Wear and tear vs. property damage: Understanding your office insurance
When you buy office insurance, such as a commercial property insurance policy, you can typically count on it to help pay to repair or replace your building or its contents if they’re damaged by a covered incident. For example, if a fire tears through your office, you can usually expect your commercial office insurance to cover it.
But what if the source of the damage is subtler?
Many business owners may be surprised when they file a property insurance claim and learn the property isn't damaged, but simply showing signs of wear and tear. Spoiler: wear and tear isn't covered by a business equipment insurance policy.
Damage or wear and tear: What’s the difference?
Beauty is in the eye of the beholder, and unfortunately, so is damage assessment. When evaluating whether the property shows signs of wear and tear or covered damage, there aren’t always clearly defined standards. It’s often more of an “I know it when I see it” situation.
Let's illustrate the difference between these terms with some examples.
Wear and tear. Say your business has a roof that’s 15 years old, but you’ve never had any work done to it. However, the roof has deteriorated and starts leaking onto your computer equipment. Because the damage is the result of your failure to maintain the roof, your claim will likely be determined to be a wear-and-tear issue. Property insurance usually doesn't cover that.
Property damage. You still have that 15-year-old roof, but in this scenario, you hired a roofing company to perform routine maintenance. Smart! Then one day a windstorm strikes, damaging your roof and destroying some of your business equipment. In this case, you can prove you maintained your roof and the damage is a direct result of a covered weather event. Property insurance usually covers this claim.
Insurance companies often rely on professional insurance adjusters or building engineers to evaluate property damage claims. But even these experts don’t always agree with each other.
Who decides if it’s wear and tear or property damage?
We posed this question to the licensed public adjuster Ron Delo, president of Insurance Claim Consultants, and attorney Jeff Raizner, a partner at Raizner Slania LLP, to get their professional take on these types of claims. Delo has been involved in the adjustment of more than 10,000 claims during his 25-year career, and one of Raizner’s specialties is litigating property insurance claims and business insurance disputes.
“That’s always a big question,” says Delo. “If I wasn’t at the building, and I didn’t have firsthand knowledge if the equipment was operating or not prior to the loss, I can only assume that it was, and I have to rely on what the insured tells me. If the insured tells me this equipment was working fine and now it’s not working properly, then I can only assume that the storm or whatever event triggered the insurance claim has caused some damage to the property.”
On the flip side, Raizner says many of his clients have had their property damage claims denied as wear and tear. One big reason he cites is insurance companies that rely on adjusters rather than building engineers to evaluate properties.
“There are times when the insurer will not get an engineer out there, where simply an adjuster will look at a property and think that the damage resulted from wear and tear rather than a covered loss," says Raizner. "Sometimes we’ll see a denial without any type of engineer or other professional involved."
What factors influence whether it's considered property damage or wear and tear?
We asked Raizner and Delo what might cause a claim determination to go one way or the other.
“In many cases, the most common type of denial that we see is when we’re dealing with properties that are not new,” says Raizner. “Very frequently, you’re dealing with properties that may have a roof that is 10 years old or 20 years old. So a substantial number of my cases involve this question of whether it’s wear and tear or if it’s related to wind or hail or some other covered type of loss.”
Delo says that even if business property is older, if it’s well maintained during that time, it can still be covered if there is a clear incident that points to property damage.
“Everything is going to have normal wear and tear on it,” says Delo. “You could have an item that could have a 20-year life span. It could be 18 years old but was functioning just fine. Then all of a sudden, a storm, or fire, or whatever event triggered the loss – causing the item to be broken or unrepairable. In that case, it’s covered no matter what age it is.”
Delo went on to add that both business owners and insurance companies have been known to fudge the details to their advantage, which is why it’s important to have an impartial expert inspect the alleged damage and weigh in.
“Some people get greedy and try to throw things in that maybe they shouldn’t,” says Delo. “And that’s where a good initial investigation would be important. On the other hand, some insurance companies automatically want to say, ‘Oh, it’s just wear and tear.’ So both sides are guilty of not properly addressing these issues.”
Tips for preventing a property damage claim denial
You can see these types of claims can be a bit tricky, so we asked Raizner and Delo to share some tips on how business owners can take reduce the chance of a property claim denial. They recommend that you:
- Conduct annual inspections to document the condition of the roof and other building components.
- Document all building and equipment maintenance.
- Report any loss as soon as possible.
- Take mitigation steps to prevent further damage.
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