Insurance policies ordinarily contain terms that provide that an insured must exhibit the damaged property for the insurance company’s inspection after a loss. The same policies also provide that an insured has a duty to mitigate damages to the property to prevent further damages. Does an insured breach the insurance policy by preventing the insurance company from assessing the full extent of damages if remediation work is performed at the property prior to the insurance company’s inspection?

The New Jersey Appellate Division recently addressed that scenario.1 In that case, two days after a fire, a public adjuster hired by the insured informed the insurance company of the fire and consequential property damage. Prior to the insurance company’s claim specialist’s inspection of the property to evaluate the property’s damages, he told the public adjuster to complete only minor repairs and work necessary to prevent further damage to the property, but not to perform remediation work. However, when the claim specialist inspected the property six days after the fire, he found that a remediation company hired by the property owner had completely gutted areas of the property to the wood-framing studs. Consequently, the insurance company asserted that it could not assess the extent of damage caused by the fire because of the limited inspection its claim specialist was able to conduct.

Unsatisfied that the amount the insurance company had paid was far less than the public adjuster’s estimated replacement value, the insured sued alleging breach of contract and demanded additional compensation for damage to the property. The trial court dismissed the suit finding that the insured failed to satisfy her evidentiary burden as to damages because she had remediation work done prior to the insurance company’s inspection.

Ultimately, the Appellate Division reversed the trial court and ruled that it was for the jury to determine the material dispute regarding the insurance company’s ability to determine the scope of the property’s fire damage and the amount of compensation that the insured was entitled to receive under the insurance policy.

This case illustrates the importance of fully documenting damages and preserving any damaged property until the insurer has had a chance to inspect.
1 Chen v. State Farm Fire & Cas. Co., No. A-2814-16T1, 2018 WL 3625108 (N.J. Super. Ct. App. Div. July 31, 2018).