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Rising Building Costs and Insurance Coverage: What You Can Do About It

The Wall Street Journal reported that homeowners in Colorado whose homes were destroyed in wildfires may face shortfalls of insurance coverage caused by the rising costs of building materials and labor shortages. Unfortunately, this problem is not just limited to Colorado. Faced with rising costs of construction, what can the average policyholder do?

Initially, many, if not all, property insurers estimate property losses with the aid of software and generic regional price sheets. For example, the claims adjuster will input the measurements of a building and the software will calculate, based upon generic prices, the cost of e.g., painting, drywall, flooring, etc. However, this pricing will almost certainly not reflect the current pricing environment. As a practical matter, it may be necessary for you to present the insurer with an actual construction estimate from a builder, which will more accurately reflect today’s high building and labor costs.

In the same vein, homeowner’s policies and business property policies also contain “time element” coverages, such as loss of use, loss of rental income, and business interruption coverages. In the current climate, however, problems may arise here too. For example, these types of coverages are often limited to the time period during which the insurance company deems reasonable for the repairs to be made—what is called the “period of restoration”, which may or may not reflect the current reality of lengthy construction delays.  Again, the inputs of an experienced builder or consultant may be helpful in pushing back against the insurer’s time estimate and establishing a longer “period of restoration” that more accurately reflects the current reality.

Additionally, some “time element” coverages depend in large degree on a projection of future profits/rental income based upon past revenues and expenses. However, in many cases, the past few years have been anomalous for many businesses and may not accurately reflect the business’ current trajectory. Such types of disputes often involve accountants and other types of experts.

If you think that your insurance company is attempting to shortchange you or your business, you may need the assistance of a coverage attorney. At Belluck & Fox, we can help you navigate disputes with your insurance company and get the full value of the insurance coverage you paid for. As many insurance policies limit the time in which an insured may bring suit to dispute coverage, please call us today for a free consultation.

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