Damage control: quick responses by restoration firms can reduce the number of expensive claims.

When unwelcome water invades the floors, walls and ceilings of a residence or business, it's only a matter of hours before the damage can escalate from minor to monumental. That's why insurance companies know that time is definitely on their side if the response is rapid.

Their allies in this effort are restoration firms that specialize in extracting water from the premises, drying out the building by circulating the air and dehumidifying it, and then restoring any damaged goods, such as paper documents, microfiche, film and diskette files. Insurers say that by enlisting this expert help as quickly as possible, they can significantly lower claims costs as well as reduce policyholder angst.

"Most of the restoration firms that do emergency work are available 24-7, which enables us to immediately service our policyholders and get them back to a pre-loss condition as soon as possible," said Greg Magee, second vice president, claims services, for Travelers Property Casualty.

Ideally, a restoration company should answer the call for help within a day, and preferably sooner, insurers say. "The real essence here is the time factor when you're talking about water damage," said Eric Krantz, home office manager of property claims, and a senior vice president at Chubb & Son. "One of the things we're most concerned about is the growth of mold or other microbial-type growth that can occur following the water damage." This can develop within 24 hours of water saturation, and as long as there is moisture in cellulose-based material, mold can proliferate there quickly under those conditions, he said.

There are three stages that standing water goes through as it becomes more and more of a destructive agent, said Jim Barrett, president and owner of Fire Restoration Services of New England, a Norwood, Mass.-based company that cleans, restores and mitigates damage to residential and commercial sites affected by flood, fire and smoke.

After 24 hours, Barrett explained, clean water, or what restoration firms call white water, will begin to turn bad and become gray water. After three days, this deteriorates to black water, which is comparable to a sewer backup or a river flooding, he said. "Then we have to worry about the health of the residents and personal protection for our own employees," Barrett said. And black water will contaminate structural elements, possibly increasing a claim 20-fold, he said.

A Harrowing Tale

The severe mold that develops in cases like this is the biggest challenge, because the efforts to remove it are so involved and include setting up containment barriers, Barrett said. "It's a fairly new industry. A lot of people aren't familiar with it or the charges that go along with it, and that's why it's best to circumvent that from happening," he said.

His longest project ran six months and involved a severe mold case that developed in a vacation home on Cape Cod. The owners had closed up the winterized, heated home after summer's end, drawing the blinds and drapes and basically putting the house to bed, Barrett said. When they returned to check it over the Christmas holidays, they discovered that a pipe under the kitchen sink had frozen, developing a small break, and had been spraying water, perhaps for as long as a month. During this time the heat would come on in the house "and the mold just continued to grow and grow, feeding on any natural materials--the fabrics, the carpeting, the Sheetrock, the studs behind the walls," he said.

The house had to be gutted, Barrett said. "As far as doing the proper demolition, remediation and total reconstruction, then complying with building codes--it was very involved," he said. The insurance company had to pay $350,000 for this claim which, if the problem had been caught right away, might have amounted to only a few hundred dollars, Barrett said.

Restoration firms got a workout last winter in the Northeast when frigid temperatures caused a multitude of burst pipes and water damage. In cases such as these, the longer a building was left unattended, the worse the problem became because a pressurized plumbing system running for countless hours can generate huge volumes of water throughout a home, causing, in some cases, several feet of water to well up in the basement, Krantz said.

"Those types of situations introduce so much water that it's literally impossible for a homeowner to deal with this without the high-tech professional equipment that can extract huge volumes of water and then promote an accelerated drying process," he said.

While water is one of the biggest drivers of loss for personal and commercial lines insurers, fire and resultant smoke are high on the list, too. Krantz noted that the type of material consumed in a fire will give off different, sometimes harmful, by-products.

"When certain plastics burn, they can put forth various chlorides, salts and acids into the air which, once they condense and crystallize on metals, can cause a corrosive effect especially damaging on electronics," he said. "This is of particular concern in commercial losses when an insured may have sophisticated equipment for manufacturing or processing--including computers, both desktops and mainframes--and if any of these items are exposed to certain types of smoke they can be completely damaged to the point where there has to be total restoration of all the metal contacts and the other sensitive components of the systems."

The resulting cost to the insurer can be astronomical, not to mention the additional impact of business interruption, Krantz said. But again, these costs could be dramatically reduced with the proper restoration techniques applied on a timely basis, he said, which mutually benefits both the insured and the insurer.

Cost Savers

Insurers have a host of examples to show how their use of restoration firms has made a major difference for their companies in handling potentially costly water damage claims.

For instance, in one recent commercial loss for Travelers, heavy snow caused the roof on one of its policyholder's retail stores to collapse, destroying all but the exterior walls of the building. Additionally, all of the stock was destroyed. A large restoration contractor was immediately brought in to do emergency temporary repairs. "Our policyholder was so impressed with the restoration contractor that he hired him to rebuild the building," Magee said. "Our adjuster worked with a local engineer and the contractor to fast track the construction and the policyholder was back in business in less than four months."

In another case, a major loss loomed for Travelers at a library where flood waters had entered the building, soaking all the books, documents and magazines. Travelers brought a restoration firm on site within hours to save these materials using a technique known as vacuum freeze-drying, which halts deterioration immediately by freezing valuable papers until a drying technique can be administered.

"In the past, what they'd have had to do was pack everything up in boxes, but then the water would still be wicking up the documents and, by the time you'd get them to a warehouse to take them out to dry, you'd lose that much more," Magee said. "But with this new process, we were able to bring the high-tech equipment right in on site, and we saved the vast majority of materials."

Krantz told of a commercial claim for Chubb involving a law firm that occupied three floors of a high-rise building that sustained water damage. The firm had dozens of large banker boxes of documents that were saturated from a massive sprinkler system leak following an upper floor fire. But through a vacuum freeze-drying procedure, the restoration firm was very successful in salvaging the documents, he said. Without that technique, the options would have been to discard heavily damaged documents or restore them through an elaborate transcription process, which would then lead to a valuable papers coverage claim that can prove very expensive in recreating documents on that scale, Krantz said.

"We've had a high success rate in utilizing these types of firms," Krantz said. "A good 85% to 90% of the time we have had results that met or exceeded our expectations."

Barrett described one tough job, the restoration of about 300,000 X-ray files that a Boston hospital had stored in a subterranean area. The area became flooded with six feet of water tainted by overflow from sewage septic systems. Eventually, the files were salvaged, but the operation took two years because "the first year, nobody knew what to do, and these medical files sat in refrigerated trailers in a storage facility," he said.

Expense Check

In addition to avoiding costly structural repairs, and managing to restore a building's contents, restoration firms also help insurers keep a lid on additional living expenses--the costs that insurance companies incur when policyholders must be relocated, Magee said. "By getting these restoration firms in that really know the business and can do the dryout, it significantly minimizes our additional living expense and gets our policyholders back into their homes a lot quicker," he said. "Similarly, on the commercial side where we're more apt to have larger dollar exposures, we're able to reduce business interruption losses as well, so there are significant savings there."

Barrett said his business comes from referrals by claims departments, adjusters who work for insurance companies and independent adjusters who represent insurance companies in the handling of certain claims. "We're also referred by the independent agents who represent the companies in selling these policies," he said. "Many times, they're the first ones to get wind of the problem and, depending upon the severity, they may elect to get us involved rather than just fax off the ACORD form to the insurance company."

When they learn of water intrusion, Chubb's adjusters will supply policyholders with contact information on three or four restoration firms in the customer's area, Krantz said. If necessary, both Chubb and Travelers will initiate emergency clean-up responses, but then they prefer that policyholders, themselves, go on to select and contact a restoration firm. Their view is that insureds should make their own choices so that they are more comfortable with the process as it plays out in what can often be an emotionally charged period.

And insurers encourage policyholders to move fast in making that decision. "Most insureds haven't been down this path before. They throw their hands up and they're looking for some direction," Krantz said. "Our outside claims people are pretty skilled at guiding an insured in the right direction, to act quickly." Speed also becomes an issue from the terms and the conditions of the policy, meaning that if insureds don't take reasonable steps to mitigate their losses, they could jeopardize some of their recovery under terms of the policy, Krantz said.

Thomas McGuire, national catastrophe operations manager and document recovery manager for Munters Moisture Control Services, said that with commercial clients, half the time they will seize the initiative and first contact his firm for help. "With deductibles as high are they are today, most of the time you have to take emergency steps yourself as the insured," he said.

In the midst of all this, insurers and restoration firms agree that their biggest challenge is dealing with customer expectations. That's because people tend to think that damaged goods will come back like new, and that isn't always possible, they say.

"When you have the loss, it's very clear in your mind that everything is nasty and dirty, but after it's gone away to be restored, you kind of forget what it looked like when it left," McGuire said. "So it's very important that everybody understands what it's going to look like when it comes back. Any staining on the pages is still going to be there. And paper, once it becomes wet, will always be wrinkled. So there will be wrinkling and staining, and it's important to understand that."

Travelers' adjusters make a point from the outset to explain to insureds that the company will try to have their personal property restored, but if it is not restored to the policyholder's satisfaction, then the insurer will replace it, Magee said. "The expectations have to be clearly laid out upfront so that there are no misunderstandings down the road," he said.

McGuire noted that customer expectations can be most unrealistic following fire damage to documents. "It's common for fire jobs to be recopied and then the originals destroyed--they're in such bad shape," he said. Also, the odor from fire damaged materials, much like mold-damaged materials, can induce allergic reactions, McGuire said.

Another challenge for insurers lies in controlling the vendor, considering the scope of the loss and the associated repairs that the vendor may want to perform, Magee said. "It's critical that restoration firms are given clear directions and expectations from all parties--the contractor, the policyholder and the insurance carrier," he said. "The best way is to have an agreed scope of damage and agreed pricing prior to starting any work."

RELATED ARTICLE: Steps to recovery.

Munters Moisture Control Services, which calls itself the largest water-damage recovery company in North America, was founded 75 years ago by Swedish inventor Carl Munters. The firm, with headquarters in Chicago, and offices in 30 U.S. cities and 37 other countries, handles commercial cases of all sizes.

Within hours of notification, Munters will have a representative at the affected site to assess the loss. Then a crew will dry out the building, clean it and offer full-service restoration of documents damaged by water, mold, fire or smoke.

The process to salvage water-damaged documents begins with two steps:

* Freezing. To halt deterioration, it's essential that documents be frozen within 48 hours. Typically, freezer-equipped truck trailers or freezer warehouses are used for this stage. The frozen materials can be stored until the professional drying procedure begins.

* Inventory and Sorting. While documents are frozen, decisions can be made about which to dry and clean and which to discard; work can begin on pruning unwanted materials.

The next phase is drying, which requires technical expertise and high-tech equipment. Depending upon the type and extent of damage, and the materials, one of two primary drying methods may be used:

* Desiccant Drying. Frozen documents are removed from packing cases and placed on racks and shelves in a large, vault-like 6,000-square-foot room. Crews apply desiccant dehumidification--the room atmosphere is maintained at about 68 F. and 12% humidity. Desiccant dehumidifiers use changing vapor pressures to dry air continually in a repeating cycle. The continuously moving dry air created in the drying room removes the moisture from the documents. The process can take from one to seven days.

* Vacuum Freeze-Drying. This method is used in cases in which documents such as books or journals tend to warp or distort during desiccant drying. In such cases, it is important to save not only the paper, but the integrity of the binding. The frozen materials are placed in an airtight chamber into which negative vacuum pressure is introduced. This causes moisture in the documents to turn into a gas. The gas is then expelled from the chamber, where it is condensed into liquid and discarded. As a result, the documents go from a frozen state to a dry state without ever becoming reliquified.

Once drying is complete, the final step is to clean the documents before they are assembled into new boxes, relabeled according to the inventory and returned to the owner. Cleaning removes dirt, grime and most importantly, fungi spores. Staff clean each document using such materials as sponges and scrub pads, while avoiding the application of liquid solutions that would reactivate the moisture in the materials.

Munters usually performs these procedures at its two primary locations in Boston and Chicago. Typically, damaged documents will be shipped to those facilities from disaster sites elsewhere in the nation.

But in some cases, situations require that documents be dried at their site. This is done when dealing with confidential files, information needed on a regular basis or to meet legal requirements. In such cases, the restoration firm will establish an on-site drying facility.

Source: Thomas McGuire, national catastrophe operations manager and document recovery manager, Munters Moisture Control Services.