Download Basic Earthquake Coverage and Adjusting Issues

Basic Earthquake Coverage and
Adjusting Issues
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 mountings during
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.
The Universal Tag System - Red
Do Not
Enter
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
Warning:
Enter with
Extreme
Caution
Yellow Tag - Limited access.
Certain areas of the building may
be hazardous.
The Universal Tag System - Green
Enter with
Caution
Green Tag - No hazards noted by
inspectors.
Continue to use caution during
inspections.
Contact the Local Buildings Division...
CITY HALL
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
This chimney could easily fall during
a mild aftershock.
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.
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
Personal Items
Clothes
 Hard hat
 Dust mask
 Gloves
 Safety vest
 Knee pads
 Sturdy shoes
Cards and ID’s
 Driver’s license
 Official
identification
 Credit cards
 Safety glasses
Health Supplies
 Canteen of water
 Sunscreen
 First Aid Kit
 Prescription
medicine
 Personal hygiene
supplies
Personal Field Equipment
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 Equipment (continued)
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.
Remember...
 Personal safety and
preparedness is your
primary responsibility.
Earthquake Coverage
 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.
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.
Don’t Assume That...
The Loss Will Not Exceed Substantial Deductible:
 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
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.
Take Notes
 Use proper and accurate terminology.
 Note the direction of crack movements.
 Check all surfaces for plumb using a level and note your
findings.
 Note and specify the type of construction using proper
construction terminology.
 Always note the type of material used in the construction
of the inspected component.
Note Integrity of Structure
 Site down walls to check for bowing - photograph all
observations.
 Measure all separations of framing members, specify
location, and photograph.
 Check all exposed framing joints. Destructive evaluation
may be necessary. Note all exceptions as well as normal
conditions.
Structural Integrity - Attic
 Are rafters tight on each end?
 Note presence and condition of knee braces and collar ties.
 Note broken roofing members, if present.
 Note use of heavy cladding such as multiple layers of
roofing since this can cause bowing and broken framing.
Structural Integrity - Doors and
Windows
 Open and close easily?
 Condition of paint: Are there signs of wear?
 Check general condition of each.
 Weather Stripping
 Glazing
 Sill Conditions
 Plumb and Square
 Binding doors and windows will require removal and reinstallation.
Don’t Smoke!
Don’t allow anyone to smoke in your presence even if the insured is in their own house.
Warning!
Gas leaks are common and can cause explosions weeks after
the EQ.
Watch Out For:
 Latent sprinkler and
plumbing system
leakage
 Foundation damage
in crawl spaces,
building support
posts, and columns
 Changes in the
shape of roof
structures
Follow the Same Inspection Routine
with Each Loss
Take your time!
Go room-by-room and make a detailed list of all damage.
Note:
 What was discussed with insured or contractor.
 All old damage that involves cracks, uneven floors, walls
and ceilings, and any related patches or repairs.
Make:
 Diagrams of interior and exterior and show the nature and
direction of the earth movement in relation to the building.
Take a Video of the Entire Risk
Include all damage and videotape areas that are not involved
in damage.
Tape is cheap.
Later conflicts without proper documentation can be
very costly.
Take Photos of Everything...
Including undamaged property.
 Always make the first photo of your loss documentation
series an identifying photo (One of the front of the building
showing street number and other identifying
characteristics.)
After Photo #1...
Document the loss location.
 Take a sequence of photos for the same loss and risk.
 Follow the same photo pattern with all inspections.
For example, exterior foundation, exterior walls, roof
system, grounds, interior foundation.
Look For:
Signs of sinking or rising on the exterior corners.
This type of damage can be subtle, but can cause roofs
to leak, cracks to form in walls, and window glass to
break for several months after the quake.
This type of Earthquake-related movement can cause
stress cracks anywhere along the length of the
foundation wall.
Avoid...
Trying to accomplish too many tasks at once:
 Adjusting,
 Estimating,
 Coordinating,
 Hiring experts.
The likely outcome is hasty inspections and
incomplete documentation of loss and adjusting
events.
Plan
Allow enough time each day to complete all
paperwork generated by your daily adjusting
activities.
Complete correspondence
Attach photos to proper files
Process payments and reports
Daily Routine Promotes Efficiency
Each evening:
30 minutes to plan the next day’s schedule.
Each morning:
15 minutes to review the daily agenda.
30 minutes to communicate as needed.
Keep Current with Paperwork
Dedicate time to do paperwork only.
 Avoid telephone calls with paperwork.
 Take time every day to organize files and related
documentation.
Organizational Tips
Integrate new assignments into your contact and
inspection schedule on a daily basis.
This gives critical claims the attention they need at the
earliest opportunity.
Plan communication breaks throughout the day.
This avoids time loss from cancelled appointments and
missed opportunities to discuss mitigation or restoration
options.
This also discourages unilateral actions by insureds.
Resist the Temptation
Don’t over-schedule inspections in order to meet the
high demand for your presence at loss locations.
Incomplete inspections are usually more damaging to
the adjustment process than delayed inspections.
Map Your Inspection Route
 Plot your inspections on a map several days in
advance whenever possible.
 Review your course each morning before leaving
for the field.
This saves time and promotes road safety.
Create or Secure...
A list of all necessary service providers including:
Experts
Utilities
Municipal authorities
Restoration contractors
Relief agencies
Information resources: PLRB, USGS
Share Your Lists
The best way to save time and money when in need of special
services or information - absent a company-wide preapproved, updated, and distributed list.
When Estimating Damage...
Have supporting documentation for your estimate.
This may mean getting an agreement with a qualified
contractor, engineer, or related expert. Don’t just write
an estimate and move on; expect to be challenged.
Identify and Separate the Issues
 Tenability
 Use of experts
 Status of utilities
 Building security
 Emergency repairs
 Exposure from aftershocks
 Building code requirements
 Scope and cause of damage
 Most appropriate repair methods
 Necessity of exploratory removal of wall or ceiling coverings
Utilizing Experts
 Get the right expert for the job.
 Involve the expert at the right time.
 Provide comprehensive assignment parameters.
 Communicate regularly.
Types of Experts
 Architects
 Civil engineers
 Failure analysis engineers
 Building contractors
 Building code experts
 Mechanical contractors
 Soil experts
 Excavation and concrete contractors
Matching Experts to Needs
Match the appropriate expert with the situation.
What Architects Do:
 Identify building design flaws.
 Create designs to accommodate code retro-fits.
 Evaluate extent of structural damage.
 Create or review blueprints.
 Repair plans or diagrams.
What Civil Engineers Do:
Analyze:
 Soil condition
 Foundation adequacy/stability
 Building superstructure design
 Repair methodology
 Concrete testing
 Settling vs. Earthquake
Failure Analysis Engineers:
Experts in:
 Strengths of materials
 Failure probabilities
 Fastening systems superstructure failures
Answer Two Critical Earthquake Questions:
 Did it break as a result of an earthquake?
 Is it likely to fail as a result of the earthquake?
Building Contractors:
Provide:
 Alternate repair methods and approaches
 Job cost analysis and verification
 Partial-removal services for later inspections
Answer the Two Critical EQ Questions:
 Is the repair estimate reasonable?
 Can you expose the framing?
What Building Code Experts Do:
 Verify applicability of building codes.
 Write code-complying specifications of repair or
restoration.
 Negotiate with municipal and state building authorities.
Answer the Important EQ Quesiton:
 Is this code requirement valid under the circumstances?
What Mechanical Contractors Do:
 Evaluate design
 Recommend appropriate repairs
 Identify defective design or workmanship
 Analyze impact of EQ on electrical and plumbing systems
What Soil Experts Are:
 Geologists
 Excavation contractors
 Microzonation cartographer - creates maps of soil
conditions
Typical Engineer Qualifications:
Professional Engineer (P.E.)
 An earned designation apart from the degree.
College and University Degrees
 Verify that the degree relates to the field of seismology,
soil conditions and stabilization, and building/structure
safety and design.
Professional Engineer Designation:
Requires:
 B.S. in Engineering
From an accredited college or university.
 Licensure
Laws vary from state to state and are exclusively under the
control of individual state legislatures. Licensure laws for
professional engineers require:
 Graduation from an accredited engineering curriculum,
 Four years of responsible engineering experience, and
 The successful completion of a written exam.
Some states may waive the written exam based on education
and experience, but the trend is an examination requirement.
Communication:
Between Adjuster and Loss Principles Needs to
Focus On:
Objectives of investigation
Scope of work to be done
Use of standard reporting format, and
Follow-up, which must be scheduled and executed on
time.
Initial Telephone Contact
Obtain a brief description of the damage to the
property
Ask if the quake damaged property such as:
 Out-buildings
 Fences
 Trees
 Decks
 Swimming pools
Note the damage that could lead to additional loss if
temporary repairs are not made.
Initial Contact (continued)
Let the insured describe the damage before discussing
any immediate, temporary repairs.
Do not distract insureds when they describe the
damage.
Help the Insured...
Develop a plan of action to resolve the claim:
Vital initial contact includes:
Necessary emergency repairs
To protect the property from additional loss or to restore
tenability are the first priority.
Clean up of debris
The next priority.
Restoration of utilities
Likely to involve an inspection of the building’s
plumbing, gas, and electrical systems by a utility or
qualified expert.
Develop a Plan of Action...
During the initial telephone contact:
 Specify what needs to be done by issue and proposed
action.
 Include a list of repair/restoration firms and their phone
numbers.
 Explain how the insured can secure competitively priced
repair estimates in light of a shortage of service providers.
Insureds Are Under Stress
And often have post-traumatic stress syndrome.
Symptoms include:
Inability to understand requests for information
Distraction
Depression
Unwarranted anger directed toward adjuster
Failure to take action
Reduce Policyholder Stress
 Take your time.
 Separate and clarify the issues.
 Include recommended deadlines for action.
 Offer a brief, written summary and to-do list for the
insured.
 Encourage the insureds to repeat their understanding of the
information you have presented.
Other Stress Reducers
Take your time to listen.
The insured has a need to tell their story to an authority
figure - the adjuster.
Identify solutions to any pressing problems.
Give the insured meaningful tasks:
Locate repair services or meet with experts.
Learn Local EQ Safety Building Codes
Earthquake safety building codes include:
Added wall bracing
Heavier foundation construction
Knee-wall bracing
Roof-truss bracing and special fasteners
Work with Local Building Officials
 Obtain details supporting the “tag condition” of the
building.
 Separate actual damage from building code retro-fit
requirements.
Summary
Personal safety following an earthquake requires
substantial preparation including:
Proper personal equipment.
Familiarity with the local geography.
A list of all involved public safety authorities.
Constant alertness to potential hazards.
Summary (continued)
 Be aware of the possibility of aftershocks.
 Do not enter unstable structures.
 Consider working in two-person teams.
 Before making a detailed inspection, conduct a generalloss, scene-safety inspection to identify potential hazards
(such as overhead damage to chimneys).
 Gain an understanding of the type of construction for a
given neighborhood.
Summary (continued)
 Earthquake coverage must be endorsed onto the policy.
 Coverage usually involves individual deductibles for each
classification of property, often expressed as a percentage
of limits of coverage.
 Thorough, well-documented initial contact with insureds is
essential, including a comprehensive review of coverage
and policy terms and conditions.
Summary (continued)
Develop a plan to resolve the claim:
 Identify:
- Damage
- Suspected damage
- Possible damage
 Involve experts, as needed, at the earliest opportunity.
Provide clear assignment parameters.
 Establish an agenda of priority tasks to resolve the claim.
Communicate it in writing to all parties.
Summary (continued)
 Allow adequate time for each inspection.
 Include a comprehensive review of coverage and adjusting
issues with the insured.
 Develop a standard routine for initial contact and
inspections to avoid missing important details and loss
documentation.