A hurricane, a fire, a burst pipe, a tornado, when disaster strikes your business, properly reporting the property damage to your property insurer is only the beginning of the challenges that lie ahead. What often follows is a claims process that, if not handled carefully, can result in your insurer paying far less than what is owed or denying the claim altogether.
Commercial property insurance is supposed to be the safety net that keeps your business afloat after a catastrophic event. But insurance companies write the policies, control the claims process, and employ teams of adjusters, engineers, and lawyers whose jobs are to identify avenues that may be available to the insurance company to minimize what is paid on a claim. In contrast, the policyholder is juggling many, and oftentimes urgent, responsibilities beyond navigating a claims process riddled with deadlines, technical requirements, and potential pitfalls. Those responsibilities often entail trying to mitigate further property damage/loss, cleaning up debris, keeping employees informed, maintaining customer relationships, continuing operations where possible, and figuring out how to get back to business as soon as possible, where operations are necessarily interrupted.
This article provides a practical, step-by-step guide for North Carolina business policyholders who have suffered a significant property loss. It covers what to do in the immediate aftermath, ways to protect your rights during the claims process, and where the most common traps lie.
Step 1: Protect People and Property and Start Documenting Immediately
Safety comes first. Once you have ensured the safety of your employees and the public, your next priority is to prevent further damage to the property. Most commercial property policies impose a duty on the policyholder to take reasonable steps to mitigate further loss. Failing to do so can give your insurer grounds to reduce, and possibly deny, your claim for damage that occurred after the initial event.
At the same time, begin documenting everything, and we mean everything. Before you move a single piece of debris or make any repairs beyond what is necessary to prevent further damage:
- Photograph and video the damage from every angle. Document the exterior and interior of the building, damaged equipment, inventory, signage, landscaping, and any standing water or structural damage. Time-stamped digital photos and video are ideal. Some vendors who provide pre- and post-loss documentation services utilize 3D LiDAR scans, drone imaging, and Matterport® technologies to capture these types of details.
- Preserve damaged property. Do not throw away damaged inventory, equipment, or building materials unless they pose a health or safety hazard. If you must dispose of items, photograph and catalog them first, and ensure your insurer has an opportunity to inspect them at pre-disposal, if at all possible.
- Keep a written log. Record dates, times, and descriptions of all damage, all temporary repairs, all conversations with your insurer, and all expenses you incur. This log will be invaluable later. One of the most common mistakes business owners make is cleaning up too quickly. It is natural to want to get your property back in order, but making permanent repairs or disposing of damaged property before your insurer has had the opportunity to inspect it can seriously undermine your claim. Make only temporary, emergency repairs, and keep every receipt.
Step 2: Notify Your Insurer Promptly (and in Writing!)
Your policy almost certainly requires you to notify your insurer of a loss “as soon as practicable” or within a specified number of days. In North Carolina, insurers must acknowledge a claim within 30 days after receiving notice with sufficient information to identify the coverage involved or risk imposition of a civil penalty by the Commissioner of Insurance. But the clock starts ticking from your notice, so do not delay.
Provide written notice, not just a phone call. A written notice (creates a record that cannot be disputed later. If permitted by the policy, an email may be sufficient, but send it to the claims department, not just your agent. In your notice, include:
- Your policy number
- The date and nature of the loss
- The location of the damaged property
- A general description of the damage
- Your contact information and the best way to reach you
If you have multiple policies that may apply, for example, a commercial property policy, a separate flood policy, a wind and hail policy, a business owners policy, or an umbrella policy, notify the carrier(s) under each potentially applicable policy. Do not assume that one notification covers all of your policies, especially if they are issued by different carriers. Likewise, do not assume that policies with multiple potential coverage parts that may apply have received notice if you specifically report under one of the coverage parts. While such notice may be sufficient to trigger all of the potentially applicable coverage parts, getting confirmation from the insurer as to what coverage parts it is processing the claim under can be crucial.
Step 3: Locate and Review Your Policy Before the Adjuster Arrives
This step is critical and one that many policyholders skip. Before the insurer’s adjuster arrives, locate your complete policy. While the declarations page has helpful information, it is not everything you need to understand your insurance contract. You’ll want to have the full policy, including the declarations page, all endorsements, schedules, and forms that make up your insurance contract. Don’t have your full policy? Ask your agent to procure a full and complete copy as soon as possible, bearing in mind that many agents will not have your policy on hand and will likely need to request a copy from the insurer. That process can take precious time.
Review the policy with particular attention to:
- Covered perils. Is your policy an “all-risk” (or “special form”) policy that covers all perils unless specifically excluded, or a “named peril” policy that only covers the specific perils listed? This distinction is one of significance. An all-risk policy places the burden on the insurer to prove an exclusion applies. A named peril policy places the burden on you to prove the loss was caused by a covered peril.
- Every policy has them. Common exclusions in commercial property policies include flood (which typically requires a separate policy), earth movement, wear and tear, and governmental action, to name a few. Understanding the exclusions before the adjuster arrives allows you to anticipate the arguments your insurer may raise during your claim.
- Business interruption and extra expense coverage. Many commercial property policies include coverage for lost business income during the “period of restoration” (i.e., the time it reasonably takes to repair or replace the damaged property). Some policies have a defined period of time that this type of coverage is provided, like 12 or 18 months, for example, regardless of how long repairs/restoration take. They may also cover “extra expenses” you incur to minimize the interruption, such as renting temporary space. These coverages can be worth as much as, or more than, the physical damage claim itself, depending on the nature of your business and impact to operations. But they come with their own requirements, calculations, and limitations that warrant careful consideration.
- Policy limits, sublimits, and deductibles. Your policy may have an overall limit, but also sublimits for specific types of losses (e.g., a sublimit for water damage, for equipment breakdown, ordinance and law, mold/fungi, etc.). Deductibles may be a flat dollar amount or, particularly for named storm losses, a percentage of the insured value.
- Proof of loss requirements and deadlines. Your policy will specify the form and timing for submitting a sworn proof of loss. Under North Carolina law, the standard requirement is that a proof of loss must be submitted within 60 days of the loss. However, if your insurer requires a particular proof of loss form, it must provide you with the blank form within 15 days of receiving your notice of loss. If it fails to do so, you may be deemed to have satisfied the proof of loss requirement by providing written proof of the occurrence, character, and extent of the loss within the required 60 days, which period can be extended by agreement.
If your policy is hundreds of pages of dense insurance language, as many commercial policies are, you may want to consider engaging experienced insurance coverage counsel to help you understand what you have and what you are entitled to, and common claims situations to be aware of and how best to navigate them as they occur in the context of your claim.
Step 4: Work with the Adjuster, but Understand They Don’t Represent Your Interests
After you report your claim, your insurer will assign an adjuster to inspect the damage and estimate the cost of repairs. The adjuster may be an employee of the insurance company or an independent adjuster hired by the insurer. In either case, the adjuster works for the insurer, not for you. The adjuster’s job is to evaluate the claim and, in many cases, to minimize the insurer’s payout.
This does not mean the adjuster is your adversary, and you should cooperate fully with the inspection. However, a few practical guidelines will help protect your interests:
- Be present during the inspection. Do not assume the adjuster will find everything on their own, particularly hidden damage behind walls, above ceilings, or under flooring. Walk the property with the adjuster and point out all areas of damage.
- Bring your own contractor or engineer. If you have already obtained an independent repair estimate or engaged an engineer to assess structural damage, share that information with the adjuster. Having your own expert present during the inspection ensures that competing views of the damage are addressed early in the process.
- Do not sign anything without reviewing it carefully. The adjuster may ask you to sign a proof of loss, a release, or a settlement agreement. Do not sign any document that characterizes the value of the claim as “undisputed” or any payment as “full and final” unless you are confident it covers all of your losses. Signing prematurely can waive your right to seek additional compensation.
- Do not give a recorded statement or sit for an examination under oath without preparation. Some insurers will request a recorded statement or ask you to sit for an examination under oath, which is akin to a deposition, where you are sworn in and a transcript of what you say is taken by a court reporter. You are generally required to cooperate with these requests of you, but you are entitled to prepare and to have counsel present.
Step 5: Submit a Thorough and Detailed Proof of Loss
The proof of loss is one of the most important documents in the claims process. It is your sworn statement of the amount of your loss, and it formally puts the insurer on notice of what you are claiming. Under North Carolina’s standard fire policy provisions, which are incorporated into property policies, the proof of loss must be submitted within 60 days of the loss unless the deadline is extended by agreement or by a disaster declaration from the Governor or Commissioner of Insurance.
The proof of loss should be detailed. A single number representing “total loss” is not sufficient. Break down your claim by category, such as structural damage, equipment, inventory, business personal property, debris removal, temporary repairs, and business income loss. Be sure to provide supporting documentation for each, attaching repair estimates, contractor bids, inventory records, financial statements, and any other evidence that supports the amounts you are claiming.
A word of caution: the proof of loss is a sworn statement, meaning you are attesting under oath that the information is true and correct. Be thorough but be accurate. Overstating a claim, even unintentionally, can give an insurer ammunition to challenge or deny the entire claim.
If 60 days is not enough time to complete a thorough proof of loss, as it often is not in a major commercial loss, request an extension from the insurer in writing and obtain written confirmation that the extension has been granted.
Step 6: Do Not Overlook Business Interruption and Extra Expense Claims
For many commercial policyholders, the lost business income component of a property claim dwarfs the physical damage. Business interruption coverage is designed to put your business in the financial position it would have occupied if the loss had not occurred. It typically covers:
- Lost net income during the period of restoration or the specified window of time for which such losses are covered
- Continuing fixed expenses such as rent, loan payments, and utilities
- Payroll (some policies cover ordinary payroll only for a limited period, while key employee payroll may be covered for the full restoration period)
Some policies also include “extended business income” coverage, which continues for a defined period after the property has been repaired but before revenue has returned to pre-loss levels. “Extra expense” coverage pays for reasonable costs you incur to minimize the interruption, like renting temporary office space, expediting equipment orders, or paying overtime.
Calculating a business interruption claim requires detailed financial records and may necessitate involving the business’s CPA. Your insurer will want to see historical revenue, profit margins, seasonal trends, and operating expenses. The earlier you begin assembling this documentation, the better positioned you will be.
One common area of dispute is the “period of restoration.” This is the time period during which business income losses are covered, and it generally runs from the date of loss until the property “should be” repaired or replaced with reasonable speed and similar quality. Insurers frequently argue that the period of restoration should be shorter than the time it actually takes to complete repairs, particularly when construction delays, permitting issues, or supply chain disruptions extend the timeline. Having documentation that explains the reasons for any delays is essential.
Step 7: Know Your Rights Under North Carolina Law
North Carolina provides meaningful protections for policyholders. If your insurer is not treating you fairly, you have legal tools available:
- Unfair claim settlement practices. North Carolina General Statutes § 58-63-15(11) prohibits insurers from, among other things, failing to acknowledge claims promptly, failing to investigate claims reasonably, denying claims without a reasonable basis, and compelling policyholders to file lawsuits by offering substantially less than what is owed. Violations can support a claim for unfair and deceptive trade practices under N.C.G.S. § 75-1.1, which allows for recovery of treble (triple) damages and attorneys’ fees.
- Claim denial requirements. Under North Carolina regulations, a claim denial must be in writing and must cite the specific policy provisions or legal basis for the denial. A vague or unsupported denial should be challenged.
- Many commercial property policies contain an appraisal provision that allows either party to demand an appraisal of the loss amount when the parties disagree on the value of the property or the amount of loss. The appraisal process presents its own challenges and concerns for policyholders and has been utilized, at times, by insurers to address matters of causation and coverage, which appraisal is neither permitted to nor designed to do.
- Statute of limitations. In North Carolina, the statute of limitations for a breach of contract claim on a property insurance policy is generally three years. However, that three-year period runs from the date of loss, not the date of breach. A separate unfair and deceptive trade practices claim has a four-year statute of limitations. Some policies contain a shorter contractual limitation, often one or two years from the date of loss, but property policies in North Carolina typically contain an amendatory endorsement making clear the time is three years. Always check your policy carefully and calendar these deadlines.
Step 8: When to Involve an Attorney
Many commercial property claims, and particularly large or complex ones, benefit from the involvement of experienced insurance coverage counsel early in the process. An attorney who represents policyholders can help you understand your policy, prepare a thorough proof of loss, respond to insurer requests appropriately, evaluate whether the insurer’s position is reasonable, and help protect your rights if a dispute develops.
