Jun. 7--Experts say nuances in insurance coverage will have a lot to do with whether the owners of damaged Midway businesses rebuild following last month's riots and looting.
Coverage amounts vary widely for businesses. Buildings with mortgages generally must be insured as a condition of the loan. But others may self-insure or have too small a policy -- or too high a deductible -- to make starting over a sound financial decision.
Caleb Brunz, president of Paul Davis Restoration, worries some under-insured building owners on St. Paul's Midway and Lake Street in Minneapolis would sooner turn their damaged properties into vacant lots than shoulder the cost of rebuilding.
"What we're seeing happening on Lake Street, and it might be happening in the Midway, is owners saying, 'I'm just going to cash out for the total policy and I'm out of here,' " Brunz said during a recent forum sponsored by the Midway Chamber of Commerce.
Brunz's company specializes in disaster recovery, including cleanup of disaster sites, but his phone hasn't been ringing. "We're not seeing a lot of people calling us saying, 'Come help us rebuild right now,' " he said.
Well over half of commercial policies cover "riot or civil commotion," according to TJ Patton, audit director for the state Department of Commerce's insurance enforcement team.
What's often not covered are exterior and adjacent areas, such as outdoor fencing, furniture and signage. Glass damage -- such as windows -- may be a separate category within a policy, with its own nuances and deductibles.
Expenses related to boarding up a property may not be covered, either. In fact, store owners who covered their properties in protective plywood are about to learn that repairs for the holes they hammered in will not be reimbursed.
"You intentionally did that," said Thomas Fierst, owner of Thomas Fierst Insurance Agency in Woodbury, which has at least a dozen impacted clients in St. Paul and Minneapolis. "It's not accidental."
Even if an owner is insured for the full cost of replacement, which is more common for homes than businesses, there could still be a difference between what the insurer considers the cost of rebuilding and what contractors actually charge. Such a dispute may require legal arbitration.
"The insurance company says you can rebuild this for X, and if you can't find a contractor to do it for that amount, that's where you've got to get an attorney involved," said Brian Hayes, an assistant vice president with Western Insurance. "That's a situation that's real and we might really see develop."
And some high-risk, first-time business owners who did not qualify for traditional commercial insurance may find their policies are carried under "excess lines," or special insurance pools bound by out-of-state rules. For them, coverage related to social unrest can be harder to navigate.
BUSINESS INTERRUPTION COVERAGE
Business owners who rent commercial space face their own insurance-related challenges.
Patton said most insurance policies have exclusions that prevent operators from recouping losses related to the coronavirus pandemic, which brought the state's economy to a halt in mid-March.
Interruptions due to riot or civil unrest may be covered, he said, but that presents a key question: Will insurers reimburse lost payroll and other expenses if a store had closed due to the pandemic but was planning to reopen? If recent sales were close to zero, how do you reimburse nothing?
"I think that there is a good argument that if a business had plans in place to reopen, (they should be covered) from the date they planned to reopen to the date they are able to repair damage from the protest," Patton said, acknowledging insurers may see things differently.
"I do think there are going to be some very tricky insurance questions because of the layering -- one from the pandemic and one from the protests," he said.
RESTORING WHAT'S LEFT MAY BE DIFFICULT
John Jensvold, vice president of Shaw-Lundquist Associates, said buildings that have been partially damaged are often more difficult to rebuild than those that were completely damaged.
"Rebuilding partially damaged buildings is quite complicated.The big subject I think is to determine the level of damage, and what portion of the remaining building is still intact, because it needs to be certified as being code compliant," he said.
Since many major general contract construction projects were delayed or canceled due to the pandemic, Jensvold said there should be enough construction workers to help the area rebuild.
However, he's concerned that building and code inspection departments may be strained under the demand.
"That's probably a bottleneck. And that's something we'll have to deal with as we go," he said.
Katrina Pross contributed to this report.
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