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Identifying water-damaged HVAC systems after a hurricane

The following article on “Identifying water-damaged HVAC systems after a hurricane”, written by Matt Livingston of HVAC Investigators, was originally published on Property Casualty 360.

As the floodwaters recede across the Gulf Coast following Hurricane Harvey, the arduous process of claims investigation begins to unfold. CAT adjusters from across the country are travelling to the impacted areas to assess property losses and assist insurance carriers in reaching accurate settlements.

For many adjusters, one of the most difficult property components to assess is the HVAC system. HVAC equipment is simply too expensive to indiscriminately write replacement estimates, and accurate pricing and availability is also difficult for adjusters to access. Moreover, determining if the equipment is damaged is itself a difficult task – it’s not always a matter of just turning on the system to determine whether or not it works. Many of the properties are still without power, and once restored, diagnosis may prove difficult without first determining the full extent of potential damages.

Related: HVAC compressor damage: Lightning or wear & tear?

Hurricane Harvey: Water Levels on Condensing Unit

This illustration depicts the amount of water that can accumulate before affecting a ground-mounted condensing unit. 

Outdoor equipment inspection

The first component to be assessed for damage is the outdoor condensing unit, typically located on the ground or on the roof of the property. If the unit is located on the roof, it is unlikely that it suffered any damage from floodwaters, although it should still be checked for any additional storm damage.

Condensing units are designed to withstand the elements, but muddy, rushing floodwaters can impact ground-mounted systems and lead to repair actions ranging from a simple coil cleaning to a full system replacement. The water can typically rise to the compressor terminals before causing significant damage, as seen in the illustration here.

When assessing the outdoor condensing unit, here are a few things to look for:

  1. Check for dirt and debris stuck in the condenser coil fins. Where the debris ends typically indicates how high the floodwaters rose on the unit.
  2. Water lines on the system’s back panel, its electrical compartment, or an adjacent building wall also provide clues as to how much of the condensing unit was exposed.
  3. Based on how high the water rose, determine which components the water may have compromised, such as the compressor, electrical compartment and fan motor.
  4. Look to see if the condensing unit shifted on the pad. If shifting did occur, check the copper lineset for any breaks or kinks. A breached lineset may have allowed contaminates to enter the refrigerant loop, which could damage the compressor and other components.

Related: Know these covered losses and exclusions after a collapse

Hurricane Harvey: Water Line on Condensing UnitWater line on condensing unit indicating how high the floodwaters rose

Indoor equipment inspection

Depending on the type of HVAC system, an indoor furnace or air handler may also be present. The location and orientation of the indoor equipment will influence the amount of damage the unit sustained. A horizontal furnace mounted in the crawlspace is typically more vulnerable to water damage than a vertical furnace in a lower floor utility closet or basement (unless the basement was completely flooded). Furnaces or air handlers mounted in the attic or on a second floor, on the other hand, may have no damage whatsoever.

Hurricane Harvey: Water Levels on a Horizontal Furnace

How various water levels can impact a horizontally-mounted furnace in a crawlspace

Water levels in horizontal systems

A horizontal furnace or air handler in a crawlspace is particularly susceptible to water damage. The amount of water that can inundate the crawlspace before impacting the equipment depends on how high the system is mounted (sometimes dictated by building code) above the ground. Once the water reaches the system, however, it will likely suffer significant damage, as seen in the illustration here.

Related: Texas’ No. 1 homeowners’ insurer responds to Harvey, offers tips

Hurricane Harvey: Water Levels on a Vertical Furnace

How a vertically-mounted furnace can be affected by floodwaters. 

Vertically mounted units

A vertically mounted furnace may be more protected from water damage. This orientation will not typically sustain significant damage until the water reaches the burner compartment (found in the middle of the unit, several inches above ground level), as seen in the illustration here.

Here are a few things to look for when assessing the indoor equipment for floodwater damage:

  1. Look for a water line on the outside of the furnace/air handler, on rigid ductwork or on an adjacent wall.
  2. Check the control board for water damage. Often (depending on when it was printed), the board’s writing will “bleed” when exposed to water, providing a useful clue in estimating the water’s reach.
  3. Examine any sheet metal ductwork for premature rusting or corrosion.
  4. Flex ductwork will sag and duct board will swell after getting wet, indicating floodwater contact.
  5. The insulation on the inside of the blower compartment will often be damaged by the water.

Related: Keys to identifying hail damage to HVAC condenser coils

Hurricane Harvey: Water Line on a Vertical Furnace

Water line on furnace indicating how high the floodwaters rose

Once you have determined (both indoor and outdoor) how much water damage an HVAC system sustained, you can begin the process of establishing a proper scope of repairs. It is important to keep in mind that even in severe flood scenarios it is rare that a full system replacement is necessary. In many cases, individual components can be replaced and systems can be cleaned to achieve pre-loss condition. Remember, a portion of the system (or in the case of packaged units, the full system) may be located high enough on the property to avoid the floodwaters from the hurricane, and could thus significantly influence the required scope of repairs.

For information on wind and lightning damage accompanying hurricane claims, you can access our adjuster toolkit for hurricane claims. You can also review a labeled split system diagram and a labeled packaged unit diagram, to assist in identifying components and their susceptibility to floodwater damage.

The Impact of HVAC Theft on Property Claims

One in every 235 homeowners files a theft claim each year. These damages average nearly $4,000 per paid claim, according to the Insurance Information Institute. A major contributing factor to these staggering theft claim statistics is HVAC theft.

Get your free copy of our HVAC theft claim guide here

HVAC theft of coils from multiple units

Theft of coils from multiple HVAC units

Why is HVAC theft such a common occurrence?

HVAC systems include valuable metals that criminals can easily sell. The placement of the units in accessible areas makes HVAC systems vulnerable to theft.  The condensing unit is located outdoors and is often placed out of plain sight, especially on commercial buildings, making it very easy for thieves to access without drawing attention to themselves. The desired components can be stolen quickly and easily, if the property owner has not taken preventative steps.

HVAC Theft copper lineset

Copper lineset cut and removed

The outdoor portion of the HVAC system contains valuable copper, which is a hot ticket item for thieves. Stolen copper can be sold to scrap yards for up to 90% of its current value. Copper theft has more than tripled in the past five years, and the amount of copper stolen annually exceeds $1 billion (20 Extraordinary Copper Theft Statistics). While the price of copper has declined slightly since its peak in 2011, the value has steadily increased over the past year to $2.91 per pound at the time of this writing (Investment Mine).

HVAC Theft

Whole condensing unit stolen from pad

Additionally, the rising number of copper thefts over the past 5 years led some states to enact stricter regulations on scrap yards, requiring locations to enforce more stringent requirements when accepting salvaged copper.  This has resulted in some thieves removing full units, as opposed to simply stealing copper coils and linesets (Copper Theft: The Next Gold Rush).

 

What considerations are required for a repair or replacement option following theft?

The main consideration following theft of HVAC components for determining scope of repairs is what components were stolen. However, the theft of a few components can create a domino effect, leading to a major repair or a full system replacement. A few additional factors need to be taken into consideration before determining the scope of repairs required to return the insured to pre-loss condition.

Amount of time passed since the theft

When a thief is stealing copper or the outdoor condensing unit, they will have to cut the lineset that connects the outdoor compressor to the indoor evaporator coil. If the lineset is left open, moisture and contaminants can enter the refrigerant loop and lead to a major repair or replacement requirement. The length of time the lineset can remain open depends mainly on the type of refrigerant used in the system. HCFC refrigerants, such as R-22, can typically remain open for a longer period than HCF refrigerants, like R410a. This is because HFC systems use polyolester (POE) oil in the compressor that is more impacted by moisture in the atmosphere than the mineral oil traditionally used in HCFC refrigerant compressors. Some newer R-22 compressors also use POE oils, so the age of the system needs to be taken into consideration, in addition to the type of refrigerant.

HVAC Theft: Copper Lineset Cut

Copper lineset cut from condensing unit compressor

Equipment Availability

Some theft damages may require a more extensive repair or even a full system replacement due to the availability of repair parts. This is especially prevalent in older systems. For example, if the coils are stolen and there are no longer compatible coils available from the manufacturer, the outdoor condensing unit may need to be replaced to return the insured to pre-loss condition. This could increase the recommended settlement amount by thousands of dollars.

Federal Regulations

Currently, there are federal regulations surrounding HVAC systems that are enforced by the Department of Energy (DOE) and the Environmental Protection Agency (EPA). The DOE regulates the minimum efficiency standard of newly installed equipment. The efficiency of an HVAC unit is rated by the seasonal efficiency ratio (SEER). If a split system is damaged by theft and as a result, the outdoor condensing unit needs to be replaced, the new unit must meet the minimum efficiency requirements (currently 14 SEER in the south and southeast, 13 SEER in the north). The SEER rating of the remaining indoor equipment must be taken into consideration because of the potential for SEER mismatch between new and old equipment.

HVAC Theft: DOE Efficiency Changes

Current EPA regulations are phasing out the production of net-new R-22 refrigerant through 2020. Though R-22 is still being produced and parts are still being manufactured, it is becoming increasingly difficult to find dry shipped condensing units that meet the current DOE SEER requirements. Moreover, R-22 systems cannot be retrofitted to use R410a refrigerant. This means that if the outdoor condensing unit is stolen or needs to be replaced, the indoor coil may also require replacement.

HVAC Theft: R-22 Phaseout Chart

How can we reduce the risk of HVAC theft?

There are many steps that property owners can take to reduce the risk of HVAC theft and, subsequently, thousands of dollars in insurance losses, including:

  • Improve or add lighting surrounding the unit to increase visibility. Because the HVAC unit is often tucked away out of sight on the property, outdoor lighting may not illuminate it, making it easy for a potential thief to access. An even better option is to install motion-censored lights, which will activate when someone walks in the path of the motion detector.
  • Install metal cages around the HVAC equipment. Manufacturers produce HVAC system specific security cages, which allow the unit to be locked away from theft, while maintaining the airflow required for the system to operate properly.
  • Incorporate an HVAC alarm system. These alarm systems typically connect to a standard security system. If power is manually shut off to the HVAC system, or the refrigerant pressure levels suddenly drop, it triggers the security system.
  • Add a video surveillance system and signs that notify potential culprits that the site is being recorded, which will deter many thieves. If a theft does occur, video footage of the crime can be accessed, which can potentially assist in finding the culprit.

HVAC theft prevention

Condensing unit enclosed in security cage to prevent theft

What does this mean for insurance carriers?

As long as HVAC theft remains a prevalent concern, it is critical that insurance carriers take all steps necessary to reduce indemnity leakage. This can be achieved by ensuring that claims are settled for a proper repair scope, as opposed to simply replacing every system subjected to a theft. Additionally, agents and risk managers can help policyholders to properly reduce the risk of HVAC theft and reduce the exposure of insurance carriers for theft claims.

 

 

Identifying Lightning Damage to HVAC Systems

Lightning strikes the earth about 100 times every second and can heat the surrounding air to up to 50,000 degrees Fahrenheit (The Weather Channel). As such a destructive force, it’s no wonder lightning damage caused $790 million in homeowners insurance losses in 2015 and an average of almost $8,000 per paid claim (Insurance Information Institute). Moreover, these amounts are expected to rise as the average number and value of electronics within a home increases.

The rising cost of lightning damage claims illustrates the importance to insurance carriers of properly identifying the peril prior to making a settlement decision. According to a study conducted by Vaisala of 14,000 lightning claims from a top insurance carrier, 30% had no recorded lightning strikes in the vicinity. If each of those claims were settled for the average settlement amount of $8,000, that would have resulted in over $33 million of indemnity leakage.

To make matters worse for claims involving HVAC equipment, many symptoms of age-related wear & tear are often misdiagnosed as lightning damage. We’ve put together an overview that illustrates the symptoms of lightning, surge, and wear & tear damages, to help adjusters settle lightning claims with a greater degree of accuracy.

Lightning Damage

The outdoor placement of the condensing unit or packaged unit lends itself to direct lightning damage. This type of damage is almost always limited to the outdoor equipment. With confirmed lightning damage, there will always be visual evidence of arcing and charring of the equipment casing and/or housing. Additionally, multiple outdoor electrical components will be damaged, such as the contactor, capacitor, compressor, and fan motor.

Lightning Damage to the Disconnect Box

Visual evidence of a direct lightning strike to the disconnect box

While lightning damage is the most frequently claimed cause of loss to HVAC equipment, lightning is very rarely the actual peril to the system. Most often, HVAC systems reported as a lightning damage are in fact damaged by wear & tear, surge or, perhaps worse, not damaged at all.

Surge Damage

A voltage surge occurs when there is a spike in the home’s or business’ electrical current. While this could be caused by a nearby lightning strike, it could also be the result of the utility company switching grids, or even internally when larger appliances turn on and off (State Farm’s Simple Insights).

Lightning Damage

Surge damage to the capacitor, contactor, and wiring

Surge damage in an HVAC system is typically much less severe and more common than direct lightning damage. A surge could cause damage to multiple components and often includes the contactor and capacitor. Additionally, large portions of wires will often show visual signs of overheating in the form of melting and/or arc marks in surge events.

Wear & Tear Damages

Many symptoms that are actually caused by age-related wear & tear are often misdiagnosed as lightning damage to an HVAC system. In fact, in 2016, 48% of claims reported as lightning damage were found to have failed due to wear & tear following an objective damage assessment.

Claimed Lightning Damage - Actually Wear & Tear

Wiring charred within 2″ of the connection to the capacitor indicating there was a loose connection

One major indication that the damage was simply caused by age-related wear & tear is when a single component fails, such as the compressor only or capacitor only. Another sign of wear & tear is charred wiring within 2” of the component connection, as this is typically a sign of loose wiring connections. The final misdiagnosed lightning symptom is acid in the refrigerant. Acid builds over time when moisture or contaminants enter the refrigerant, and does not occur instantaneously following a lightning or surge event.

The frequency of lightning claims (and often their misdiagnosed symptoms) underscores the importance of engaging an objective expert prior to making a coverage decision. By ensuring that lightning claims are settled accurately, insurance carriers can reduce their risk of indemnity leakage.

The Rising Wildfire Risk And Property Claims

Wildfire risk has been on the rise throughout the past decade. The first four months of 2017 have shown an increase of 20% in the number of wildfires compared to the beginning of 2016 (III), and 2015 set a new record of 68,151 wildfires burning 10,125,149 acres. Wildfires are a natural way for the ecosystem to remove dried brush, add nutrients to the soil, clear out invasive weeds, and allow sunlight to reach the floor of the forest, but climate changes and increased development have caused this natural phenomenon to become catastrophic with immense financial implications to the property and casualty insurance industry.

Wildfire Risk: fire damaged electrical componentsPackaged unit irreparably damaged by fire

One of the main reasons for increased wildfire is due to a change in climate in the United States.  According to the National Wildlife Federation, warming temperatures have led to an earlier seasonal snowmelt. Due to the earlier snowmelt, the ground and vegetation dry sooner, leading to a longer wildfire season. Additionally, the warmer temperatures have increased evaporation rates, which leads to drier conditions and more wildfires.

Get Your Adjuster Guide to HVAC Smoke/Fire Damage

Another contributing factor to the increased wildfire risk is the expansion of urban development in wildland areas. According to Property Casualty 360, since 1990, 60% of all new housing units in the United States were constructed in wildland-urban interface zones. These zones are areas where people are inhabiting undeveloped natural lands, such as forests and grasslands. With more people living where wildfires naturally occur, wildfire risk management has become increasingly complex (US Department of Agriculture). Additionally, researchers at IBHS have discovered that windblown embers cause the most damage to homes during wildfires, particularly when homes are in clusters less than 15 feet apart.

2017 has already seen a large increase in wildfires. Long-term drought and high winds created a wildfire of epic proportions in parts of Oklahoma, Texas, Kansas, and Colorado in early March. It is estimated that the fires in Texas burned over 2 million acres (NOAA).

Wildfire Risk: Soot and Ash Clogged Condenser Coil

A condenser coil clogged with soot and ash following a wildfire 

This increased wildfire risk has immense financial implications for insurance carriers nationwide. Insurance Information Institute estimates insured wildfire losses at over $2 billion for 2015, and the wildfires that ravaged Gatlinburg, TN in the fall of 2016 caused over $500 million in property damages. In the Western United States alone, CoreLogic estimates almost 29 million properties are currently in a residential wildfire risk zone.

An important factor for insurance carriers to keep in mind, when attempting to control this increased wildfire risk, is that while wildfires can be potentially catastrophic for homes directly in the path, many HVAC systems that are subject to smoke damage from wildfires can easily be remedied by a simple repair.  For HVAC systems with claimed damage from wildfires in 2016, 94% of the systems could be returned to pre-loss condition with a repair, 4% were in proper working condition at the time of the onsite assessment, and only 2% required a full system replacement.

The most common repair action for losses reported due to wildfire is cleaning the condensing unit coil to remove ash and debris. The average cost for this repair in 2016 was $255. In some instances where the air handling unit was running during the wildfire, the ductwork and/or evaporator coil also required cleaning. The average cost for this repair in 2016 was $437. In extreme wildfire cases, where the fire actually reaches the home, individual components or the entire outdoor unit may need to be replaced. Finally, there are also instances where the fire compromises the entire system and either renders the system irreparable, or the repair cost exceeds that of the replacement. However, it is important to keep in mind that this scenario is very infrequent occurring only 2% of the time last year.

Wildfire Risk: Soot and ash inside of a flex duct

Soot and ash inside of a flex duct

Additionally, not all HVAC systems claimed as a wildfire loss are, in fact, related to Smoke/Fire damage. Out of the systems assessed by HVACi in 2016, 13% were found damaged due to age-related Wear & Tear, and 4% of the systems assessed for wildfire claims were found not to be damaged.

As this historical evidence shows, it is important for carriers to consider all options before simply settling for full system replacement on any claim, but particularly in the case of wildfires in the area. For more information on repair options for Smoke / Fire damage to HVAC systems, access your copy of the adjuster guide here.

2016 Property Claim Trends – Regionality of Claims

Analyzing property claim trends presents a significant opportunity for insurance executives and adjusters alike to improve and plan for the future. Our Annual Claims Report provides many property claim trends that are valuable to property and casualty insurance claim professionals. One set of compelling statistics is the regionality of claims.

How claims are distributed by region provides powerful insights for everything from staffing requirements to expense reserve planning. This trend also has a significant impact on customer satisfaction rates. In the J.D. Power 2017 US Property Claims Satisfaction Study, those regions with less claim activity (particularly less complex claim activity) had much higher claim satisfaction ratings than the regions with more volatile weather.

Distribution of Claims by Region

For the purposes of addressing claims by region, we segment the 50 states into the following regions:

  • Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont
  • Mid Atlantic: Delaware, Maryland, Pennsylvania, Virginia, Washington DC, West Virginia
  • Southeast: Alabama, Georgia, Florida, Mississippi, North Carolina, South Carolina, Tennessee
  • Southwest: Arizona, Arkansas, Louisiana, New Mexico, Oklahoma, Texas
  • West: Alaska, California, Hawaii, Nevada, Oregon, Washington
  • Central West: Colorado, Idaho, Kansas, Montana, Nebraska, North Dakota, South Dakota, Utah, Wyoming
  • North Central: Illinois, Indiana, Iowa, Ohio, Kentucky, Michigan, Minnesota, Missouri, Wisconsin

As seen in the map below, in 2016, the Southwest and Southeast accounted for the majority of the HVAC claims. These regions have the highest frequency of weather patterns accompanied by Hail, Lightning, and Flooding, which are all particularly damaging to HVAC systems.

Claims by Region - Blog-01

The Annual Severe Weather Summary by NOAA illustrates the number of reported tornado, hail, and wind events for each state. Broken out into our regions, Central West had the highest frequency of severe weather. However, the combined population only represents a little over 5% of the nation. In opposition, the West represents close to one fifth of the US population, but less than 1% of severe weather occurred in the combined states during 2016.

As you can see, the distribution of claims is influenced by a combination of severe weather and population. Accordingly, the Southeast and Southwest combined represent approximately 35% of the population and 35% of severe weather reports.

Theft Claims by Region

Theft and vandalism can occur anywhere, but as illustrated by the graph below, the frequency of theft claims in the West is much greater than in other regions of the country. This calculation is based on theft as a percentage of total claims for the region. As mentioned previously, the states that make up the West Region (Alaska, California, Hawaii, Oregon, Nevada, and Washington) accounted for less than 1% of the nation’s severe weather in 2016. Most of the claims in the West are thus less likely to be caused by severe weather and natural catastrophe events and instead are disproportionately impacted by other causes of loss, like theft and vandalism.

Property Claim Trends: Theft Claims by Region

According to Travelers Insurance, Theft accounted for 6% of their homeowner’s claims between 2009 and 2015. This puts the West region at more than twice the national average for Theft claims. Whereas areas that are more often impacted by severe weather, such as the Central West, Southwest, and Southeast, have much lower Theft claims frequencies than the national average.

Wear & Tear Claims By Region

In 2016, the Northeast, Mid Atlantic, and Southeast all displayed high frequencies of systems damaged by age-related Wear & Tear. Wear & Tear claims are commonly misreported, owing to (among other things) a lack of formal education on the part of local contractors for Lightning diagnosis. For instance, several symptoms that are actually indicative of Wear & Tear (such as burned / charred wires and acidic refrigerant) are commonly mistaken for Lightning damage.

Property Claim Trends: Wear & Tear Claims by Region

Additionally, in the Northeast, we see a high frequency of claims for damages to boilers. As boilers can have a longer life than typical HVAC equipment, many boilers fail due to age-related Wear & Tear. In fact, the average age of a boiler that we assess is 23.4 years, despite the fact that the average life expectancy of a boiler is closer to 15 years (Do It Yourself).  Certain regions, like the Southwest, Central West, and North Central, show a high frequency of Hail claims, leading to a much lower relative frequency of Wear & Tear related damages.

4 Options to Consider When Adjusting Hail Claims

The following article on “4 Options to Consider When Adjusting Hail Claims”, written by Matt Livingston of HVAC Investigators, was originally published on Property Casualty 360.

The first few months of 2016 ushered in severe weather storms of historical proportions.

According to the Property Claims Service unit of Jersey City, N.J.-based Verisk Solutions, first-quarter losses added up to an estimated $3.8 billion, 27% higher than the 10-year first quarter average.

Hail Claims
The Insurance Information Institute says hail causes about $1 billion in damage annually, with the highest number of claims reported in April, May and June. Hail guards like this one can help reduce some of the damage to HVAC systems.

This is in large part because of hailstorms that ripped across much of the country.

Download our adjuster guide to hail claims

Two devastating storms, separated by a week, hammered the Dallas-Fort Worth area in March. In April, San Antonio was hit with the costliest hail event in Texas history, according to the Independent Insurance Agents of San Antonio, which included hail up to 4½ inches in diameter, the National Weather Service said. Less than a month later, major hailstorms stretched from Kansas and Oklahoma, all the way to the Atlantic coast.

As a result of these catastrophic losses (and several other minor hail storms), many adjusters have found themselves in uncharted territory, tasked with handling heating, ventilation and air-conditioning (HVAC) losses they’re not accustomed to settling.

When encountering hail claims, it’s important to understand what HVAC parts are truly susceptible to damage, and what repair methods are readily available to return the insured to pre-loss condition.

Exposed and delicate

Aside from roofing and siding, HVAC systems account for the most commonly claimed residential property loss because of hail damage. The outdoor condensing unit, and more specifically, the condenser coil, is the most susceptible component of an HVAC system to sustain damage from hail. The condenser coil contains tightly spaced aluminum “fins” that surround the perimeter of the condensing unit. And because of they are made of thin, malleable aluminum, they can easily be damaged by any foreign object, including hailstones.

Because of their susceptibility to hail damage, some residential and commercial condenser coils are protected by hail guards (rigid metal casing with vents to allow airflow). However, most HVAC systems are not equipped with hail guards, resulting in dented, bent, and even torn fins, in rough proportion to the size of the hailstones during these events.

When it comes to returning HVAC systems to their pre-loss condition (regardless of whether they’re rooftop-based units or traditional split systems), the overwhelming majority of systems with confirmed hail damage can be restored with minor to moderate repairs.

In fact (much to the dismay of some local contractors), a “hierarchy” of repair options exists for hail-damaged HVAC systems, and should be considered when faced with this type of claim:

Hail claims: HVAC repair hierarchy
This pyramid gives adjusters with a hierarchy for evaluating damage to HVAC systems.
Hail Claims: Before and after combing
At left, minor hail damage that dented the fins of the condensing coil of a residential split system condensing unit. At right, fins after combing.

Option 1: Comb the fins

The first (and statistically most likely) repair option in the hail repair hierarchy is to straighten or “comb” damaged condenser coil fins with a specialty tool designed for this specific purpose.

In fact, nearly 50% of all residential HVAC systems with hail-related damages assessed in 2015 could be restored to pre-loss condition using this repair method, according to the HVACi 2016 Annual Claims Report.

If an HVAC professional invests adequate time and care into the work, combing the fins of a condenser coil is often a simple and inexpensive way to rectify minor hail damage.

Hail Claims: Moderate Hail Damage
Close-up view of moderate hail damage to a commercial unit.

Option 2: Replace the coil

If the hail damage proves too extensive to comb the condenser coil fins, the second step in the repair hierarchy is to repair the HVAC system by replacing the condenser coil itself.

Thirty percent of the hail claims assessed in 2015 resulted in this repair recommendation following an onsite investigation of the system damage. Many condenser coils are stocked at local HVAC distribution centers or manufacturer warehouses, and in other cases, can be produced by the manufacturer “on demand” if needed.

Hail Claims: Major Damage
Significant damage to a commercial rooftop package unit.

Option 3: Replace the condensing unit

If the condenser coil is no longer available, or the lead-time for the coil production is too long, adjusters may opt to replace the outdoor condensing unit or packaged unit.

As the third step in the hail repair hierarchy, this repair option is required less often than a combing (step 1) or replacing the condenser coils (step 2). That said, condensing unit replacements were required roughly 17% of the time for residential hail claims last year, and remain a viable repair action of last resort.

Option 4: Replace the system

If replacing the condenser coil isn’t a viable repair option, and the condensing unit replacement results in a significant mismatch with the remaining internal equipment, adjusters may be compelled to authorize a full system replacement. However, it’s important to note that this scenario is highly unlikely and very infrequent. In fact, only 5% of residential hail claims in 2015 required a full-system replacement (meaning 95% of hail-damaged HVAC systems can be repaired and returned to pre-loss condition).

HVAC systems damaged by hail very rarely require replacement. When handling hail losses, adjusters who receive a local contractor’s estimate stating that full system replacement is required should view to do some additional digging. Data suggests that other options are not only available, but are likely to be the prudent path to system restoration.

Catastrophe Claims and Their Effect HVAC Claims

Natural disasters and the resulting catastrophe claims were at a four-year high in 2016, according to Aon Benfield. The economic impact of these catastrophes was, globally, two thirds more than in 2015 (Munich RE). Moreover, North America suffered its highest number of natural catastrophes in more than 35 years. While natural disasters are an unavoidable part of the property insurance industry, the resulting catastrophe claims present significant challenges for both P&C insurance carriers and individual adjusters.

Without the proper diagnosis and settlement tools, catastrophes can make predicting risk and estimating HVAC damage reserves very difficult for carriers. Additionally, laws that require all claims (even those from a catastrophe) to be processed according to strict deadlines put catastrophe claims at an even greater risk for indemnity leakage. By evaluating claim data from historical catastrophes, carriers can better understand and anticipate the downstream impact of future losses from catastrophes.

For adjusters, catastrophe claims can be an extremely difficult task. Not only are these types of claims physically and emotionally draining, but typically, more claims to investigate often exist than there are hours in a day. However, adjusters cannot simply settle for replacement of all equipment when a repair is viable ― just because they need to close more files. By analyzing data from other catastrophe claims, adjusters can better understand when they might want to bring in an expert to evaluate the HVAC portion of the claim to help them settle expediently and accurately.

Catastrophe Claims

To help P&C insurance carriers and adjusters prepare for and handle catastrophe claims that include HVAC equipment, we have selected three notable catastrophe events from 2016 for analysis: Spring Texas Hailstorms, Louisiana’s August Flooding and Hurricane Matthew.

Spring Texas Hailstorms

The months of March and April, 2016, ushered in some of the largest hailstorms on record, resulting in more than $4 billion in property damage in portions of Texas. According to the Insurance Council of Texas, the only collection of storm events with higher damage totals in the history of Texas (across all perils) was Hurricane Ike in 2008. Most of the damage occurred in the Dallas-Fort Worth and San Antonio areas, with some property owners suffering repeat losses between March and April (experiencing hail up to 4.5 inches in diameter). With an estimated $1.36 billion in damage, the April 12 San Antonio storm was the costliest single hail event in Texas history, according to Insurance Journal.

Catastrophe Claims - Spring Texas Hailstorms Repair vs. Replace

While the 375 Texas hail events in March and April of 2016 were catastrophic, the HVAC systems damaged by hail were largely repairable. 93% of HVAC systems (across both residential and commercial claims) were found to be repairable after HVACi’s onsite assessment. This percentage indicates that, for hailstorm catastrophes, carriers should avoid settling for replacement of HVAC systems without an evaluation from an objective expert.

Louisiana Flooding

In August of 2016, devastating floods of historic proportions struck southern Louisiana. The two-day rainfall, which in some areas totaled more than 2 feet, had a statistical likelihood of a less-than-0.1 percent chance in any given year (1,000-Year Rain). These floods led to an estimated $8.7 billion in property damages (The Economic Impact of the August 2016 Floods in the State of Louisiana) and the death of 13 people in five Louisiana parishes (Louisiana’s Mammoth Flooding).

Catastrophe Claims - LA Floods Reported vs. Actual Cause of Loss

HVACi was enlisted by carriers to assess a wide variety of catastrophe claims because of the flooding in southern Louisiana. Most of these damages were claimed as Water, Lightning or Windblown debris. After a thorough technical assessment, it was determined that 25%  percent of these systems were, in fact, damaged due to age-related Wear & Tear, and 6 percent were in proper working condition at the time of the assessment. This data proves the necessity of determining the actual cause of loss to HVAC equipment, even when it is part of a catastrophe claim or carriers at risk of indemnity leakage.

Hurricane Matthew

Hurricane Matthew, which had more of a direct impact on the Caribbean, Cuba and Haiti than the United States, made its way up the coast of Florida on October 7, 2016. By the time it made landfall in South Carolina the next day, Matthew had been downgraded to a Category 1 hurricane. While the wind damage from the hurricane could have been much worse, the storm surge and flooding that ensued devastated the Southeast U.S. coast.

Storm surge caused the tides to rise to levels never recorded in some areas of North and South Carolina (National Weather Service). The worst damage came in the days immediately after the hurricane, with coastal rivers rising to their highest levels since Hurricane Floyd in 1999. Hurricane Matthew resulted in a death toll of 46 in the United States. Air Worldwide estimates the cost to be more than $6 billion, and over 19,600 National Flood Insurance Policy claims were filed (FEMA).

Catastrophe Claims - Hurricane Matthew claims by loss state

HVACi assessed claims in all five states affected by the hurricane, with the majority of the claims occurring in North and South Carolina. The most frequently claimed cause of loss was Wind damage, followed by High Voltage Surge. After a thorough onsite assessment, 30 percent of the systems were damaged due to age-related Wear & Tear and 5 percent were not damaged at all. This data drives home the need for carriers to utilize an objective expert to determine the cause of loss to HVAC equipment, even when it is part of a catastrophe claim, so as to better control indemnity leakage.

HVACi Releases 2017 Annual Property Claim Report

Carriers Recaptured Millions in Indemnity Leakage by Consistently Using Third Party Experts to Help Settle Claims Accurately New data released in HVAC Investigators’ 2017 Annual Claims Report arms insurance carriers with powerful information about property claim trends

Charlotte, NC February 22, 2017  ̶  HVAC Investigators (HVACi), the nation’s leading provider of HVAC and Refrigeration damage assessments for Property & Casualty insurance carriers, announced the release of its highly anticipated 2017 Annual Claims Report today. The data in HVACi’s report provides an opportunity for carriers to discover where indemnity leakage can be controlled and thereby realize significant savings. Furthermore, the statistics presented in the report allow carriers to improve accuracy when setting indemnity and expense reserves. This information underscores the importance of establishing a standard process to handle HVAC claims consistently.

Distributed to Property & Casualty insurance carriers nationwide, the report includes statistics from many thousands of actual claims assigned to HVACi by the nation’s top carriers. The figures are derived from the results of both onsite inspections and desktop reviews of residential, commercial, and large loss claims in all 50 states, for all causes of loss, and across all major equipment types and manufacturers.

The Annual Claims Report includes popular topics that carriers have come to rely on, such as Claim Accuracy, Reported vs. Actual Cause of Loss, Repair vs. Replace Frequency, HVAC Claims by Region, HVAC Claims by System Type, and Frequency of Coverage by System Age. This year’s report also includes many new categories. One such addition is a section devoted to analyzing catastrophe claims and natural disaster events in 2016. Also new to this year’s report is year-over-year trending for statistics such as average claimed amounts, percentage of theft claims, and refrigerant types. This data helps carriers isolate trends from anomalies and predict future claims more accurately.

“The 2017 Annual Claims Report suggests that HVAC claims represent one of the most significant remaining opportunities for property carriers to leverage third party experts for objective damage assessments in order to improve claim accuracy,” commented Reza Nikrooz, HVACi’s Chief Claims Officer. “By establishing a standardized process that includes the engagement of a subject matter expert for HVAC claims, carriers can achieve these savings without compromising cycle times or customer satisfaction ratings.” This report will be made available immediately to insurance claim professionals.

HVAC Investigators (HVACi) is the nation’s leading provider of HVAC and refrigeration damage assessments. Our prompt inspections, actionable reports, and national footprint help insurance carriers settle HVAC claims more quickly and with a higher degree of accuracy. To learn more about our services or to submit an assignment, please visit hvaci.com, email info@hvaci.com, or contact us by phone at (888) 407-5224.

2017 Annual Claims Report includes significant property claim data

The Dangers of Freezing Water & Boilers

The following article on “The Dangers of Freezing Water & Boilers”, written by Matt Livingston of HVAC Investigators, originally appeared in the Technical Notebook Column of Claims Magazine and was also published on Property Casualty 360

Stuck low water cutoff for boilers can be dangerous
Figure 1 and an inside view of a stuck, low-water cutoff in a boiler

As we enter the heart of winter and turn our attention toward cold weather conditions where freezing water can wreak havoc on commercial and residential property, the threat of catastrophic failure to boilers looms large (as seen in Figure 1).

Although failsafes against significant boiler failures do exist and continue to improve, they remain far from perfect.

One particularly susceptible failsafe is a boiler’s low water cutoff (LWCO). An LWCO is designed to alert the boiler that it does not contain sufficient water to “fire,” and prevents the boiler’s burners from igniting until a safe water level has been restored.

Installation of low water cutoffs 

Because these types of failures can lead to injury or death, most state and municipality codes require the installation of low water cutoffs for both residential and commercial boiler applications.

LWCOs are found in one of two designs: Electronic-probe (a more recent technological introduction) and mechanical-float (a traditional, lower-tech version, seen in Figure 2). For this article, we’ll focus our attention on the latter.

What is a mechanical-float LWCO? 

Mechanical-float low water cutoffs are the most widely used water-level safety device in residential and commercial heating boiler applications. These LWCOs are simple in design and function much like fill arms found in residential toilet tanks. As the water level drops in a boiler reservoir, the buoyant arm “floats” down until it reaches a point at which the boiler is unsafe to operate, and the switch turns the heating system off as illustrated in Figure 3.

Common issues with LWCO valves 

Despite their simplistic design, mechanical-float LWCOs are prone to several issues, which can have catastrophic impact if not addressed. These issues include:

  1. Stuck valves: Mechanical-float LWCO valves are in constant contact with supply water, and are exposed to minerals, dirt, rust and other total dissolved solids (TDSs). This prolonged exposure to TDSs can interfere with the designed function of the float, preventing it from moving freely up and down in line with the actual water level.
  2. Clogged LWCOs: Sometimes, TDSs and other impurities can prevent the free-flow of water through the LWCO, and can “trick” the LWCO into reporting that an adequate supply of water is present in the boiler, when in fact the minimum safe water level has been breached.

Consequences of LWCO failure 

If the float is prevented from moving freely and from sending the appropriate signal to the boiler controls (and the burner) to shut down the boiler when the minimum safe water supply level has been breached, the boiler may continue to run without water (or may be allowed to start without water present).

If a boiler operates without the necessary water supply, the heat generated in the boiler’s combustion chamber does not transfer to the water supply, and causes the burner, heat exchanger, and/or boiler tube(s) to overheat. With prolonged or repeated exposure to this condition, the walls of the burner, boiler or heat exchanger may weaken and ultimately crack, as seen in Figure 4.

Freezing conditions, when coupled with LWCO failure, can lead to catastrophic system failure. Should the feedwater pipes for the boiler become frozen (a common occurrence during cold winter months), the system will be starved of water. If the LWCO simultaneously malfunctions, the boiler will start and run without an adequate supply of water.

The cost of LWCO failure 

When the heat exchanger or boiler tubes crack or fail, the cost associated with the required labor and parts to repair the boiler (provided the parts are still available since boilers can remain in service for dozens of years) often outweigh the cost of the replacement. The failure of a relatively inexpensive component (usually between $200 and $600, plus installation) can ultimately lead to a residential settlement in excess of $10,000.

Mechanical-float failure prevention 
Mechanical-float LWCO valves should be regularly “flushed” to remove TDSs which can prevent the float from moving freely as the water level within the boiler changes. Most manufacturers recommend flushing the boiler at least once per season (some field technical experts say as often as weekly) by opening the “blow down valve,” which sits beneath the LWCO line and allows harmful deposits to escape. Boiler feedwater should be chemically treated to prevent scaling and to maintain proper pH levels for optimal boiler efficiency and performance.

The prevalence of boilers in residential and commercial heating applications makes the threat of LWCO failure real.