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Selling Commercial Property with a Pending Insurance Claim

Selling a commercial property with a pending insurance claim?
Remember These 3 Rules

Often, a commercial property is sold with an associated unresolved insurance claim. Some insurance companies would have you believe that the claim, and by extension any obligation on their part to payment, ends with the sale. However, the case law on the subject is well established and clearly says otherwise. Besides knowing their policy language thoroughly, property owners can hold insurance companies accountable by knowing and understanding these three rules:

Business Interruption

An insurer may attempt to use the sale of a property as justification for discontinuing payment of a business interruption claim. In fact, the sale does not limit or end the policyholder’s claim for any covered loss related to that property. After the sale date, the insurer continues to have a contractual obligation to pay for the full “theoretical” business interruption period. Case law has previously determined that insurable interest is “fixed” at the time of loss. This means that any change in ownership of the property after the loss does not affect the amount of projected income that the policyholder can recover.

Repair or Replacement

Under their policy, a seller is usually eligible to be reimbursed for repair or replacement costs. This includes those repairs for which estimates exist but have not been made. There are four common options for adjusting a claim of this type:

  • Receive cost for actual repair or replacement at the same site using new materials of comparable quality.
  • Apply the same repair or replacement costs to another site, but not to exceed costs that would have applied to the damage at the original site.
  • Receive the same value applied to other operational expenses or capital expenditures. Usually, this is limited to within two years from the date of the loss, expenditures must not have been planned as of the date of the loss, and must be made at a location insured under the policy.
  • Receive Actual Cash Value. Many policies require such an election be made within a “reasonable” time period or at least two years from the date of loss.
Assignment of Claim

Most property insurance policies contain an “anti-assignment” clause. This states that the policy cannot be assigned without the consent of the insurance company. An important distinction to remember is that the anti-assignment clause applies only to assignments of the policy made before a loss, not to claims made after a loss. In the second instance, the claim is fully assignable (in whole or in part) by the policyholder and the consent of the insurer is not required. The assignee is then entitled to collect from the insurer. It is important to note that the purchaser/assignee is only entitled to those rights and coverages belonging to the seller at the time of purchase.

Have questions about your property insurance claim? Feel free to contact Stark Loss for more information about how a Public Adjuster can help.

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