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Holdbacks and how to collect your full claim
If you've ever had a substantial property claim with an insurance company you're familiar with the term "holdback". What the terms means is that the insurance company holds back part of the claim payment until you produce receipts showing what was done to restore the building. In other words, produce evidence that you did the work and you will be paid your full replacement cost claim. Holdback percentages can vary but one thing is certain "all insurance companies apply them if the claim exceeds a certain threshold".
How you manage the repair is important. The best solution is to have the
property manager coordinate the claim and make arrangements with the contractors. Unfortunately insurance companies will not reimburse the
manager's time and expense as part of the claim which can be extensive.
The other option is to give the unit owners their portion of the claim check and hope they spend the money and forward receipts. Problems can develop when unit owners either pocket the money and don't
do the work or attempt the repairs themselves to profit off the
insurance. The manager is unable to obtain receipts from the unit
owners. The insurance company refuses to pay the holdback and the
remainder of the building suffers. Clearly no answer to this problem is perfect.
One possible solution is to reimburse unit owners for the loss but temporarily hold back a portion of the claim in the same fashion that the insurance company is holding back the master policy claim. For instance a $100,000 water claim to 10 units may result in a $70,000 payment with a $30,000 holdback. Instead of paying 10 units $7,000 the manager would disburse $5,000 and wait for receipts before disbursing the balance.
Everyone should understand the holdback process. By planning ahead you should be able to maximize your recovery from the insurance company.
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