Duties To Preserve Property

Most insurance policies contain specific references to a duty to protect property from further harm. It may be called a Neglect provision or Preservation of Property; regardless, insurance companies rely on their policyholders to comply with the obligation. A policyholder’s duty can be categorized broadly in two areas. First, we’ll discuss aggravating a loss:

Loss Aggravation

Here’s an example. After closing time, a small fire breaks out in Jenny’s restaurant. The fire started in the kitchen’s storage area. First Jenny orders her entire staff out of the building. Then, she arranges a roll call to be certain that everyone is safely accounted for. Finally, she makes a call to the Fire Department. All the while, she stops anyone from reentering the restaurant to attempt to extinguish the fire. As it turns out, the fire spreads from the storage area and into the kitchen, severely damaging the heart of her restaurant. After investigating the loss, Jenny’s insurer reduces her claim payment by $10,000. The lower payment is justified by their finding that the loss would not have been nearly as severe if Jenny had allowed her staff to use the available fire extinguishers and had made the emergency call more quickly.

Policy wording with regard to the duty to protect property typically notifies the policyholder that he or she is expected to take any and all available measures to save or preserve property in the midst of a loss. This does leave room for interpretation, but the obligation does fall comfortably in between the extremes of using heroic measures and failing to make any effort to protect property. A failure to meet the obligation can result in either a partial or, in extreme instances, a total denial of coverage for a given loss.

Here’s another example. The Laggleson family goes outside to check for any damage to their home after a violent windstorm. Besides a lot of scattered debris and an overturned patio set, they notice that a large limb from their Chinese Elm was blown onto their roof, creating a large gash. Several hours later a rainstorm comes through the area. The rain that pours through the hole damages expensive furniture stored in the attic as well as ruins the drywall belonging to the bedroom located beneath the compromised attic.

Scenario One – the initial damage occurred early on a Thursday morning with the storm occurring in the afternoon. The Lagglesons decided to go on to work and school and to handle things after returning home.

Scenario Two – the initial damage occurred on a Sunday morning, around 3 a.m. with the storm occurring around 6 a.m. The Lagglesons made several frantic calls but could not find anyone willing to come out to their home to deal with the open roof until Monday morning.

In both scenarios a failure to preserve the property after the initial loss created additional damage. However, it is only in the first scenario that the policyholder may suffer a consequence.

A policyholder’s duty to protect property extends beyond the occurrence of a loss. The duty may become more important for property involved in a liability claim. Insurers may take adverse action if their rights are significantly harmed (prejudiced) by policy holder decisions.

Example: a theft occurs and valuable property belonging to guests is among the items lost. The policyholders lose documents given to them by their guests that would’ve assisted in establishing the lost property’s value

Example: A home and its contents are severely damaged during a windstorm. The policyholders, in a hurry to set things to order, have a salvage company clean the area and haul away damaged property before the insurer can inspect it.

Actions such as the above may seriously affect an insurer’s ability to adjust losses or defend claims. How? It is because their handling spoiled the ability of the property to serve in either establishing a proper loss amount and/or in the ability to establish liability for a loss. Taking the proper post-loss steps in handling property is an important duty.

If you need more help in understanding your responsibility after a loss, be sure to discuss your concern with an insurance professional.

COPYRIGHT: Insurance Publishing Plus, Inc. 2016

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