cost of repairing the damage was not $6,500 plus the $10,000 deductible, but was close to $160,000!”
Make Time to Listen The insured has a need to tell their story. • Make notes and compare the insured’s account of the EQ with the Modified Mercalli Scale. • Give the insured the opportunity to show you around the property and to point out his or her observations of damage. Note the type of damage the insured points out. • Fresh cracks, painted over cracks, old damage
Photograph All Damage • Take photos of the damage that the insured points out. • This helps document the insured’s perspective of as they present their claim.
Note Any Unusual Smells • Natural gas • Sewer gas • Earth/dirt • Note suspected source. Document with photos and samples. For example, dirt entering through cracks in wall.
Watch Out For: • Breached containers • Dead animals • Open or exposed septic systems or drain fields • Exposed fireproofing or insulation
Check Mechanicals • Run all faucets. • Check for gas smell. • Run furnace and A/C. • Check gas meter to see if it’s running fast. • Check washing machine and dryer, including run spin cycle. • Look for sagging pipes, broken hangers, tension in lines (stretched or sagging).
Septic Tanks and Leach Fields • Look for signs of earth movement or collapse, including sand boils. • Check for evidence of leakage or a failure of the system to properly drain, such as wet spots on the ground. • Check all drains, including storm drains, for proper drainage (use a garden hose, if necessary). • You may need to run a percolation test.
Percolation Test A measure of the soil’s ability to allow the flow of water through its content. • For example, soil with high clay content usually has poor percolation. • Following an earthquake, the soil condition sometimes changes through compaction or loss of sand through sand boils. This can not only plug the drain field; it can also dry an entire well.
Wells • Check for evidence of bent well pipes. (Is pipe above ground plumb?) • Inspect holding tank, especially all fittings leading from well head to holding tank. • Test the holding tank to see if it can maintain pressure for at least one hour. • Check to see if the water table been affected by the earthquake.
Be Thorough • Photograph/videotape all areas inspected. • Inspect chimney and fire box, including flu and cap. • Inspect and make note of findings in every room, closet, and all spaces such as attics and crawl spaces. • Ask to have closets and storage areas cleared in advance of your inspection.