The tragic fire losses experienced by Colorado building owners and homeowners raise a number of questions that need to be answered by many members of the design and construction industry.
From the standpoint of involved members of the industry, one of the main questions is: Will owners have sufficient funds to pay for reconstruction or remediation of their properties?
One of the first places to look is the owner’s insurance coverage. If that coverage is not adequate or not properly pursued by—or on behalf of—the owner, and if the owner does not otherwise have funds to complete the work, those who supply labor, services, equipment and materials may have problems getting paid.
Although it’s in the owners’ interest to determine their insurance coverages and take the steps to ensure that the full amount of their legitimate claims will be paid by insurance companies, it may also be in the interest of their contractors to assist the owners in those efforts. So here’s what contractors should know and perhaps do about fire insurance coverages.
Step one is to read the owner’s insurance policy. Basically, there are a number of questions to be answered: (1) Is there coverage for fire?—most homeowner’s and building owner’s policies do cover fire loss; (2) Does the particular policy pay the depreciated value (“actual cash value”) of the loss or full replacement cost? (3) How much is the deductible; and (4) What steps need to be taken to get the owner’s insurance company involved and get full recovery for losses?
If insurance coverage is not sufficient and the owner is otherwise without funds to pay in full, mechanic’s lien claims by contractors may not help because of the likelihood that lenders have prior lien rights applicable to the land upon which destroyed homes or buildings once stood.
The best assistance contractors can provide to home and building owners is a reasonable estimate of reconstruction or renovation costs. For renovation claims, those estimates should carefully consider the full extent of the renovation, taking into account not only physical damages from the fire but also heat- and smoke-related damages.
For example, carpeting may not have been touched by the fire, but the smoke damage is probably irreparable. Similarly, cabinets may not have been burned, but the heat may have caused warping, delamination or similar damages. It is not unusual for insurance adjusters to allow claims for replacement of what may be considered otherwise indestructible items such as bathtubs, wall tile and sinks, among others.
It’s also helpful for contractors to know that most insurance adjusters use the Extamate program to determine costs, but the costs in that program may or may not be sufficient, depending upon local circumstances. For example, because hundreds of homes need to be rebuilt, material prices increase from supply shortages. Also, insurance adjusters’ estimates may not take into account delivery costs of materials to the mountains or remote areas. Therefore, contractors should be prepared to justify their cost estimates to insurance adjusters.
If there is a dispute between insureds and their insurance carriers over coverage issues or claims amounts, most policies provide for arbitration to resolve those disputes. Under those provisions, the owner designates an appraiser, the insurance company designates an appraiser, and the two appraisers together select an umpire. That panel then investigates the circumstances and likely conducts a site visit, particularly if just renovations are involved.
They consider whatever evidence either party may present through documentary or witness testimony and ultimately reach a decision on the claims. That decision is final and binding upon both the insureds and their carriers. This is another area where contractors may assist owners in their insurance claims with supporting cost and other evidence—and themselves in assuring there will be funds from which to get paid.
Owners should also be aware of the fact that under Colorado law, insurance companies that wrongfully delay or deny payment of claims may be subject to payment of double the amount of legitimate claims, plus attorneys’ fees incurred by insureds in recovering those claims.
It is incumbent upon the construction community to assist the victims of these horrible tragedies. That assistance should involve the willingness to rebuild and renovate at reasonable prices, provide assistance with insurance claims, help police contractors and suppliers who may take advantage of the circumstances and otherwise help victims rebuild their houses and buildings, and, hopefully, their lives.
I am proud to report that the Colorado Bar Association is doing its part as well in asking lawyers to volunteer to answer legal questions from victims who would otherwise be unable to pay legal fees. The bar association assistance number is 1-800-332-6736.
We all need to pitch in and help. Feel free to contact me if you know of any fire victim in need of legal assistance that he or she cannot afford. Either a member of my firm or I will help them.
Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison P.C.