Lessons Learned: Vacancy Provisions
Every property loss has a story. Some are rather interesting, many are sad, others are hard to believe, and almost all of them teach us a lesson. When we are fortunate enough to learn a lesson we try to pass it along so others don’t make the same mistakes. We were recently referred a loss and wanted to share the story in hopes it may protect you or someone you know from making the same mistake.
A couple of weeks ago we were called by a commercial real estate agent we know. He stopped by a vacant listing he had on the market to check on it before showing the property later that afternoon. When he entered the property he was greeted by a significant amount of water. A toilet had been leaking for a number of days if not weeks. Water was all over the facility and mold was growing 2-3 feet up the walls. We dispatched a crew and equipment to the property. Upon arrival we were told that the property was properly insured, got a work authorization signed and began mitigation on the job.
A couple days later the adjuster assigned to the loss came out to the property. After walking through the property the adjuster indicated to us this would be a non-covered loss. When we asked why he said that it was obvious that the property had been vacant based on the lack of any belongings at the property and the amount of mold growth. Additionally, in researching the property before his visit, he had determined the property had most likely been vacant since January based on the listing information.
This was a major concern for everyone involved in the situation. We were already thousands of dollars into the project and were thousands of dollars away from getting the property back to pre-loss condition.
After learning this news I went to visit the insurance agent who insured the property. I debriefed the agent on the situation and he indicated to me that the adjuster was absolutely correct. In fact, the agent produced the actual policy that clearly stated:
“If the building where ‘loss’ occurs has been vacant for more than 60 consecutive days before that ‘loss’, we will:
- Not pay for a ‘loss’ caused by any of the following, even if they are Covered Causes of Loss:
- Sprinkler leakage, unless you have protected the system against freezing;
- Building glass breakage;
- Water damage;
- Theft; or
- Attempted theft.”
The agent indicated to me this was the case with most commercial and residential insurance policies. He also educated me on the reasoning behind the vacancy provision. Insurance carriers under no circumstances want a property to be vacant and it does make sense. If a loss happens at a vacant property there is no one there to stop or report it and you are certainly much more likely to experience theft, break in or vandalism. I asked if there are policies that covered vacant properties. He indicated there are, but the premiums and deductibles are significantly higher.
What was particularly interesting to us was that no one involved in this loss other than the insurance agent and the adjuster seemed to have any idea about the vacancy provision or how common they are. Neither the property owner, the property management company, nor the commercial real estate agent had any knowledge of this provision or the liability the property owner had been exposed to.
Believe it or not this story does have somewhat of a happy ending and all the credit goes to the insurance agent. The day after my visit to the insurance agent I got a call from him indicating the claim was going to be covered. I have no idea what the insurance agent did or said but somehow he got the adjuster to cover the claim! It goes without saying that all parties involved in this loss are ecstatic and have exhaled a collective sigh of relief.
So what did we learn? First and foremost, you NEED an insurance agent. More and more insurance agents are being commoditized and people are purchasing insurance policies online without benefit of expert advice. In addition to their advice, you also get the benefit of their years of experience, and the relationships they have built over the course of their career. I have no idea how this agent got the adjuster to cover this claim but the fact remains, he did. It is hard to see how the internet could accomplish that for you. Second, if you have a commercial or residential property that has been or could be vacant for 60 days or more you need to contact your insurance agent to make sure it is properly insured. While it might cost you additional money for a handful of months or even more, it could also save you thousands of dollars if you do have a loss. In the end, it just isn’t worth the risk.