While insurance checks are already in the mail to owners of some major downtown buildings, many small-business tenants affected by the Chicago flood complain they`re being told their claims will not hold water.
Typical of those asserting unfair treatment is Dr. Joseph Toups, one of the 53 dentists at 25 E. Washington St. who have not been able to use their offices for two weeks. The building reopens Monday, but compressed air for drills and for drying teeth isn`t set to return until Thursday.
Toups said he contacted his insurer, St. Paul Cos., only to be told his claim for lost income under the business interruption section of his policy probably will be denied. The insurance company, he said, attributed the interruption to ”rising water,” a peril that the dentist, located on the 13th floor, had neglected to include in his policy.
”You think you have coverage for something, and they weasel out of it,” said Toups, 32, who said he is still burdened with paying off student loans.
The number of arguments between insurers and policyholders is expected to grow as the last of the water drains out of downtown basements and attention turns to who will pay for the disruption left behind.
Many small-business owners, like Toups, said they find themselves in a Catch-22: They bought business-interruption coverage to protect against the unexpected, but they are now being told that they are not covered because the underlying cause of this interruption, a flood, was not in their policies. In other words, it was unexpected.
Insurers, however, counter that the issue is more complicated and involves tricky definitions. There are, for example, differences between coverages for flood water, rising water or general water damage.
Most small-business owners` policies do not cover flooding. Even if the disaster is classified as water damage, it is unclear whether, say, an upper- floor accountant whose office remained bone-dry can file a claim for the business lost by the shutdown of a waterlogged electrical generator in his building`s subbasement.
A spokeswoman for St. Paul said the company, like many other insurers contacted last week, is still ”in the investigative process” in deciding how to treat the case of an estimated 250 million gallons of Chicago River water that gushed down into a tunnel before rising through the subbasements of the Loop.
The spokeswoman said St. Paul would ”do everything to respond promptly and fairly” to policyholders.
At Near North Insurance Brokerage Inc., claims manager Butch Marros said the insurers` hestitation didn`t surprise him. ”Keep in mind, (they) have a lot to lose,” he said.
The state last week let insurers know it`s keeping a close eye on their behavior. Calling in officials of 40 insurers and trade groups, the Illinois Insurance Department asked them to submit regular reports on which flood-related claims are being accepted and denied.
”I suggested that the industry as a whole could act as positively as possible,” said Stephen Selke, department director.
So far, owners of big downtown office buildings seem to be on a smooth path to being reimbursed for their troubles.
Executives of Marshall Field`s and Filene`s Basement, for instance, sang the praises of Park Ridge-based Protection Mutual Insurance Co., while the Chicago Board of Trade cashed a $500,000 check from the Chubb Group of Insurance Cos. as a partial payment on damages.
A Merchandise Mart executive, meanwhile, said in an interview that Long Grove-based Kemper National Insurance Cos. has agreed to pay a $250,000 advance on the Mart`s claim for still-undetermined damages.
Like most large structures, the Mart has flood coverage. Tom Kennedy, a building management official, said the Mart was pleased with how Kemper handled the flooding.
He said Kemper told him the disaster is considered water damage, which carries a lower deductible, meaning that the Mart has to pay less money from its own pocket before insurance kicks in.
Experts said that the biggest source of insurance claims will be for money lost when normal business activities were interrupted and for extra money spent to try to keep business going.
By comparison, the eventual magnitude of physical losses will only emerge as the receding water allows a clear assessment of the damage left behind.
”A flood is one of the toughest losses you`re going to run into,”
cautioned Dennis Corrigan, the ”catastrophe coordinator” for Protection Mutual. Water damage to walls, floorboards and equipment may not reveal itself until after the water itself is long gone.
Protection Mutual, which covers more downtown buildings than any other insurer, estimates it will pay out $25 million to $35 million in claims.
Hugh Strawn, director of catastrophe services at the Property Loss Research Bureau, a Schaumburg-based insurance group, said financial ripples from Chicago`s flood ”will be felt around the world” by both insurers and reinsurers, the insurance companies that assume risks from other insurers.
Total losses from the flood, including those not covered by insurance,
”may exceed the losses from the 1871 Chicago fire,” he said. Adjusted for inflation, that would be about $1.8 billion, said Strawn.
At 332 S. Michigan Ave., some tenants have given up on getting any money for their troubles. Peter Hurwitz, a 33-year-old who runs a deli in the building`s basement, carted much of his expensive meat to a freezer at home when the building was evacuated on the first day of the flood. Still, the disruption of electricity eventually forced him to discard thousands of dollars of other refrigerated food.
But Hurwitz said his insurance agent, representing Virginia Surety Co., told him he could not recover any money because the damage was caused by a flood. Hurwitz sees it differently: Flood waters came within 6 feet of his business, then stopped.
”Who would think an 80-year- old building on Michigan Avenue would be hit by a flood?” he said.
”There`s been no decision to deny coverage on the basis of flood,” said Tom Sullivan, president of Virginia Surety.
Sullivan said he believes most of the claims received by the Aon Corp. unit will be covered, although he added that some policies might require physical damage to a policyholder`s premises before business-interruption coverage comes into play.
On the sixth floor, meanwhile, architect Ed Matthei gazed out a conference room window and smiled ruefully as he recalled his conversation with the State Farm Insurance Cos. agent for his 32-person firm.
”We were told very clearly that anything connected with a flood requires flood insurance, which we don`t have,” said Matthei, who, like many other high-rise tenants, thought about water most often when gazing at his panoramic view of the lake.
Though Matthei estimates his firm`s business losses at $18,000, ”we will not pursue the claim,” he said.
”A lot of insurance companies are wondering how they`re going to handle it,” said a spokesman for State Farm in Bloomington. ”At this point we haven`t decided one way or the other.” No claims have been denied, he said.
