View Full Version : O. T. Commercial Property Insurance Mess – Anyone Been There?

05-25-2008, 09:51 PM
Hey Everybody

Well, I haven’t posted much since you all helped me with my air-conditioning dilemma, the reason for this is things took a turn for the worst exactly one week after I closed on the place.

To refresh your memories, I purchased an old 22’ X 80’ 2-story brick storefront on Main Street, was renovating the upstairs for living space and setting up my shop downstairs. Well, the adjacent building (a one-story structure) burned essentially to the ground, and my building suffered some small amount of fire damage (2 second story window casings), and extensive smoke and water damage, as well as a lot of damage incurred in the process of putting out the blaze (the most significant is the destruction of approximately 24’ of storefront glass.

My building was insured (for all of three days!), but because of the difficulty in attaining a replacement-value policy I had a real-value policy in the amount of $50,000.00……. Now before you all go off on me you need to understand that property here like this is inexpensive, a lot less than in many places in the country, trust me, I’ve lived in the Pacific Northwest, and I know it’s going to sound crazy, but I paid $16,500.00 for this place with a functioning livable upstairs with kitchen, bath, and bedroom, furnace up and down, central air on the roof, etc……. There’s no way I could come up with this kinda workable space by new construction for many, many times what I paid. Here’s where things are getting sticky.

My insurance has called it a “Total Loss” – meaning only that the value of my policy ($50,000.00) would not bring it back to the condition it was in prior to the fire (new false ceiling above and below, new carpets up and down, remove all plaster and sheetrock, new paint, re-finish all woodwork, new HVAC system etc). When this is the case, the property needs to be appraised and the insurance settlement will be for the appraised value or the policy limit whichever is less, at this time I haven’t learned of the appraised value. When I bought it my Bank didn’t require a complete appraisal do to the small amount of the loan. It’s unlikely that it will appraise for 50K which is a bit of an eye opener because for instance a 30K policy is a cheaper than a 50K policy, and they didn’t have any problem taking my premium for the 50K policy. I’d say that a replacement-value for the property would have to be somewhere in the 250K range, I really don’t know, this is a massive structure with full basement, 14’ ceilings on the first floor, 12’ on the second, anyway, that’s neither here nor there, trust me, if it were insured for 250K there’s no way in hell I’d be cashing a 250K check for a piece of property I paid 16.5 for and owned a week, I just don’t think the insurance companies work that way, this much I’m learning!

Hurdle 2:
This little town I live in ~1500 people, has no building officials of their own, and because this is a high visibility area – right on main, less than ½ block from the Post Office, the City Council brought in a Building Official from a neighboring community, because my brick wall is charred he “Questions the integrity of the wall” which was enough to bring out the barricades and shut things down. The building that actually burned will need to be demolished and then a Structural Engineer will need to give the thumbs-up or down on the wall, if it happens to be thumbs-down that means either the wall will need to be repaired or reinforced or the building will need to be demolished. This isn’t a quaint little happening Downtown, if it were the property would have been a lot more expensive, just a typical Midwestern small-town where most of the businesses have gone, or at least moved out toward the Bypass, so it’s not like they would like to grab onto the property because they’d like to see something else built there, if demolished it will likely be a vacant lot in the middle of the block for many, many years.

Hurdle 3:
The fire was of “Suspicious Origin” meaning that there is an ongoing investigation to the cause of the fire. The place burned on April 26th and there is another official investigation this Thursday – May 29th – more than a month has passed and no one has said SQUAT! The Insurance company for the place that burned is driving this second investigation, it appears as though they suspect arson, and I believe if that’s the case then they don’t pay anything. Now as I understand it if there is negligence involved then his insurance would have to cover my loss, but that’s the only case, and it would be “behind the scenes” anyway, as my insurance would pay me off, then battle the other company to recoup.

To put things in perspective though:
It might seem as though there is just so much damage to my place that it couldn’t be brought back, but the reality of it is that it’s not awful, the high cost is in “putting it back to the way it was”, but I had already planned a complete renovation upstairs, most of the plaster is already gone, the heating system was going to be moved and a lot of plumbing changes were going to take place, new floor coverings were planned. Downstairs most of the cost is the HVAC, glass storefront, false ceiling, and floor coverings. I wouldn’t replace the storefront, I’d simply frame up a nice wall with a modest window, plenty of insulation, vinyl siding, and maybe another opening for a big through-the-wall air conditioner. I doubt I’d drop the ceilings, I’d just have everything sprayed with rigid expanding foam insulation and paint it white, the false ceilings did little to keep the heat from going up anyway, a couple ceiling fans would help. I’d opt for a unit heater rather than the forced-air system that was in place and ducted through the false ceiling, I’d pull the downstairs carpet and tile (all on subfloor) and expose the original oak flooring (two layers of 7/8” tongue & groove) – that would be an ideal shop floor anyway.

So if anyone has been through this mess I’d appreciate any “words of wisdom” I’m about at my wit’s end because of the lack of information, and I’m trying to handle all this without getting an attorney involved simply because I’d like to think that I don’t need one – for Christ’s Sake, we’re talking about less money than most spend on a used vehicle!

Thanks for listening



05-26-2008, 06:09 PM
Sorry to hear of your misfortune and hope things work out.

05-26-2008, 06:33 PM
Sorry I can't help you with the government sanctioned organized crime but It sounds like it won't cost too much to get the place fixed up again. Sadly the idiot that inspected it put you out of your new shop for a while. Where I ask though can a person get a piece of property like that for a mere 16k? The downpayment on the house I just bought was a bunch more than that.

05-26-2008, 07:01 PM
The possible problem with the wall is very real. If the mortar has been sufficiently heated it has been dehydrated ( a chemical change, not just drying it out) which means it is essentially back to being rock dust. If that is the case the wall is basically just a stack of bricks.

For your sake I hope that isn't the case but if it is it isn't a line of BS.

Hey Tryp, you were going to post some pictures of your shop. Did I miss them?

05-26-2008, 09:35 PM
chandler, sorry to hear about your loss. I can't help with hurdles 1 and 2 , as to hurdle 3 , that isn't a hurdle because as you point out, your insurance co has to pay you unless you, or someone you hired , set the fire and so it doesn't make any difference if next door caught on fire due to an electrical problem or arson. You should check your policy to see if there is any other benefit you can get - while the overall limit, in your case, $50,000, can't be exceeded, it is common that there are an number of other expenses that will be covered on top of the appraised value ( you can be sure that the appraisal will be under $16,000 if you bought the building plus the land for $16,500 3 days before the fire, unless you can show your purhase price was below fair market - like if you were buying the property from a family member) So look through it carefully to see if it covers temporary repairs to secure the building, temporary storage of goods while the building is being repaired, personal property that is destroyed, or any thing else and keep your receipts, etc Barry

05-26-2008, 09:36 PM
16.5K$ for over 3500 square feet, where do you hail from?

My yearly insurance premiums for 2200 square foot office is over 25K$. Of course the lion's share is for professional liability insurance, but still ... 17% of my gross yearly income on insurance. What a bunch of thieves!


blood pressure off the end of the scale just thinking about it.

05-26-2008, 10:05 PM
Insurance is one of those things that you pay for hoping that you never have to use it.

Its not so much a matter of what it costs to have insurance but rather what it costs if you don't have it.

Any "excess" is effectively self-insurance.

Undertaking any work or making any agreements without the approval of your Insurer in the case of an insurable "event" can allow the Insurer to negate the policy and its liability - as can under-insurance.

Providing that the building can be re-instated, the local laws may require that it be brought "up to Code" in all respects and require the services of a professional Structural Engineer.

I'd be surprised if the fire suppression/monitoring/alarm and escape systems as well as the electrical installation/s did not need to be brought up to Code as well.

05-27-2008, 12:04 PM
Not quite right Oldtiffie. It is the responsibility and duty of the insured to "mitigate the loss". This means temporary roof repairs, boarding of windows, water removal, etc., are to done by the insured if the adjuster is not available,ie; middle of the night. If it can be sown that damage was due to failure to mitigate the loss, it will not be covered, Costs of mitigation are covered.

05-27-2008, 01:01 PM
I don't know about the law where you are, but, the repair should be covered on the liability portion of the other guys policy. His premium should be made up of two numbers, the insurance for building and contents and third party liability. Your company should be covering repairs and claiming against his policy, regardless of of whether the fire is suspicious or not.

Secondly, if the claim on the other guys insurance is somehow denied, you cannot "profit" from insurance. You will get $!6,500 minus the value of the land plus the cost of the renovations that you have underway. Therefore it is incumbent on you to show, through appraisals, that the building is worth big bucks and that the repairs are only $40,000 for example so they don't "write it off".

I hate to say it, but, talk to an insurance lawyer. From your picture and descriptions it looks like a keeper given that you were going to renovate anyway.

TDMIDGET is right. Get in and mitigate the damage. You want to keep the total repair bill reasonable.

05-29-2008, 06:38 PM
Thanks Everybody – I’ve got some more information.

First off, as Evan has stated, there is a real concern for the condition of the mortar, I pretty much expected that any Official would recommend some sort of evaluation, that’s just how the world works. The major difficulty is that from the day after the fire the neighboring place has been boarded up tight and access is all but impossible on that side, not that my evaluation would mean much, but I’d feel a lot better if I could even see, touch, and evaluate the wall, but I haven’t been able to get on that side, the second picture was taken the day of the fire and implies that one could just walk up and smack it with a sledge, but early the next morning the place was sealed up like Fort Noks. That should change after today, as the second forensic investigation has taken place, so that should open things up.

My Adjuster did call last night to let me know that my appraisal has come in, I’m waiting for some sort of documentation that tells me what it really means, I do know that the land value will be quite low in proportion to the structure, at any rate it appraised for 37,000, again, I’m not sure what that really means to me yet. In the event that the building must be demolished my policy calls for an additional 25% to help cover the cost of demolition. I was surprised by the appraisal, I don’t necessarily think it’s inaccurate as it had to be compared to similar property – functioning storefront of similar square footage with a single living space above. For those of you who have asked, this is a small community in Northeastern Iowa, probably only 15 businesses on Main Street anymore, about 1500 people, folks drive from 10 to 60 miles for work, a little too far away from anywhere substantial to be able to be a Bedroom-Community, lower than average property values, but still a very nice little town on a river with a lake – I guess, in general a pretty cheap place to buy property.

Not too many guys in town like me who are interested in this kinda project, so the building just sat without a lot of interest. It’s perfect for me, I’m just not the 3 bedroom ranch with a big yard kindof a person, much rather be building widgets than mowing the lawn, divorced with no kids or pets, but a lot of friends, The upstairs will be perfect for me, plenty of space and very simple, I guess more than anything a place for my stuff – maybe not a great investment, but it would put me debt free in 5 years.

You guys will love this though – The damn place has NO BUILDING INSPECTIONS what so ever, you buy a permit for whatever you’re doing, the council approves what it is you want to do, and you go about your way………….. Craziest thing I’ve ever seen, commercial is a little different, but not much – Hell, for all I know that may be why the place next to me went up! I’m pretty conscientious and simply go by the code, there’s no point in cutting corners when you’re building a place for you and all the things you care about. I’ve seen some pretty scary things here though, electrical is the worst, people just keep adding on to existing circuits “Honey……. I keep blowing fuses when I turn on the garbage disposal while the dishwasher is on and I’m popping popcorn in the microwave….” “No problem SWMBO, I’ll pick up some 40 amp fuses next time I’m at Wallmart……”.

I’m planning on going to the next City-Council meeting this Monday and pushing for the evaluation of the wall. Whether the adjacent building is demolished or not, that shouldn’t play a role in the condition of the wall, I think we can now be granted access to that side of my building, so that shouldn’t be an issue any longer. I’ve never really had anything to do with brickwork, but I would think that in the worst-case the wall could be repaired or reinforced for less than the cost of demolition of the building, there is just so much good wood in the place, I do know that in the area where the fire did the most damage, the inner brick wall hasn’t been obviously compromised, wallpaper is still intact and the mortar is strong, the wall is three bricks thick.

I’ll keep you posted as I learn things, thanks again for all your comments.


05-29-2008, 07:06 PM
Storm lake?

Nah, too big.

05-30-2008, 09:09 AM
Not quite right Oldtiffie. It is the responsibility and duty of the insured to "mitigate the loss". This means temporary roof repairs, boarding of windows, water removal, etc., are to done by the insured if the adjuster is not available,ie; middle of the night. If it can be sown that damage was due to failure to mitigate the loss, it will not be covered, Costs of mitigation are covered.

Thanks tdmidget

Sorry about the non-mention of mitigation of damage. I just presumed that the Insurer would have organised or approved that pretty quick - as is done in most places here in OZ. There are some very skilled contractors that the Insurers use and trust (but are under constant review!!) here. They do very well in terms of performance and remuneration. Local Emergency services can also assist. None of them will allow or encourage any owner to undertake works where there is a risk or where the works are regulated and require/d prescribed practitioners.

As the property was barricaded and "declared" as being a risk so quickly, the owner could not even enter the property until it was deemed safe to do so.

A lot of the discussion thus far is pretty well just assuming things as the details of the applicable Insurance Policy are not known.

Insurers - here in OZ anyway - play the game very close to their chests and in their own best commercial interest.

If the adjacent property insurer or the police consider that a case might exist for arson or "foul play" the site may have restricted access until they finish their investigation/s. The same may apply until the local Building Inspection/Regulatory service has finished their investigations and determined what their final requirement is.

06-08-2008, 12:12 PM
Well it’s time to update you all.

A lot changed last week. I went to the City Council meeting to get a better feel for the whole situation and was given a copy of the letter submitted by Building Inspector, he simply stated “There may have been damage to a section of the wall where the fire was most intense”. Given this, the City has allowed me to proceed and will require no more inspections unless something comes up during the demolition of the building to the North.

I also got a check in the mail from my Insurance Company – what I feel is a very fair settlement, it’ll be a lot of work, but the settlement should pay the place off and cover a fair amount of the renovations that I’d planned. For as long as it’s taken and all the other setbacks I truly didn’t expect a good settlement and I’m very grateful!

I won’t be making chips in the place any time soon, I’ll be swinging a hammer and pulling wire most of the Summer I’m sure, but hopefully by Winter I’ll have a place suitable for me and all my stuff.


06-08-2008, 12:36 PM
Congratulations on a good result Chandler and for having the fortitude and tenacity to see it through.

I wish you everything that you wish for yourself in this project.

You deserve nothing less.

06-08-2008, 12:39 PM
...what I feel is a very fair settlement, it’ll be a lot of work, but the settlement should pay the place off and cover a fair amount of the renovations that I’d planned. For as long as it’s taken and all the other setbacks I truly didn’t expect a good settlement and I’m very grateful!

Congratulations:) :) :)

I am glad to see this great ending. This proves insurance companies are a pain most of the time, not all the time.:D

06-08-2008, 12:54 PM
Nice to know that they are not all sharks!

06-09-2008, 06:39 PM
I wish you an uneventful restoration.