Tips to maximize disaster insurance: proactive measures by property owners will make navigating the murky waters of insurance claims easier.

In the week that followed Hurricane Katrina, Mississippi was plagued with power outages and gas short ages. The National Guard closed the debris-filled roads, making it all but impossible for Ann Holland, Regional Manager for ECI Management, to reach the many residents who remained in the area.

"There was no power throughout the state for over a week," Holland said. "The biggest challenge after the storm was getting to the properties, especially Long Beach. Renters wanted someone to tell them what to do, and in a lot of cases, we couldn't."

Thirteen of Marietta, Ga.-based ECI Management's 31 apartment communities are located in Mississippi and bore the brunt of the storm. While the state was spared water surges, wind and rain resulted in considerable damage. ECI's 128-unit community in Long Beach--where the hurricane ripped off the roofs suffered the most destruction.

"The downstairs apartments were more intact, so people thought that even though the roofs had blown off, since they had a ceiling, it was all right for them to stay there," Holland said. "But it wasn't. Already the mold had set in."

Holland estimated that the monetary extent of the damages totaled millions of dollars.

Insurance Carriers Respond

The widespread destruction that prevented Holland from reaching her residents also has hindered insurance companies' efforts to evaluate damage and process claims.

"[Insurance companies] are very stressed," said Insurance Broker John M. Cavanaugh, Associate Director, John L. Wortham & Son, LP, Houston. "There is a finite number of claims representatives and independent claims adjusters who specialize in catastrophes." The small number of claims adjusters compared to the amount of damage stretches the time needed to review the damage, Cavanaugh said.

Cavanaugh, who represents many clients in the disaster area, said, "We've had big losses. A lot of clients are calling asking what to do. One account we have sells firearms, and asked what to do in terms of the looting. I said to drive their firearms to Houston and put them in stores here." For clients who are concerned about looting, Cavanaugh explained that looting is generally covered under vandalism clauses of insurance policies.

Despite the setbacks, Holland said that her insurance carriers have been responsive. "They got to the property within two weeks, which, considering the availability of airline flights, is not unreasonable."

After arriving at the community, the adjuster conducted a unit walk with the onsite team to survey the damage. "As of late September, the whole crew had to bring everything with them," Holland said. "You couldn't buy a bottle of water or pen or paper or tape. You had to be totally self-sufficient. We are in the process of rebuilding the structure or doing a complete demolition and starting over."

When asked whether the insurance agents came in pointing at exclusion clauses, she said, "No, it was nothing like that. This was a clear issue of wind damage, which was covered."

Tips for Maximum Benefits

According to Cavanaugh, the handling of losses starts well before the loss occurs. "Unfortunately, it's too late to be brilliant in that respect for Katrina. But this preparation should take place now to prepare for any future disasters."

Cavanaugh offered the following tips to maximize returns from insurance claims.

1. Secure Proof of Loss. Cavanaugh stressed that it is critical for apartment owners to supply "proof of loss." "You must have records of your contents, receipts for all of your interior equipment, everything," Cavanaugh said. "I've always [advised owners to] videotape both the exterior and interior, then store it off site. It does no good if it's blown away in a storm. Have your rent rolls, how many people in occupancy and rates. You have to prove business interruption and loss of rent."

2. Document All Losses. After the disaster, apartment owners should also videotape, take pictures and document the losses to provide proof of loss, Cavanaugh said.

"Again, I advise, get all the documentation you can. If your building is 20 years old, the insurance company will want to pay a 20-year depreciation, but if you put in a new roof two years ago and think it should be a 20 percent depreciation, you have to establish that."

Cavanaugh said that it is important not to replace anything after the disaster without the adjuster's permission. For example, if an apartment owner installed $700 refrigerators and records didn't prove that the owner paid that much, then the insurance company may pay only $300.

3. Prevent Loss Before It Occurs. Owners should also take steps to mitigate loss before it occurs. "Prevent potential loss by moving things away from the water or getting them away from smoke damage," he said. "This accomplishes two things. It reduces your losses, and also reduces the claim on the insurance company, which means the company will be more likely to work with you if you demonstrate you are trying to minimize the claim."

4. Review the Policy. Also important is to immediately sit down with your broker and review the policy. "You want to review the policies, business interruption, loss of rent and all the claims, you have a legal right to," Cavanaugh said. "There are also a lot of little endorsements; I don't want to call them eye candy, but there are things insurance vendors throw in to sweeten their policy. Make sure you take advantage of these."

5. Know Your Rights. Insurance companies can't change a policy after the fact, Cavanaugh said, but they certainly will take advantage of every definition in their favor.

"There is a problem of definition between flood versus wind-driven rain and rising water," Cavanaugh said. "Flood is excluded under almost all policies, unless you have a separate clause, and the cost for flood coverage is quite reasonable, really. But that will be a big issue with Katrina. You want to take pictures to show that the damage is the result of wind and wind-driven rising water. You want to make sure what you are defining."

Following the Advice

Cavanaugh said that while following these tips is necessary for maximum insurance recovery, only about half of his clients had followed his advice prior to Hurricane Katrina.

In the case of those who don't have adequate documentation, Cavanaugh said, "They'll get something, but not nearly what they would have gotten otherwise."

In the wake of a disaster like Hurricane Katrina, in which both insurers and insured are in high-stress situations, is there much bad faith?

"That question goes to the heart of quality insurance and quality insurance companies," Cavanaugh said. "The top-rated companies are better prepared to pay your claims. But the ones that sold cheap will fight you at every step because they priced themselves too low.

"A lot of insured think that going cheap is the best way to go. They might say, 'I saved $60,000 the last three years.' But then they're hit with a $2 million loss, and, especially if they don't have receipts, might get only $1 million. It doesn't pay to try to cut corners with disaster."

Thomas G. Dolan is a freelance writer based in Anacortes, Wash.