Commercial property claims: inspection, valuation and negotiation

What a commercial property policy actually responds to

A commercial property or material damage policy covers buildings, fixtures, plant, contents and stock against named perils or on an all-risks basis subject to exclusions. Typical triggers are fire, storm, escape of water, impact, theft and malicious damage. The schedule usually lists separate sums insured for each category and each location, and those figures matter enormously once a claim is made.

Valuation basis is the first thing to check. Reinstatement or replacement cost cover pays to rebuild or replace with new, often subject to the work actually being carried out, while indemnity or actual cash value deducts for wear and age. Many disputes begin because a business believed it had one basis and the policy states the other.

The insurer's adjuster and the policyholder's representative

The insurer appoints a loss adjuster or claims adjuster to confirm cover, investigate cause and recommend a settlement. On larger losses that adjuster may instruct building surveyors, quantity surveyors, engineers or stock valuers. Their reports carry weight, but they are commissioned for the insurer.

A business may instead, or in addition, appoint its own representative. In the US and much of Canada this is a licensed public adjuster; in the UK and Ireland, a loss assessor; in Australia, a claims consultant or independent claims preparer. That person prepares the claim, challenges the insurer's figures and negotiates on behalf of the policyholder only.

Stages of a typical commercial loss

Immediately after the incident the priority is to make the site safe and limit further damage: boarding up, drying, temporary roofing and security. Insurers generally expect reasonable emergency measures and will usually reimburse them, so invoices and photographs should be kept from the very first hour.

The adjuster then inspects, often jointly with contractors. A scope of works is drafted, competing estimates are obtained and, for stock and contents, inventories are reconciled against purchase records. Once cause and quantum are accepted, payments may be staged: an initial sum for strip-out and drying, then progress payments as reinstatement proceeds.

• Secure the site and record every emergency cost
• Photograph damage before anything is removed or discarded
• Agree with the adjuster what can be disposed of and when
• Obtain independent repair estimates rather than relying on one scope

Building a credible claim file

A strong file includes the policy schedule and wording, lease obligations, maintenance records, asset registers, stock records at the last count and recent invoices for high-value items. For buildings, plans, previous survey reports and any recent refurbishment costs help establish the pre-loss condition and the true rebuild cost.

Where the business is a tenant, the lease often decides who insures what. Landlords commonly insure the structure while tenants insure fit-out, contents and stock, so two policies and two adjusters may be involved. Coordinating them early avoids items falling between the covers.

Valuing buildings, contents and stock

Reinstatement cost for buildings is assessed from a priced scope of works, including professional fees, demolition and debris removal where covered, and compliance with current building regulations if the policy extends to it. Contents and plant are valued at replacement cost or depreciated value depending on the wording; stock is normally valued at cost price, not sale price.

Disagreements frequently concern whether a damaged item can be repaired rather than replaced, whether matching materials justify replacing an entire floor or façade, and how far depreciation should be applied. Salvage values, for example on smoke-affected stock sold through a salvor, also have to be agreed.

Where insurers and businesses tend to clash

Cause is the first battleground. A roof leak may be argued as storm damage or as gradual deterioration; a flood may be treated as covered escape of water or excluded surface water. Exclusions for wear and tear, faulty workmanship and lack of maintenance are invoked often, and the policyholder's expert will look for evidence that the insured peril was the proximate cause.

The second battleground is quantum. Underinsurance triggers average or co-insurance penalties that reduce payments in proportion to the shortfall in the sum insured. Delays in reinstatement can also be used to limit replacement-cost settlements to indemnity value, so understanding the time limits in the wording is essential.

• Proximate cause and the scope of exclusions
• Repair versus replacement and matching
• Depreciation on contents and plant
• Average, co-insurance and sums insured
• Code upgrade and professional fee allowances

Deciding whether to bring in your own expert

A modest, uncontested loss with a clear cause can usually be agreed directly. Independent support tends to pay its way when the loss is large relative to the business, when several categories of property are affected, when cause is disputed or when the insurer's offer appears to rely on a narrow scope or heavy depreciation.

Check the professional's credentials before signing anything. US public adjusters must hold a state licence; in the UK, firms handling claims on behalf of customers fall within the Financial Conduct Authority's regime; in Ireland, the Central Bank of Ireland oversees insurance intermediaries. Ask for references from similar commercial losses and a written letter of engagement explaining scope and fees.

If negotiation reaches a dead end

Many North American commercial policies contain an appraisal clause allowing each side to appoint an appraiser, with an umpire to resolve differences on the amount of loss. In the UK and Ireland, eligible small businesses can take complaints to the Financial Ombudsman Service or the Financial Services and Pensions Ombudsman once the insurer's internal process is exhausted, and AFCA plays a similar role in Australia within its limits. Larger disputes usually move to mediation, arbitration or court proceedings.

Commercial property claims reward careful records and early clarity on valuation basis and cause. More guides on adjusters, loss assessors and their fees are available on expertdassure.com.