From the Claims Files: Fire Damage

The Nonprofit:

A nonprofit owned a large industrial building. Part of its mission was to rent out affordable studio space for artists, smaller nonprofits, and other creatives.

The Incident:

One night, a fire broke out in one of the larger rental spaces that was being used by a group of artists. The building sustained major damage from fire and smoke, as well as water damage from the sprinklers and fire-suppression efforts. Several adjacent rental spaces and an elevator were also damaged and rendered unusable.

The day after the fire, the nonprofit brought in a cleanup and mitigation contractor, which immediately began work.

The Coverage:

The nonprofit had opted to purchase a Businessowners Property policy, which included coverage for losses caused by fire, smoke, and water damage, as part of their insurance coverage from NIA.

The Result:

Through the nonprofit’s Businessowners Property policy, NIA was able to bring in a water-mitigation expert and a consulting contractor, who were able to help evaluate the scope of the damage and prepare an estimate for the cost of the needed repairs.

Once this process was completed, NIA paid the claim, and pursued recovery efforts against the tenant and their insurance carrier.

What Did the Nonprofit Do Right?

The nonprofit made four smart decisions that helped in this situation:

• They purchased a Businessowners Property policy from NIA, which included protection against losses to covered property caused by fire, smoke, and water damage.
• The nonprofit had installed a fire-suppression sprinkler system that was kept in working order.
• The nonprofit had required their tenants to provide proof of insurance coverage, including coverage for damage to the leased premises while in the tenant’s care.
• When the fire happened, the nonprofit immediately contacted their broker, who notified NIA.

What Could the Nonprofit Improve?

While the nonprofit did purchase Businessowners Property insurance, had working fire-suppression systems, and notified their broker quickly, their decision to bring a cleanup contractor to the scene did create a problem.

In this case, the nonprofit brought in the contractor the morning after the fire, prior to receiving any instructions from their broker or NIA — and before a thorough analysis could be conducted to determine the cause of the fire.

The contractor immediately began to move items and debris, which disturbed the scene. This decision resulted in the scene being compromised, making it difficult for analysts to pinpoint what had actually started the fire.

Because the nonprofit’s hasty decision allowed the scene to be compromised, it made it difficult, if not impossible, to prove any negligence on the part of the tenant as a cause of the fire — leaving the nonprofit solely responsible for the damage.

How Can Your Nonprofit Avoid This?

When it comes to fire, your nonprofit’s actions immediately after a fire are just as important as what you do to prepare for and prevent a fire.

When there’s been a fire at your nonprofit:

• Make sure everyone is accounted for: Property is important, but people always come first.
• Immediately notify your insurance broker, who will activate a claim.
• Avoid rash actions:
  • Do not enter the building: Areas may still be hot and/or structurally unsafe.
  • While it may be tempting to immediately begin cleaning up the damaged area, wait for instructions from your insurer.
  • If you can, avoid removing items or disturbing the scene until your insurer’s analysts are finished: Otherwise, it can compromise the scene, potentially affecting your liability and your ability to pursue recovery against a responsible party.
    • However, if the damage is worsening and you must enter the scene before the insurer’s analysts arrive, advise your broker and insurer of the situation before taking action.
  • Do not make public statements or social media posts without consulting your nonprofit’s attorney or legal representative.

Of course, preventing a fire is always better than reacting to one. Effective fire prevention is a combination of maintenance, common sense, and awareness. This can include:

• Smoke detectors (regularly equipped with fresh batteries)
• Fire extinguishers (regularly serviced and recharged)
• Fire-suppression systems (sprinklers, foam, etc., regularly inspected)
• Regular service and lubrication for machines and equipment
• Removal of easily burned debris (leaves, cardboard, etc.)
• Safe storage of hazardous or flammable chemicals
• Scheduled inspection of your facility’s electrical and HVAC systems
• A “no smoking” policy
• Train your people to report hazards such as:
  • Bad wiring
  • Blocked vents
  • Obstructed exits

If a fire does happen, you want to be sure that everyone on your team knows what to do. Preparing them can include:

• Clearly marked and unobstructed emergency exits
• Conduct fire drills to ensure everyone knows how to evacuate your building and where their rendezvous point is located
• Contact your local fire department to review your procedures
• Have a “go bag” with your important information, including your:
  • Staff roster and contact information
  • Broker’s contact information
  • Insurance account information

Conclusion

As nonprofits, whether we own or rent them, we depend on our buildings and facilities to serve our communities. Protecting them is protecting our missions.

However, when a fire does occur, that’s when it’s most important to keep a cool head on your shoulders. It’s a high-stress situation, which means it can be very, very easy to make decisions that might make sense in the moment but end up creating longer-term headaches down the road.

Once your people are safe and the firefighters are on the scene, take a minute, breathe, and call your broker. Your job now is to let your insurance do theirs.

For a Deeper Dive

• Five Internal Controls for the Very Small Nonprofit (Blue Avocado)
• Internal Controls for Nonprofits (National Council of Nonprofits)