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7 Common Unforeseen Claims Costs You Forgot to Consider

By Dan Turpin | Published March 16, 2022

Large losses carry many direct costs — some are obvious, others are less known.

When a rooftop chiller explodes on top of a building due to a faulty coil, the $100,000 new coil purchase is a known, direct cost. Hiring a crane to install the new coil and the permits needed to shut down a city block for a few hours to make the installation, are related direct costs, but may not have been budgeted for or thought of initially.

For every direct cost that arises, there can be multiple unforeseen costs. Unforeseen costs can really add up — sometimes even exceeding the known, direct costs. Understanding and even anticipating unforeseen costs on restorations and repairs can help insurance companies plan, budget and may even reduce costs when you know what to look for.

Often losses appear relatively straightforward when you initially look at them but looks can be deceiving. In the rooftop chiller example, that $100,000 new coil is often only the start of the true cost.

Understanding the 7 Common Unforeseen Costs

Consider the following seven common unforeseen costs on large loss claims.
  1. Shipping. Shipping doesn’t often get factored into the equation of direct (purchase price) costs because there’s no way to know the final shipping cost at the output. In the example of the chiller explosion above, you might not know where the part is coming from, leaving the cost of shipping in question until it leaves the manufacturer.

  2. Lead time. Imagine ordering a replacement part for said chiller at the beginning of February. At that time, the manufacturer informs you that it may take up to four months to arrive (supply chain delays). During this time, the unforeseen costs are piling up.

    Because the building must remain open while waiting for the part, a temporary chilling unit is needed until the repair is completed, adding thousands of dollars a week to the project cost just to keep the building open. The unforeseen costs of the temporary equipment, including electrical, switchgear, set up, and maintenance for four months could add another $250,000 to the cost of repair.

  3. Matching. Whether it is a continuous floor or the paint color on the wall, building interiors often need to match when repaired. Let’s say that our broken chiller flooded offices, ruining a third of the building’s flooring. If it’s a continuous floor, it could cost as much as $300,000 for flooring to make sure it all matches, instead of just the 10,000 square feet that were damaged — another unforeseen cost. Instead of paying $1 million to repair 10,000 square feet of the building, the cost is $2.5 million to replace all the finishes/fixtures due to matching issues.

    This same scenario often happens when repairing franchise or corporate buildings that are continually updating their interior finish packages. This is especially true for the restaurant and hospitality industries. Often times fixtures and finishes materials become unavailable quite quickly, sometimes just a year after being installed).

  4. Permitting. If the project is in the heart of the city, streets may have to be shut down to enable material delivery. This requires obtaining city permits, police escorts, street protection and many times de-energizing and removing power lines to allow access for cranes or tall material loads, which can lead to potentially significant unforeseen costs based on how many people, traffic, and locations are impacted.

  5. Code updates. If there’s been code revisions since the building was constructed, local jurisdictions will often require an update to their code specifications. As a result, the entire system may need to be upgraded to comply with a municipal law or ordinance, which could lead to heavy unforeseen costs.

  6. Equipment requirements. A project that needs $100,000 in repairs may be up seven-fold because of the equipment required to make the repairs. True claims story: A recent claim required the removal of downed trees on a golf course and therefore, special equipment was brought in to avoid damaging irrigation systems and ruining the greens on the rest of the course. In this case, the issue wasn’t the removal of materials, it was the site-specific constraints that made that removal challenging and significantly more costly — an unforeseen cost that was unique to the site of the damage. 

  7. Historical or unique infrastructure mandates. A property that doesn’t allow changes that take away from the historic character of the house can cost a pretty penny to repair. In these cases, renovations cannot affect the monetary or aesthetic value of the home.

    True claims story: A Chicago-based Frank Lloyd Wright home was significantly damaged in a fire. To return the home to its historic character, the large beam of wood that traversed the center of the home needed to be replaced. Because the beam was originally cut from a single log that stretched the entire length of the home, the same was required for the renovation. After struggling to find such a log, a wood company in Oregon was sourced to cut down a specific tree from a nearby forest, carrying the 61-foot beam out with a helicopter and eventually shipped by truck to Chicago.

Understanding the total financial impact of each project requires factoring all costs — direct and those typically unforeseen. For help navigating the direct and unforeseen costs of your project, reach out to RMC Group today.

This information is intended for informational purposes only. Each restoration project has unique properties and must be evaluated individually by knowledgeable consultants. RMC Group is not liable for any loss or damage arising out of or in connection with the use of this information.