Portland businesses: Looted? Tagged? Insurance will cover it
Downtown Portland businesses hit by vandalism and graffiti that erupted on May 31 can find some solace in their insurance policies — if they had them.
As reported in the Tribune on June 1, jewelers, burger joints, banks, coffee shops, the Scientology center, outdoor apparel retailers, pharmacies, dispensaries and liquor stores all suffered from vandalism or loss of merchandise in rioting following an early BlackLivesMatter march to condemn police brutality.
"There are millions of dollars of damage that has been done to our downtown core, for no good reason," said Andrew Hoan, CEO of the Portland Business Alliance. "Our business community certainly cannot afford this kind of cost."
Chip Stuart is a chief sales officer at Hub International, an insurance brokerage. Stuart said there is never an insurance claim where someone gets 100 percent of their losses back because they always pay a deductible. However, "Some good news is that sometimes the proactiveness of boarding up your property might be covered by the insurance."
He said it's in insurance companies' interests to minimize payouts. Paying to have shop windows to be boarded up before they get broken makes sense. Leaving the boards up for a few days or weeks also encouraged, rather than fixing glass only to have it vandalized again.
Stuart is based in Los Angeles. "This is my third riot," he said, counting 1965 (Watts) and 1992 (the verdict letting police go free who beat Rodney King).
Commercial property insurance
Building owners are responsible for insuring their real estate. Stuart added that business owned usually pick and choose their policies. If they are renting the building, they can opt to cover the cost of inventory and business interruption coverage in the event of looting.
Business interruption covers the earnings lost while the store is forced to remain closed. Insurance companies usually look at the same month in the previous year.
Comparing the previous year to March or April of 2020 would not be fair since the COVID-19 pandemic called for nonessential retailers to be shut outright.
His colleague, David Chmiel, is the national director of claims at Hub International. The company advocates for claimants and work with insurance carriers to gather as much detail as possible, report the claim, give them an inventory of everything that has been damaged and what must be restored.
"The challenge is if you're a business owner, were you going to open up part-time or for your full 40- to 50-hour workweek? You have to determine just how much business income is being lost," said Chmiel.
After a riot, there is always a scramble to clean up and take stock.
"We try to get the initial payment (from the insurer) within the first 30 to 45 days. But you have a lot of data that supports that in the history of your business."
Small businesses are unlikely to have that kind of a plan written down — how they intended to open up during COVID-19. Insurers accept that "it's going to be a gray area of projections based on your tax returns," Chmiel says.
Damage to a building is replaced at cost, using the price per square foot.
"Again," said Stuart, "It's to the insurance company's advantage to get you up and running as fast as you can because, in the meantime, they're paying out business interruption claim. So if they get you your money fast, they pay less overall."
Stuart recalled that in the 1992 riots in Los Angeles, business owners had to wait to get their storefronts boarded up. "This led to a lot more damage — especially from water and graffiti. And that's not the case today."
Rather like a car crash, it helps to be quick with the camera phone. As soon as a store is boarded up, owners have to start taking photos of the damage and cataloging what's missing.
"Start taking your pictures and collecting information so that when the adjuster does arrive, you're ready to go," said Chmiel. "You'll have a much speedier process. There's no advantage to waiting."
He added that business owners can still change their claims as new information comes to light.
Most businesses buy an annualized policy, and rates cannot jump up straight after a spate of claims — such as this June — if the policy is not up for renewal. If there is more property damage in June, it will still be covered.
"Your rate may go up, or it may go down depending on your history, your personal history of your losses, and the type of industry that you are in," said Stuart. "If it's a high risk, like, say, a smoke shop, those are getting hit quite a bit, that's going to be tough. The same with liquor stores, everybody in the riots are seem to be focused on liquor stores," he said, referring to Los Angeles.
The boarding up services often charge for a month, so there's financial incentive to take the plywood down until necessary.
Jim Mark is the third-generation CEO of commercial real estate firm Melvin Mark Companies.
"Our company has been in Portland for 75 years, so in the context of what's been going on, it's been devastating to us to see, in person, the damage here in our own city. But by and large, these protests have been peaceful. These are the same struggles we've had in Portland before but with different groups."
One Mark building at Southwest Fourth Avenue and Alder Street was damaged, and the CVS store thoroughly looted, but Mark says the company got off lightly.
"The heavy tagging has been the worst. We've tried to stay up with the tagging and guard our property."
Mark says he has never been a fan of preemptive "plywooding" since it invites graffiti, but they did it after having had windows smashed in broad daylight at First and Yamhill and at Second and Taylor.
He's hoping the restaurant Q and the 40lbs Coffee Bar will be able to open on time on June 12.
Mark says insurance for plate glass is very expensive in Portland. The deductible is so high the retailers end up having to foot most of the bill.
"Safety is our prime concern, so we'll call a vendor (to board up a building) at 2 a.m. if we have to. That first day it took until midday to get a crew out to secure the spaces because they were all spread so thin."
Mark offers blanket coverage and keeps a log of how often a building has to be cleaned of tagging, for insurance purposes.
His main concern, however, is safety.
"It's troubling when a peaceful protest turns into a violent encounter. It's the same at my house though. There's nothing I own that's worth getting hurt over or to die for. We want people to be able to walk around downtown again and feel comfortable
Adrian Mak is a cofounder of AdvisorSmith, an online business specializing in small business and insurance research for people looking for business insurance. Mak published a report called Does Business Insurance Cover Riots, Looting, or Vandalism? in early June.
In his model, he estimates that on average, for a 1,200 square-foot retail store that has been vandalized and ransacked with nearly $100,000 worth of damages, the business owner would only be responsible for paying a deductible of $1,000. The insurance company would bear the remaining loss.
Mak's points included:
Verisk Analytics tracks settled business claims. Verisk certifies them and publishes a report, although it can take months after the events.
Mak said the L.A. Riots after the Rodney King verdict caused more than $1 billion in claims, "Based on the latest information about damages and claims as of June 10th, I expect insurance losses from the riots may approach $1.5-$2 billion in the U.S."
Force majeure does not apply here. Force majeure is an act of God or something beyond the foresight of the person when entering into the contract, and is not covered. Riots are well within the realms of the possible.
Mak pointed out that people are never required by an insurance contract to defend their property. Anyone seen defending their store is doing so by choice. Often they do it if they don't have insurance.
"Property insurance, which covers the damage to the property and inventory, is entirely optional, and the vast majority of businesses, 90%, do have it." However, "Only 30% of businesses have a business income insurance. It's optional. It's an add-on, but it's not the bulk of the policy."
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