Investment Column: Weathering the Storm
- Dec 02, 2015
Winter is a great time to think about insurance—and there’s no better time than now, before the first big snow or heavy rain storm. The reason is simple: Last winter presented perfect examples of coverage gaps. When it snowed more than 100 inches in Boston in the winter of 2014-2015, property owners experienced leaking and collapsing roofs and skylights, interruption of basic public services, and lost income to employers from missed work days. Storm run-off from torrential rains in the South earlier this year also resulted in damage to several ground-floor spaces and underground garages. Would your portfolio have had coverage for damages resulting from these events?
Property owners need to find the gaps in their insurance coverage and confirm that their leases properly allocate responsibility for response before a major event occurs that triggers a claim. My recommendation is to sit down now with your property management team, in-house risk management group and outside insurance consultant and run through a few scenarios considering these questions:
- If there are three snow storms over the course of a week, will your insurance carrier consider this as three separate storms (three deductibles) or one storm?
- Do you own more than one property in the same geographic area and does your “blanket deductible” apply per building or per event?
- How does your lease address snow removal—is the resident responsible for snow removal on the roof or is the roof considered a structural element so responsibility for snow removal falls to the landlord?
- Does the lease address what contractors are permitted on the roof and the means that can be used to remove snow from the roof? (Using snow blowers on the roof is not a good idea, given the possibility of hitting protrusions and throwing snow off of the roof onto pedestrians).
- Are skylights properly marked so that when covered with snow their location is still known? (It is too easy for a worker to step on a hidden skylight and fall through)
- Does the resident have self-help in a single-tenant building if the landlord doesn’t promptly respond to snow removal or storm run-off needs?
- From a liability perspective, it is important to determine whether a roof collapse was due to the weight of the snow or an “act of God.” Most liability insurance policies will address the former, but not the latter. If a landlord or resident fails to remove snow promptly, is that considered “negligence”? Snow removal costs on their own are simply not an insurable cost (although they may be an operating expense).
Similar issues arise with flash floods and storm run-off, especially in industrial properties. Remember, these types of storms are generally not covered by the customary “maintenance and repair” provision, and should be approached as a casualty.
All businesses should check their business interruption coverage to review the waiting period before a claim can be filed. There are also issues of what happens if the local municipality closes the street where your building is located due to flooding or snow. What if the local municipality can’t respond due to lack of services (discontinuance of trash removal)? What procedures can you take as a property owner?
Finally, consider the impact of the “vacant building” exclusion from your policy.
Running through various scenarios based on last year’s significant snow and rain storms is good practice. Do not overlook the practical property management procedures (emergency contact numbers and communication procedures about whether the building is open or not, and pre-arranging for snow removal contractors) so you’re adequately prepared for the upcoming winter.