THE IMPORTANCE OF SETTING OBJECTIVES RESIDENTIAL LOSSES: THE BUILDING - SELECTIVE DEMOLITION
When fire strikes a home severely the result is financially devastating. Charred
remains, melted and soaked building components and personal property, smoke residue
ranging from being thick and greasy to light dust covering everything tell a story of
hundreds of thousands of dollars worth of loss. The financial devastation is obvious to
even the untrained eye. The emotional impact is less obvious. To a casual observer
the emotional impact the destructive forces of the fire has had upon the owners of the
property may not even be considered since the visuals of the physical destruction is all
consuming. Family and friends of the victims of a severe fire will offer their support
and the trauma appears to subside but in fact it percolates below a brave facade.
Wow! It's a good thing we have insurance.
What do we need to do? We've been placed in alternative accommodations. We've
been given assurances by the adjuster that they will take care of everything. We've
been advanced some money.
It's a good thing we have insurance.
Indeed it is a good thing you have insurance. However, there is a strategy being
executed by the insurance company and their representative as you contemplate your
circumstances and attempt to deal with the emotional impact. The strategy is largely
designed to control the insurance company's financial exposure for the loss and an
insured will not be invited to participate in this.
With respect to the building the strategy initially involves having a restoration company
produce specifications for repair. However, in severe losses the restoration company
will likely complete the selective demolition under the guise of emergency repairs.
Selective demolition is very labour intensive and consequently can be very expensive to
complete. The restoration contractor may also complete repairs or complete some
temporary measures to protect the house from the elements, again under the guise of
emergency repairs. The insurance company's adjuster will then request that the
restoration contractor provide a quotation to complete the work outlined in the
specifications and the adjuster likely circulate the repair specifications to other
restoration contractors and request that they also provide a quotation.
So far so good; things are underway.
Yes but the money the insurance company advanced is running low and we were told
that we won't get another advance until we complete the bulk of our Schedule of
Personal Property Loss.
I know and we're being pressured to find less expensive accommodations.
The tenders should reflect the specifications for repair. If the repair specifications are
weak and left open to interpretation, the quotations will probably not be competitive.
The insurance company however will generally take the lowest bid and rely upon it as
the fair and reasonable representation of your loss. In severe loss situations though, the
cost to repair the house could approach the cost to replace the house new. The
insurance policy will define "replacement cost" essentially as the lesser of the cost to
repair or the cost to replace.
I had no idea it would be that expensive to repair our house.
I know and I checked the cost to construct new and it's not significantly more than the
cost to repair. We could have afforded to do it.
But the restoration contractor has already started the repairs. Is it too late to stop
I think so, but I'm not sure. But I know this, the cost of the selective demolition was
over I0% of the repair cost and we could have used most of that towards constructing
new since the cost of a total demolition would have been a fraction of that cost.
Being emotionally traumatized and then being placed in an environment that an insured
has no prior experience with can lead to undesirable results. Construction using the
existing foundation only is considered new construction and it may likely be that a
homeowner is in a better position of value compared to a repair even after consideration
of using some of their own money. However, the further along the loss adjustment
path an insured goes before they realize this, the less sense it makes financially to alter
So what is the solution? The solution lies in setting objectives consistent with the extent
of the loss and the intent of the insurance policy. The objectives need not be concrete
initially; only that they are held open as options which can be narrowed down as
information about the loss is accumulated. Further, it is obvious from the above
scenario that objectives should be formulated as soon as is possible following the loss.
It may be best to seek advice from a knowledgeable public adjuster. Be sure to speak
with that person in terms of settlement options and potentials in terms of what you
would like to see happen.