Basic Earthquake Coverage and Adjusting Issues

Coverage and Adjusting Issues

Coverage issues: Proper Application of Deductibles and

Verifying EQ as the Proper Cause of Damage.

Adjusting issues: Your Personal Safety and Preparedness, Working With the Many Experts Involved in EQ Losses, Securing and Preparing Proper Loss Documentation, and Communicating With Insureds Likely to Be Under

Considerable Stress.

Experience Tells Us

Earthquakes differ in both intensity and type, causing different kinds of damage to structures.

Variables include the location in relation to the epicenter, effectiveness of local building codes, the predominant soil type (sand, clay, rock, gravel, organic), and general preparedness of the population.

What Is An Earthquake?

Earthquake - a sudden, rapid shaking of the earth caused by the breaking and shifting of rock beneath the surface.

This shaking can cause buildings and bridges to

collapse;disrupt gas, electric, and phone service; and sometimes trigger landslides, avalanches, flash floods, fires, and huge, destructive ocean waves (tsunamis).

Higher Risk Structures

Most at risk are buildings with foundations that rest on unconsolidated landfill, old waterways, or other unstable soil.

Also at risk are buildings, trailers, or manufactured homes that are not tied to an anchored, reinforced foundation. Otherwise, they can be shaken off their mountings during an earthquake.

* Courtesy of FEMA

Earthquakes Occur...

At any time of the day or year.

Earthquake-Prone Regions

Red - most earthquake-prone

White - least earthquake-prone

* National Seismic Hazard Mapping Project - Golden, CO

First, Let’s Look at Safety

Following an earthquake, state and municipal authorities “tag” buildings to indicate hazards or potential hazards.

Buildings are usually tagged within a matter of days after the quake.

Do not enter a building that appears to be untagged.

Look for the tag to be displayed on or near the front door of the building.

The Universal Tag System - Red

Red Tag - Do Not Enter. Extreme danger. Building is unsafe, structurally unstable, and likely to either collapse or become a serious hazard.

Do Not Enter

The Universal Tag System - Yellow

Yellow Tag - Limited access. Certain areas of the building may be hazardous.

Warning:Enter with Extreme Caution

The Universal Tag System - Green

Green Tag - No hazards noted by inspectors.Continue to use caution during inspections.

Enter with Caution

Contact the Local Buildings Division...

C ITY HALL Or similar local authorities for A copy of the report relating to

any building’s safety tag status, The reasons for the

determination, and Any conditions that must be met

to change the status of the building.

Warning!Do not rely on the insured as the authority on a building’s safety status.

Earthquake-Affected Neighborhoods

Typical hazards: Unstable building

components overhead Power transmission lines Underground utilities Uneven sidewalks and

road surfaces

Unstable Building Components

Parts of buildings can fall several days after an earthquake. Do not assume that any

area is safe to enter, even though the area is not cordoned off by public safety officials.

Look overhead before entering any affected area.

This chimney could easily fall during a mild aftershock.

Damage Caused by Fallen Chimney

This chimney fell into the house nearly one week after the quake as a result of an unobserved crack, shearing it at the roof line.

Power Transmission Lines

Poles may be damaged or moved after an EQ, causing lines either to sag or to stress near breaking points.

Not all hazards are corrected by utility crews (or sometimes even identified) prior to entry by adjusters.

Underground Utilities

Avoid walking near or standing on manhole covers.

Gas explosions can occur at any time following an earthquake.

Warning!Practice exercise extreme caution at all times.

Ruptures Can Occur Any Time After a Quake

Buried as much as 6’ below the surface, high-pressure water mains can burst, resulting in unexpected geysers.

Uneven Sidewalks and Road Surfaces

Carefully examine the path to any inspection site before moving in.

Be mindful of the debris on the ground before making a close inspection.

Even minor quake intensity can cause sidewalks to heave.

Wear Sturdy, Protective Shoes

Avoid injury from broken glass and debris.

For maximum protection, wear thick-soled shoes or boots to cover your entire foot and ankle.

Anticipate After-Shocks

After-shocks can occur weeks after the initial quake and can rival the original intensity.

Following an earthquake on January 17, 1994, Northridge experienced 13,726 separate aftershocks.

Keep Safety Equipment In Your Trunk

Cell phone Drinking water Fire extinguisher First-aid kit and handbook Portable radio with extra

batteries Flashlights with extra

bulbs and batteries

Personal Items

Health Supplies Canteen of water Sunscreen First Aid Kit Prescription

medicine Personal hygiene

supplies

Clothes Hard hat Dust mask Gloves Safety vest Knee pads Sturdy shoes

Cards and ID’s Driver’s license Official

identification Credit cards Safety glasses

Personal Field Equipment

Non-Electronics Pens/pencils Clipboard/Paper/Notebook Tape measure Coveralls Street Maps Field Passes Names, numbers of

emergency personnel

Electronics Portable battery-powered

radio Cassette tape recorder Calculator Flashlight with extra

batteries Laptop PC Camera Video camera

Personal Equipment (continued)

Assorted Hand Tools Hammers Handsaws Crowbars Wire Cutters Wrecking Bars

Levels 2’ Level String level Torpedo level

Magnetic Compass - To orient diagrams.

Swiss Army Knife - For taking samples of materials.

Cards (3 X 5) - Use these to identify the subject being photographed.

Remember...

Personal safety and preparedness is your primary responsibility.

Earthquake Coverage

Provided as an endorsement to the standard property insurance forms.

Standard forms do not cover loss resulting from earth movement or earthquake.

Earthquake forms are adopted by individual states and differ accordingly.

Earthquake forms usually have multiple deductibles, often expressed as a % of the involved limit of coverage.

Coverage Verification Process

Review all endorsements

before: Reaching any coverage

conclusions, or Establishing contact with

your policyholder.

Be Aware...

Each of a policy’s coverages has its own deductible, usually a % of the amount of coverage, such as Coverage A.

Losses involving Coverage A, Coverage B, and Coverage C will involve separate deductibles for each.

Avoid Bad Faith Accusations

To avoid bad faith accusations, apply coverage in ways that benefits the insured.

For Example...

Is an in-ground pool an APS? Or is it part of the building since it is connected by a patio and plumbing system?

Glass breakage may be better covered under a basic policy versus an earthquake form.

Follow the UTPA

UTPA - Fair Trades Practices Acts

Keep a current copy of the state’s Fair Trades Practices Act.

Follow its letter and intent.

Lessons Learned From Quakes

As a result of reactive-adjusting responses, many losses became “long-tailed files.”

Long tailed files are costly to conclude and often involve litigation and insurance department complaints.

In nearly every case, the initial adjuster investigation and accounting of loss proved to be inadequate.

A Typical Reactive Adjusting Response

An adjuster limits the loss inspection and notation only to items and areas shown by the insured.

The adjuster then assumes the claim is below the deductibles and is happily off to the next loss.

Don’t Assume That...

Earthquake losses tend to have large, multiple deductibles.

Earthquake damage can be subtle, yet extremely costly to repair.

Example: Cov. A deductible $15,000 Cov. B deductible $1,500 Cov. C deductible $12,000

The Loss Will Not Exceed Substantial Deductible:

Suddenly! Six Months Later...

A big claim arrives.

It involves reported damage that the adjuster failed to inspect, photograph, videotape, diagram, summarize, or otherwise note.

Often, the repairs are completed!

Earthquake Story - The Phoenix Business Group

Consumer Advocacy Services

Northridge Earthquake -

“A family thought they had only ‘cosmetic’ damage to their home…. The building inspector tagged their home green…. Their insurance company sent out an engineer who, after a one hour inspection that did not include entry into the crawl space or attic, reassured them the damage was ‘cosmetic.’

* An excerpt from their web-site: www.consumer-protection.com/cosm.html

Earthquake Story (continued)

“The adjuster informed them they would receive a check for $6,500 within the next 60 days, reflecting their $10,000 deductible. As time passed, they began to worry. At night the roof groaned. The upstairs floors were squeaky and wavy, resembling a fun house. Windows that worked before the EQ were now stuck and would not open.”

Earthquake Story (continued)

“A contractor and an engineer performed a subsequent inspection and found the following damage after the claim had been ‘settled’:

The foundation wall under the house had 11 vertical cracks, ranging from hairline to 3/8 in. wide.

North wall with stuck windows was out of plumb. Stucco on the north wall hung like a curtain, disconnected from the wall.

Rafters were no longer attached to the ridge beam. Four rafters separated and sunk by four inches, pushing the north wall out.

The fireplace with no cracks in the fire box sheared beneath the roofline. The chimney could have been pushed over by hand.”

Earthquake Story (continued)

“The contractor estimated the real cost of repairing the damage was not $6,500 plus the $10,000 deductible, but was close to $160,000!”

Make Time to Listen

The insured has a need to tell their story. Make notes and compare the insured’s account of the

EQ with the Modified Mercalli Scale. Give the insured the opportunity to show you around

the property and to point out his or her observations of damage.

Note the type of damage the insured points out. Fresh cracks, painted over cracks, old damage

Photograph All Damage

Take photos of the damage that the insured points out.

This helps document the insured’s perspective of as they present their claim.

Note Any Unusual Smells

Natural gas Sewer gas Earth/dirt Note suspected source. Document with photos and

samples. For example, dirt entering through cracks in wall.

Watch Out For:

Breached containers

Dead animals

Open or exposed septic systems or drain fields

Exposed fireproofing or insulation

Check Mechanicals

Run all faucets.

Check for gas smell.

Run furnace and A/C.

Check gas meter to see if it’s running fast.

Check washing machine and dryer, including run spin cycle.

Look for sagging pipes, broken hangers, tension in lines (stretched or sagging).

Septic Tanks and Leach Fields

Look for signs of earth movement or collapse, including sand boils.

Check for evidence of leakage or a failure of the system to properly drain, such as wet spots on the ground.

Check all drains, including storm drains, for proper drainage (use a garden hose, if necessary).

You may need to run a percolation test.

Percolation Test

A measure of the soil’s ability to allow the flow of water through its content.

For example, soil with high clay content usually has poor percolation.

Following an earthquake, the soil condition sometimes changes through compaction or loss of sand through sand boils. This can not only plug the drain field; it can also dry an entire well.

Wells

Check for evidence of bent well pipes. (Is pipe above ground plumb?)

Inspect holding tank, especially all fittings leading from well head to holding tank.

Test the holding tank to see if it can maintain pressure for at least one hour.

Check to see if the water table been affected by the earthquake.

Be Thorough

Photograph/videotape all areas inspected.

Inspect chimney and fire box, including flu and cap.

Inspect and make note of findings in every room, closet, and all spaces such as attics and crawl spaces.

Ask to have closets and storage areas cleared in advance of your inspection.

Take Notes

Use proper and accurate terminology.

Note the direction of crack movements.

Check all surfaces for plumb using a level and note your findings.

Note and specify the type of construction using proper construction terminology.

Always note the type of material used in the construction of the inspected component.

Note Integrity of Structure

Site down walls to check for bowing - photograph all observations.

Measure all separations of framing members, specify location, and photograph.

Check all exposed framing joints. Destructive evaluation may be necessary. Note all exceptions as well as normal conditions.

Structural Integrity - Attic

Are rafters tight on each end?

Note presence and condition of knee braces and collar ties.

Note broken roofing members, if present.

Note use of heavy cladding such as multiple layers of roofing since this can cause bowing and broken framing.

Structural Integrity - Doors and Windows

Open and close easily? Condition of paint: Are there signs of wear? Check general condition of each.

Weather Stripping Glazing Sill Conditions Plumb and Square

Binding doors and windows will require removal and re-installation.

Don’t Smoke!

Don’t allow anyone to smoke in your presence - even if the insured is in their own house.

Warning!Gas leaks are common and can cause explosions weeks after the EQ.

Watch Out For:

Latent sprinkler and plumbing system leakage

Foundation damage in crawl spaces, building support posts, and columns

Changes in the shape of roof structures

Follow the Same Inspection Routine with Each Loss

Take your time! Go room-by-room and make a detailed list of all damage.

Note: What was discussed with insured or contractor. All old damage that involves cracks, uneven floors, walls and

ceilings, and any related patches or repairs.

Make: Diagrams of interior and exterior and show the nature and

direction of the earth movement in relation to the building.

Take a Video of the Entire Risk

Include all damage and videotape areas that are not involved in damage.

Tape is cheap.

Later conflicts without proper documentation can be very costly.

Take Photos of Everything...

Including undamaged property. Always make the first photo of your loss documentation

series an identifying photo (One of the front of the building showing street number and other identifying characteristics.)

After Photo #1...

Document the loss location.

Take a sequence of photos for the same loss and risk.

Follow the same photo pattern with all inspections.

For example, exterior foundation, exterior walls, roof system, grounds, interior foundation.

Look For:

Signs of sinking or rising on the exterior corners. This type of damage can be subtle, but can cause roofs

to leak, cracks to form in walls, and window glass to break for several months after the quake.

This type of Earthquake-related movement can cause stress cracks anywhere along the length of the foundation wall.

Avoid...

Trying to accomplish too many tasks at once: Adjusting, Estimating, Coordinating, Hiring experts.

The likely outcome is hasty inspections and incomplete documentation of loss and adjusting events.

Plan

Allow enough time each day to complete all paperwork generated by your daily adjusting activities.

Complete correspondence Attach photos to proper files Process payments and reports

Daily Routine Promotes Efficiency

Each evening:30 minutes to plan the next day’s schedule.

Each morning:15 minutes to review the daily agenda.30 minutes to communicate as needed.

Keep Current with Paperwork

Dedicate time to do paperwork only. Avoid telephone calls with paperwork. Take time every day to organize files and related

documentation.

Organizational Tips

Integrate new assignments into your contact and inspection schedule on a daily basis.

This gives critical claims the attention they need at the earliest opportunity.

Plan communication breaks throughout the day. This avoids time loss from cancelled appointments and

missed opportunities to discuss mitigation or restoration options.

This also discourages unilateral actions by insureds.

Resist the Temptation

Don’t over-schedule inspections in order to meet the high demand for your presence at loss locations.

Incomplete inspections are usually more damaging to the adjustment process than delayed inspections.

Map Your Inspection Route

Plot your inspections on a map several days in advance whenever possible.

Review your course each morning before leaving for the field.This saves time and promotes road safety.

Create or Secure...

A list of all necessary service providers including: Experts Utilities Municipal authorities Restoration contractors Relief agencies Information resources: PLRB, USGS

Share Your Lists

The best way to save time and money when in need of special services or information - absent a company-wide pre-approved, updated, and distributed list.

When Estimating Damage...

Have supporting documentation for your estimate. This may mean getting an agreement with a qualified

contractor, engineer, or related expert. Don’t just write an estimate and move on; expect to be challenged.

Identify and Separate the Issues

Tenability Use of experts Status of utilities Building security Emergency repairs Exposure from aftershocks Building code requirements Scope and cause of damage Most appropriate repair methods Necessity of exploratory removal of wall or ceiling coverings

Utilizing Experts

Get the right expert for the job. Involve the expert at the right time. Provide comprehensive assignment parameters. Communicate regularly.

Types of Experts

Architects Civil engineers

Failure analysis engineers

Building contractors

Building code experts

Mechanical contractors

Soil experts

Excavation and concrete contractors

Matching Experts to Needs

Match the appropriate expert with the situation.

What Architects Do:

Identify building design flaws.

Create designs to accommodate code retro-fits.

Evaluate extent of structural damage.

Create or review blueprints.

Repair plans or diagrams.

What Civil Engineers Do:

Analyze: Soil condition Foundation adequacy/stability Building superstructure design Repair methodology Concrete testing Settling vs. Earthquake

Failure Analysis Engineers:

Experts in: Strengths of materials Failure probabilities Fastening systems superstructure failures

Answer Two Critical Earthquake Questions: Did it break as a result of an earthquake? Is it likely to fail as a result of the earthquake?

Building Contractors:

Provide: Alternate repair methods and approaches Job cost analysis and verification Partial-removal services for later inspections

Answer the Two Critical EQ Questions: Is the repair estimate reasonable? Can you expose the framing?

What Building Code Experts Do:

Verify applicability of building codes. Write code-complying specifications of repair or

restoration. Negotiate with municipal and state building authorities.

Answer the Important EQ Quesiton: Is this code requirement valid under the circumstances?

What Mechanical Contractors Do:

Evaluate design

Recommend appropriate repairs

Identify defective design or workmanship

Analyze impact of EQ on electrical and plumbing systems

What Soil Experts Are:

Geologists

Excavation contractors

Microzonation cartographer - creates maps of soil conditions

Typical Engineer Qualifications:

Professional Engineer (P.E.) An earned designation apart from the degree.

College and University Degrees Verify that the degree relates to the field of seismology,

soil conditions and stabilization, and building/structure safety and design.

Professional Engineer Designation:

Requires: B.S. in Engineering

From an accredited college or university. Licensure

Laws vary from state to state and are exclusively under the control of individual state legislatures. Licensure laws for professional engineers require: Graduation from an accredited engineering curriculum, Four years of responsible engineering experience, and The successful completion of a written exam. Some states may waive the written exam based on education and experience, but the trend is an examination requirement.

Communication:

Between Adjuster and Loss Principles Needs to Focus On:

Objectives of investigation Scope of work to be done Use of standard reporting format, and Follow-up, which must be scheduled and executed on

time.

Initial Telephone Contact

Obtain a brief description of the damage to the property

Ask if the quake damaged property such as: Out-buildings Fences Trees Decks Swimming pools

Note the damage that could lead to additional loss if temporary repairs are not made.

Initial Contact (continued)

Let the insured describe the damage before discussing any immediate, temporary repairs.

Do not distract insureds when they describe the damage.

Help the Insured...

Develop a plan of action to resolve the claim:Vital initial contact includes:

Necessary emergency repairs To protect the property from additional loss or to restore tenability are the first priority.

Clean up of debris The next priority.

Restoration of utilities Likely to involve an inspection of the building’s plumbing, gas, and electrical systems by a utility or qualified expert.

Develop a Plan of Action...

During the initial telephone contact: Specify what needs to be done by issue and proposed

action. Include a list of repair/restoration firms and their phone

numbers. Explain how the insured can secure competitively priced

repair estimates in light of a shortage of service providers.

Insureds Are Under Stress

And often have post-traumatic stress syndrome.Symptoms include:

Inability to understand requests for information Distraction Depression Unwarranted anger directed toward adjuster Failure to take action

Reduce Policyholder Stress

Take your time. Separate and clarify the issues. Include recommended deadlines for action. Offer a brief, written summary and to-do list for the

insured. Encourage the insureds to repeat their understanding of the

information you have presented.

Other Stress Reducers

Take your time to listen. The insured has a need to tell their story to an authority

figure - the adjuster.

Identify solutions to any pressing problems.

Give the insured meaningful tasks: Locate repair services or meet with experts.

Learn Local EQ Safety Building Codes

Earthquake safety building codes include: Added wall bracing Heavier foundation construction Knee-wall bracing Roof-truss bracing and special fasteners

Work with Local Building Officials

Obtain details supporting the “tag condition” of the building.

Separate actual damage from building code retro-fit requirements.

Summary

Personal safety following an earthquake requires substantial preparation including:

Proper personal equipment. Familiarity with the local geography. A list of all involved public safety authorities. Constant alertness to potential hazards.

Summary (continued)

Be aware of the possibility of aftershocks. Do not enter unstable structures. Consider working in two-person teams. Before making a detailed inspection, conduct a general-

loss, scene-safety inspection to identify potential hazards (such as overhead damage to chimneys).

Gain an understanding of the type of construction for a given neighborhood.

Summary (continued)

Earthquake coverage must be endorsed onto the policy. Coverage usually involves individual deductibles for each

classification of property, often expressed as a percentage of limits of coverage.

Thorough, well-documented initial contact with insureds is essential, including a comprehensive review of coverage and policy terms and conditions.

Summary (continued)

Develop a plan to resolve the claim: Identify:

- Damage- Suspected damage - Possible damage

Involve experts, as needed, at the earliest opportunity. Provide clear assignment parameters.

Establish an agenda of priority tasks to resolve the claim. Communicate it in writing to all parties.

Summary (continued)

Allow adequate time for each inspection. Include a comprehensive review of coverage and adjusting

issues with the insured. Develop a standard routine for initial contact and

inspections to avoid missing important details and loss documentation.