April 10, 2019
In recent months I have been saddened to read of several fires that have partially or fully destroyed historic buildings. As I write we approach the season during which rainfall could lead to flooding in some areas. For most of us we are fortunate in that we do not experience such disasters, but one never knows when some event will result in the need for major works to a building and the involvement of insurance. Over the years we have dealt with a number of fire damaged properties, with those that have been flooded out and even one damaged by a local tornado. What follows are some thoughts on how to get through such situations.
When purchasing a property, particularly an historic building, it is important that you obtain adequate and appropriate insurance cover. Many purchasers of buildings have questioned me over the years asking why the rebuilding cost is so much different from the price they are paying. There is a very simple answer and this is that the cost of reconstructing any property depends on its nature, the materials, etc. This is totally unrelated to what someone might buy that property for. In areas where property values are low it is quite common for the reinstatement cost to exceed the market value, where in some areas, such as central London, the market value may far exceed the reinstatement cost.
When you take out a mortgage, the insurance reinstatement value is often included and the valuer will have used a standard reference source – Building Cost Information Service (BCIS) – to obtain a figure. For most conventional properties this will be more than adequate and there will be little need to question the figures. However, when it comes to historic buildings there is a need for greater consideration. The BCIS used by valuers was designed for modern buildings and whilst there are options within the system to allow for the valuer to input some data, it does not result in a fully bespoke figure. Nonetheless, the BCIS is a good starting point and a competent surveyor will be able to use these and adapt the results to come up with a figure that should be appropriate for the building at hand. Those who are involved in repairs and rebuilding works as part of their companys’ services will usually have a fairly good idea of what it costs to repair or rebuild buildings and can therefore adapt the figures accordingly.
Why is this important? The simple reason is that when you make a claim the loss adjustor appointed will firstly assess whether you have sufficient cover. They will turn to the BCIS to see if the property is adequately insured. If considered to be under insured the insurance company might apply averaging. As an example, if a property is insured for £100,000 and yet the BCIS guide indicates a figure of £200,000 the property is considered to be 50% under insured. Averaging means that the insurer will only pay out 50% of the claim. You can quickly see why it is important to be adequately insured.
However, it is also important to ensure that the loss adjustor has undertaken the task adequately. Some years ago, I was involved in a case where the loss adjustor had initially declared that the sum insured was adequate and had written to that effect. Part way through the reinstatement works the insurance company advised the insured that they had run out of money and were no longer going to fund the remaining works. Having then gone to the insurance ombudsman and later to court it was held that the insurance company should honour the fact that the loss adjustor had initially indicated that they were adequately insured.
That particular case brings me to the next point in that when a claim is made the insurance company may offer one of two possible routes in terms of how to deal with the claim.
It may be the case that the policy you have signed up to requires you to accept those appointed by the insurance company and that you will have little or no say in who gets involved in the reinstatement works. This is another reason why you need to check the wording of your policy very carefully when you first sign up to it. However, many policies will provide options. One will be that you agree to whoever the insurance company appoints as mentioned above, but the other option is that you will be allowed to appoint your own surveyor or architect and have a choice of contractors to do the work (subject to tendering process etc.).
With a conventional modern building where there are no or low risks of any significant issues it may be quite sensible to simply accept that the insurance company will appoint the professionals and contractors and that you will have little say. In fact, in the case that I mentioned above this is precisely what happened. Unfortunately, in that case the professionals and contractors had not fully appreciated the needs of a listed timber-framed thatched building, and had not prepared a detailed schedule of works but instead worked on a schedule of rates. Because of this the finances ran out before the work was completed. A different approach might have resulted in a very different outcome or at least a proper understanding of the likely end costs before work started.
Part of the problem is that quite often with insurance reinstatement projects the contractors work to a schedule of rates with no tender sum as such but in the anticipation that the work will cost less than the sum insured. Under this method it is when the accumulated cost of works exceed the sum insured that problems arise.
With unusual or historic buildings, or buildings where there is any degree of complexity, it would be far better to ensure appropriate professionals and contractors are appointed at the outset.
So let us assume that a disaster has occurred, you have contacted the insurance company and they have appointed a loss adjustor. You have agreed that you will select the professional and eventually the contractors. A suitable professional is appointed. Hopefully this will be an architect or surveyor with adequate experience in dealing with historic buildings or the specific type of property in question. It would be their responsibility to arrange for the site to be prepared. Initially this may involve bringing in contractors for clearing out, drying out and preparing for the reinstatement works. The professionals will prepare a detailed schedule of works and this might include drawings. At an appropriate point they will submit those schedules and drawings to contractors for a tendering process. Whilst the schedule might include provisional sums for certain matters (where the extent or true nature of the work will be unknown), the process is designed to minimise the risk of unforeseen matters and costs. Once the tenders are returned (and before work starts) it will become clear if there is a discrepancy between the likely cost and the sum insured.
If the building is listed or in a conservation area, or if other planning restrictions apply, there is likely to be a need to seek planning permission, listed building consent, etc. Even with a modern building if it is totally destroyed then planning permission will be required for demolition of the remnants and reconstruction of a new building. These applications take time, and in particular where listed buildings are concerned, there could be some detailed discussions and negotiations that take place regarding the reinstatement works.
In one case I was involved in recently the planning department did not fully appreciate the impact that the delays of seeking planning etc. would have on the family in question. The property was vacated immediately after the events and the family were in rented accommodation. However, the insurance policy only provided for alternative accommodation for a certain period of time. Dealing with the planning matters took longer than this and the family themselves had to pay the rental once the insurance monies finished. It eventually ended up with the family being bought out by the insurers. This meant that the family had to find a new house and completely relocate, thus causing great upheaval for them and their children. This situation was brought about largely because it was a listed building and the planning department did not appreciate the need for speed. There were other factors that complicated the matter but the point here is that planning can have a significant impact on the time taken. This is another reason to check your policy and ensure that there is a lengthy alternative accommodation clause in the policy. For many listed buildings I would suggest that the period for alternative accommodation should be at least one year.
With many historic buildings a standard ‘off the shelf’ insurance policy is not going to be adequate. Going to a standard high street company or going through an on-line process is unlikely to result in a policy that is sufficient to deal with all the eventualities if a disaster were to affect an historic building. We often recommend our clients to use an insurance broker experienced in dealing with such buildings to help them find a suitable policy. Quite often brokers can find very good deals on policies that are far more appropriate than off the shelf ones. The other advantage of going through a broker is that when a disaster occurs the broker will be there to assist you.
The other thing to mention when making a claim is that the insurance company will appoint a loss adjustor who should normally act independently in dealing with the claim. However, they are appointed by and paid for by the insurance company and it is in their interest to settle claims quickly and cost effectively. In some instances, it might be appropriate for the insured to appoint their own private loss assessor. Whilst this will incur a cost it is quite often the case that the loss assessor will provide added value such that their costs will be covered by any benefit they provide.
So far, I have discussed various matters but not the disaster itself. This is because surviving a disaster will largely depend on all these other preparatory issues.
There are some matters to consider at the time the disaster strikes. The most important is to contact the insurance company speedily and put things in motion quickly.
One thing that is common with fire and flood is the amount of water involved. A significant amount of water can be used to put out a fire and this does lead to a situation that is not dissimilar to a property that has been flooded. Excess water needs to be removed as speedily as possible and it is sometimes necessary to use pumps to pump out water. Much damage can be caused by water after a fire or flood as well as that caused by the initial event.
Where water is concerned it is important to remove excess water quickly but thereafter the rate of drying out needs to be controlled carefully. If drying out is too slow rot could occur to timbers but if it is too fast it can cause shrinkage and distortion etc. The drying out process must be carefully handled and properly monitored.
The next thing to consider is protecting the property. This might involve some form of temporary cover, but can include matters such as security to prevent unwanted access by anyone. For flood situations you have to consider whether a flood might return to cause yet further damage and therefore whether to provide protection to help prevent this or to remove material and allow the flood to occur but in a way that minimises the damage.
Clearing the site will be important because there will be material that is damaged and will not be reusable in any way. However, with historic buildings there might be a need to carefully record material as it is removed because some of it could have historic importance and provide some assistance when it comes to the reinstatement later. There needs to be very early liaison with the conservation officer and other parties.
If the property is terraced or semi-detached there will need to be close liaison with neighbours and if their property is also subject to a claim you will need to obtain details of who is involved so that the various insurance companies, professional loss adjustors and professionals can liaise properly. Ideally one set of professionals and contractors could be appointed but this rarely happens.
When it comes to the reinstatement the extent of damage will determine how much rebuilding is necessary. There will need to be discussions about the rebuilding and whether this will be a matter of replicating what previously existed, and therefore simple reinstatement, or whether the damage is so great that a different approach might be appropriate. Where substantial parts of a building have been destroyed it might be appropriate to consider a completely new modern reconstruction rather than replicating what previously existed. Such matters are for discussion with the relevant authorities but can add to the time it takes to obtain appropriate planning permission before the works themselves can start. With an historic building the issue of what to replace it with can be very sensitive.
A few simple tips that can assist when disaster occurs are as follows:
Remember that surviving a disaster starts before you even purchase the property by ensuring that you obtain the best professional advice at the point of purchase. It continues by being prepared in the hope that no disaster occurs, but knowing that if it does you know what to do.
If you have suffered a disaster, or want to know who to appoint in the event of a disaster, our team can help guide you through this difficult process. We can assist in appropriately repairing and reconstructing your property, whether Listed or not. Call us today on 01284 760421 or visit our contact page here.
About the author
Stephen Boniface is a Chartered Surveyor at whitworth. Stephen has extensive experience in historic buildings and conservation work, and on a daily basis carries out a variety of work from surveys to expert witness.