Compiling a List for Insurance Claims
Devastating fires in the Napa, Sonoma and Santa Rosa areas have burned thousands of homes, businesses, and other structures. In the wake of the damage, fire loss claims are inevitable. It’s not always an easy process to assess what’s been lost, especially in the midst of sometimes overwhelming grief and confusion.
I saw the following FaceBook post recently; USA Today also recently published an article about using insurance adjusters for large complicated claims.
To all my friends experiencing the loss of homes in this terrible fire. I want to give you the best advice you will get at this time. Make sure you hire a PUBLIC adjuster to help you with your insurance company. I survived a fire 10 years ago. I lost everything but the clothes on my back and my truck. I would over and over again say: the Public adjusters were the difference between a horrific nightmare and a new beginning. Do not try and go it alone with your insurance companies.
Let me emphasize that last line: Do not try and go it alone with your insurance companies.
Just last year I worked with a fellow who’d lost his machine shop in the Butte fire. He was still reeling from the loss and the difficult challenge of categorizing and listing tools and equipment he had acquired over 40 years. It was obvious to me that if his long-time friend had not stepped in at the beginning to help manage this years-long process, he would have been in an even more dire situation.
Whether or not you decide to hire an adjuster or not, be smart and find someone to help you. You will find that having someone to support you will be invaluable: a friend or family member who is not involved in their own loss, a paid assistant to help you keep your records organized and facilitate the filing process when you are tired, discouraged, overwhelmed or grieving, or a public adjuster if you decide that’s best for you. Perhaps all three!
Develop a Solid Asset List
The most important step in your equipment loss claim is providing the insurance company with the best asset list you can put together.
Ideally, you’d have photos, equipment lists, and maintenance records to support your asset list. In best case scenarios, the equipment appraisal that was done in conjunction with the insurance policy could be used as a basis for the loss appraisal.
But let’s suppose, that there isn’t an existing equipment appraisal. And that any records you may have had regarding the destroyed equipment were also lost in the fire. Now what?
Generate a detailed list of lost and damaged equipment as quickly as you can. Often various forces (insurance companies, municipalities, etc.) remove the burnt debris as soon as possible. This may be necessary for a number of practical reasons but as soon as it’s gone, you’ll realize what a challenge it is to remember what was there. Procrastination is not your friend. In a recent fire loss case we spent an afternoon day going over a list and pictures with the machinist mentioned above. The process was extremely stressful and challenging for him.
A depreciation schedule is a good place to start but many tools, supplies and other expensed items are often not listed on the depreciation schedule. Another problem with depreciation schedules is that they often don’t have the level of detail required to prepare an appraisal; how well do you think the item “Ford truck” is going to work? A much better description would be “Ford truck: 2015 F150, 4wd, super crew platinum, leather seats, premium wheels 6.5’ bed, tow package, 5.0 L V8, estimate: 45,000 miles, tires 6 months old.” With that in mind, to the very best of your ability put together a list of notes with as much detail as you can for as many items as you can remember.
As you compile this detailed list of destroyed assets, talk with your accountant, employees and co-workers and with the companies that provide maintenance and service for your equipment as well as the companies you purchased equipment and machinery from. They will likely remember items and details you’ve forgotten. In the case of service or sales companies, they may also be able to provide supporting documentation. Remember to get as much detail as possible. Of course, if your company kept digital records, you may be able to access much of the information you need via a cloud backup.
The two following tips—both from the FindLaw site—will help you not only in compiling your asset list but more generally in your insurance claim process. The concept of keeping your claim open until you are satisfied that you’ve remembered all equipment assets is an especially important one. Remember that a fire loss, especially one as widespread as the recent Napa Sonoma Santa Rosa fires, is a trauma. Don’t be surprised if you aren’t thinking as clearly as usual.
Don’t Close Your Claim Prematurely
Insurance companies are quick to close fire insurance claims, especially in mass disaster situations. The longer your claim is open, the greater chance for you to discover something you overlooked previously. This is actually a common occurrence. In such a stressful and confusing time, it is likely that you may forget to list an item of value in your initial insurance claim. Give yourself some time. Protect yourself by waiting a few months before consenting to closing your claim. You do have this power.
Insurance companies will try and slide in a claim closing by adding language to your check. When they send you your check, they may say something like “acceptance of this payment will close your claim.” You do not have to accept this. Cross out the language, sign or initial next to it, and send them a letter thanking them for the payment, but asserting that you do not consider the claim closed.
Keep Thorough Notes & Records
Dealing with the insurance company is a very convoluted process involving countless calls, emails, letters, and documents. Be sure to keep track of all communication and keep a copy of all documents and post office receipts of mailing. Take notes, including the date and time, of every phone conversation and face to face meeting. Getting a binder or file organizer is a great idea. This will allow you to section off the different types of correspondence — organizing phone call notes, emails, invoices, bills, permits, contracts for repairs, and insurance forms each into their own separate section.
Remember to always keep original documents of everything. If your insurance company wants proof of a document, make them a copy but keep the original. The more organized you are the better prepared you will be should your insurance company start playing the “he said, she said” game with you.
Extraordinary Assumptions in Fire Loss Cases
When all is said and done, fire loss equipment appraisal cases we’ve worked on consistently lack adequate records regarding the lost equipment. In cases like this, when equipment can’t be inspected or otherwise completely verified, one of an equipment appraiser’s most important tools is the Specific Assumption, as defined in Valuing Machinery & Equipment, 3d edition:
An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions.
The first specific assumption made is that the assets actually existed & that they bear some resemblance to the asset list provided by the claimant. It’s important to note that even a limited asset list, such as the one we put together with the fire loss client mentioned earlier, is better than no list at all. In any case, however, many of our fire loss reports include a paragraph similar to the following one, explaining what is missing from the provided equipment asset list and how that influenced the valuation process:
Descriptive information needed to accurately appraise many of the Subject Assets was not available; specifically, information regarding the make, model, size, capacity, quantities, meter readings and the appearance condition as of the effective dates is missing in many cases. In order to arrive at an opinion of value I have therefore made certain Specific Assumptions about the description and the appearance condition of the Subject Assets listed in Appendix A based upon my estimate of what a typical subject for the given situation likely would be. (See Assumptions and Limiting Conditions later in this report for more information.)
Given the situation, the location, the business itself, we make the best estimate we can regarding the description and and condition of the assets. The questions we ask to arrive at those estimates are questions that you might ask yourself as you prepare the assets list for your insurance claim:
Were the assets purchased new? Were any purchased used? How much wear & tear had they undergone? What do the maintenance records indicate? If any equipment survived the fire, what is its condition? How long had the equipment been in use and under what conditions?
If you have questions about creating an asset list for your equipment fire loss, give us a call at the office or use our contact form. You are also welcome to click here for an example of the spreadsheet we send our clients to use in compiling an asset list for equipment and machinery appraisals.
Jack Young, ASA—MTS/ARM, CPA
NorCal Valuation Inc.
