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Last Post 09/15/2008 7:38 PM by  Leland
Proximate cause of loss
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wscook
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09/13/2008 10:15 AM

    Can a flood cause a fire that would cause  flames to total loss to a famous restaurant that has wind, flood, and fire coverage?

    Assuming flood limits are paid and exceeded can the insured then collect any remainder loss from the fire coveage policy?

    If it is determined that wind blew the roof off prior to the fire and water soaked the BPP will wind coverage apply to the structure and BPP?

    Will BI coverage apply to loss caused by Flood if fire coverage provides BI coverage?

    What about O&L coverage?

    One can never tell when something like that may happen.!!

    William S Cook

    Public Adjuster

     

    William S Cook Public Adjuster/Umpire/Appraiser
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    sbeau4014
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    09/13/2008 10:46 AM
    Yes
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    sbeau4014
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    09/13/2008 10:52 AM
    I would be very liberal if I were that carrier in the scenerio you mentioned, and they better have an engineer give them a very detailed report on the probability of what damages may have been caused by what peril, etc. Those are the fun kind of claims to work, unless you are working for a carrier that takes the approach if flood waters touched the building, nothing is paid (at which time it makes it fun for you to work it William).
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    Medulus
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    09/13/2008 10:59 AM
    It would depend on the policy, William. Since you are talking about BI(business interruption) rather than ALE (additional living expense), I assume you would be dealing with a commercial policy. It is not possible to tell what is covered and what is not without knowing all the forms associated with the policy. But, generally speaking, a commercial policy that excludes flood will still pay for fire that is the result of flood. Though the BI from flood would not be covered under a fire policy, the reality is that the business income loss from fire and from flood may be impossible to distinguish.
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    wscook
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    09/13/2008 12:42 PM
    Thanks Steves
    William S Cook Public Adjuster/Umpire/Appraiser
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    Tom Toll
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    09/13/2008 4:11 PM

    Bill, if this building caught fire as a result of an electrical short during the flood event, it will be easy to distinguish that portion that was flood and that which was fire. Fire will not burn under water. If fire occurred and BI is contained withing the policy language, then you would have coverage for BI.

    Success is not final, failure is not fatal: it is the courage to continue that counts.
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    Leland
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    09/13/2008 4:27 PM
    One of the problems in adjusting a BI loss of this type: lets say hypothetically the fire destroyed the kitchen and would ordinarily take 3 months to repair but due to the chaos of the storm, slowdowns in permitting etc, it would take 4 months to repair just the part burned by fire. The water loss, however, knocked the building off the foundation and that actual damage will put the restaurant out of business for six months. The resturant owner decides to modernize the kitchen and make a long awaited expansion which he fully admits will another 1/2 month to the rebuild process.

    Would you allow for 3, 3 .5, 4, 4.5 , 6, or 6.5 months of BI loss? Why?

    Also, say if this was a unique ethnic restaurant with unusual recipes. The head chef is the only person around for miles that can prepare this food. The restaurant owner continues to pay the salary of the chef during the reconstruction period. Would you consider this ongoing expense in your BI calculation?

    Next question: while you are inspecting the loss the local Restaurant Inspector, Fire Chief and the local FEMA director stop by. They tell the business owner that they would like him to set up a sandwich making operation in the parking lot and he won't have any code issues due to the situation. They need $600 of sandwiches prepared every day for the 1st responders. The owner refuses because he says he wants to go on vacation during the rebuild. Does this factor into your BI calculation: YES NO, MAYBE.
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    Roy Estes
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    09/14/2008 1:28 AM
    Posted By william cook on 09/13/2008 10:15 AM

    Can a flood cause a fire that would cause  flames to total loss to a famous restaurant that has wind, flood, and fire coverage?

    Yes, and it would be best to consult an cause and origin engineer to determine C&O of fire, so there are no questions, and an expert POL.

    Assuming flood limits are paid and exceeded can the insured then collect any remainder loss from the fire coveage policy?

    Yes, as long as the cause and origin of loss was determined to be a covered loss under the fire coverage policy.

    If it is determined that wind blew the roof off prior to the fire and water soaked the BPP will wind coverage apply to the structure and BPP?

    at this point, you are dealing with all 3 policies, Flood, Wind and commercial in which case you will need to determine as best as possible the damages, and cover as such. If you can get an agreed scope of loss with The Adjuster and segregate the damages as to the policies, Agree on coverages and endorsement, this would greatly enhance the claims, and settle in a timely manner. (Just thought i would throw that one in ... sorry)

    Will BI coverage apply to loss caused by Flood if fire coverage provides BI coverage?

    Steve has kindly offered.

    One can never tell when something like that may happen.!!

    Would be a nice claim for sure. Unfortunately for the Business owner, and carriers.

    William S Cook

    Public Adjuster

     

     

    "Each of us as human beings has a responsibility to reach out to help our brothers and sisters affected by disasters. One day it may be us or our loved ones needing someone to reach out and help." RC ESTES
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    Roy Estes
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    09/14/2008 1:41 AM

    Posted By Leland Coontz on 09/13/2008 4:27 PM
    One of the problems in adjusting a BI loss of this type: lets say hypothetically the fire destroyed the kitchen and would ordinarily take 3 months to repair but due to the chaos of the storm, slowdowns in permitting etc, it would take 4 months to repair just the part burned by fire. The water loss, however, knocked the building off the foundation and that actual damage will put the restaurant out of business for six months. The restaurant owner decides to modernize the kitchen and make a long awaited expansion which he fully admits will another 1/2 month to the rebuild process.

    Would you allow for 3, 3 .5, 4, 4.5 , 6, or 6.5 months of BI loss? Why?

    In this case Leland, Coverage on BI loss would be for the 6 mos, and not the other 1/2 month, As Policy only covers Loss not enhancement time ... Only owe LKQ 

    Also, say if this was a unique ethnic restaurant with unusual recipes. The head chef is the only person around for miles that can prepare this food. The restaurant owner continues to pay the salary of the chef during the reconstruction period. Would you consider this ongoing expense in your BI calculation?

    Unless there is a "KEY EMPLOYEE" endorsement (Which is rare) NO coverage afforded.

    Next question: while you are inspecting the loss the local Restaurant Inspector, Fire Chief and the local FEMA director stop by. They tell the business owner that they would like him to set up a sandwich making operation in the parking lot and he won't have any code issues due to the situation. They need $600 of sandwiches prepared every day for the 1st responders. The owner refuses because he says he wants to go on vacation during the rebuild. Does this factor into your BI calculation: YES NO, MAYBE.

    NO, Policy only covers "TYPICAL BUSINESS" which in Mr. Cooks scenario is a "FAMOUS RESTAURANT" and unless he has setup and sold sandwiches as part of his 'TYPICAL BUSINESS" arguably I'm sure, No effect on BI, wether he accepts or rejects offer from FEMA or whomever.

     

    "Each of us as human beings has a responsibility to reach out to help our brothers and sisters affected by disasters. One day it may be us or our loved ones needing someone to reach out and help." RC ESTES
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    wscook
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    09/14/2008 10:47 AM

    Thanks to all who responded.
    The scenario came to mind while seeing that Brennan's Restaurant in Houston was totaled by fire during the height of the storm. Firemen had to abandon their hose at the scene to go to safety. The structure was consumed by the fire so a C&O man will have a sincere test of his skills.
    Today I was watching MSNBC and they showed an elevated home that was collapsed by flood and wind. The interesting part is that it floated or blew off-site and the upper portions of home was entangled with the base of the neighbors elevated home that was well above the flood water line (no apparent flood damage) but appeared to be is serious distress probably caused by the pounding wave action of the partially collapsed house of his neighbor's home. Since the OK home had no direct physical water damage by flood waters it would appear to me that the homeowner policy will have to respond to damages caused by collision with a house.
    In all probabilities the evidence that paints the story of what happened to cause damage to the dry home will be long gone and the property owner Will not have the benefits associated with an HO3 policy.
    Just another rambling observation to entertain inquiring minds.
    William S Cook
    Public Adjuster
    in Orlando

    William S Cook Public Adjuster/Umpire/Appraiser
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    Roy Estes
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    09/14/2008 12:16 PM

    Good brain Teasing Mr. Cook. Thanks

    "Each of us as human beings has a responsibility to reach out to help our brothers and sisters affected by disasters. One day it may be us or our loved ones needing someone to reach out and help." RC ESTES
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    rbryanhines
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    09/14/2008 1:31 PM
    I agree with Roy. Calculate the amount of time needed in current market to perform repairs for covered damages only. If the carrier only covers the fire damage then the time required(BI) for flood damages and enhancement repairs would not be covered. Then apply BI limits!

    I have worked claims like the one mentioned above where the carrier followed the exclusion "directly or indirectly damaged by flood" and would not cover the fire. Then again other carriers have covered with the same verbage in their policy.

    Ray, will probably remember years back when the SJ river flooded. During this event gas lines ruptured and caught on fire. These fuel fires floated down stream and burned many homes that were already flooded. We covered the flood. Denied the fire on the HO policy and everyone filed claims against the gas company.
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    sbeau4014
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    09/14/2008 1:48 PM
    Don't have any policy info here, but don't most property policies have some language in them about excluding flood, but if an ensuing fire caused damages, the policy will pay for the fire damages? As to the restaurant fire, I was thinking that the fire burned it to the ground. Any flood damages to the property would be irrevelant if that were the case as the BI time element would be the time estimated to completely rebuild and get up and running, unless there is a timeframe in the policy that is shorter then that.
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    Leland
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    09/15/2008 12:54 AM
    Just to clarify the thinking behind the hypothetical I proposed: It is possible to have two different reconstruction periods for BI loss. If part of a building is damaged by fire and part damaged by flood it is possible to have a reconstruction period for the flood that is different (longer or shorter) than the fire repairs.

    This is similar to the concept on an HO3 policy that if the home is uninhabitable due to flood (not coverd by the HO3) , ALE would not be owed unless it would also be uninhabitable due to the wind damage (or other covered peril) alone.


    If it takes one month to fix the fire damage the adjuster working that claim should probably not allow a longer BI loss just because the property is also damaged by a peril (flood) covered on some other policy.

    It may also be appropriate in some cases to adjust the interruption period for delays caused by the insured, which are not reasonably related to getting the business back in operation.

    Another example, a building is rented to 7 tenants with 7 separate units, there could be 7 separate time frames for reconstruction, some longer, some shorter. It would be appropriate to make up to 7 different calculations for the lost rent.

    As far as salary to the Chef not being a compensable BI loss as a continued expense I respectfully disagree: he does not have to be a "key man".

    Even union laborer payroll can sometimes be a continued expense:

    "Many union contracts provide that if employees are not notified a specified amount of time prior to their shift to stay home, they must be paid for a minimum number of hours. Insurance companies will generally cover this cost, as long you provide them with a copy of the union contract."
    (Source- Louisiana Insurance law.com)

    Key man is a whole separate business coverage. From Wikipedia: "Keyman insurance is an important form of [1]. There is no legal definition for Keyman Insurance. In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of the member of the business specified on the policy. The policy’s term does not extend beyond the period of the key person’s usefulness to the business. The aim is to compensate the business for losses and facilitate business continuity. Keyman Insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified on the insurance policy."

    The salary to chef could be a legitimate continuing expense because if the Chef were to leave for another job and not be available when the restaurant repoens that would signifigantly hurt the business. If the insurance company can show that there are many other qualified applicants that can provide the same skills then that portion of the claim might be denied.

    As far as my sandwich preparation example I am leaning towards agreeing with Ray but I need to reread the policy. The insured generally has a duty to mitigate the business income loss by keeping the doors open or even partly open, but I think Ray may be right that he can't be expected to start a sandwich business if he was in the fine dining business.

    Maybe somebody can post what the CP policy says about BI losses.

    I would also like to mention regarding cause and origin investigations on the fire loss that this is MORE likely a good idea if the property did not have flood insurance. Also always find out if there was any recent electrical or other work done on the property....



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    Leland
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    09/15/2008 7:38 PM
    Mr. Beaumont, yes that clause does exist. From one of my commercial polices:

    [exclusions] "Water.....unless fire or explosion as insured against ensues, and then the Company shall be liable for only loss or damage caused by the ensuing fire or explosion; but these exclusions shall not apply to loss or damage from theft."

    Just to be sure I understand this correctly I looked up the word "ensue". I always hear about "ensuing damages" such as the drywall and baseboards getting wet after a slab leak. (Some carriers will not cover a slab leak if the only damage is the slab leak itself, with no "ensuing damages". )

    Ensue: to take place afterward or as a result

    So using this defintion, the fire does not have to be causally related to the flood. It just has to happen after.
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