Sign, Sign, Everywhere a Sign
Know the ins and outs to maximize subrogation potential from growing sign losses.
As the Five Man Electrical Band song states, “Sign, sign, everywhere a sign.” From the corner store to the top of a tower to the heights of a city skyscraper, claims professionals face a variety of sign losses, which can stem from wind, faulty installation, or electrical wiring failures, to name a few.
Data from an ISO Property Claim Services search reveals commercial wind losses—which can lead to sign claims—climbed from $2 billion in 1989 to $7 billion in just a decade. With a range of sign mishaps on the rise, more and more claims professionals are looking to subrogation for recoveries. However, understanding the current legal landscape and the often overlooked technical intricacies of sign failure is critical for maximizing subrogation potential.
A recent Southern California case is a good example of the potential for recovery in sign losses. A 2,000 pound sign detached from a tower, striking an occupied commercial building. The sign had been attached to the supporting tower for only four months, while the previous sign had been on the tower for 30 years without incident. The loss caused building property damage, emergency remediation, and business interruption and related damages in excess of $420,000.
An adjuster investigated the scene with potential interested parties in attendance and preserved the sign and its remaining material and cables for analysis. The copper used to affix the sign to the tower failed during a foreseeable gusty weather event. Investigators also found that the installation contract indicated that the installer agreed to obtain essential permits. However, the installer did not seek the permits, which would have required the contractor to do structural calculations, complete the installation, and contact the building department for an inspection.
After litigation commenced confirming that no permit was obtained and no calculations or inspection occurred, the matter was resolved. The insurer obtained significant subrogation recovery due to contractor deficiencies. That happened because the adjuster recognized that subrogation potential existed from inception of the loss.
Steps for Pursuing Subrogation
When a significant sign loss occurs, claims professionals need to act quickly to explore recovery. Consider retaining an appropriate engineering consultant for the type of failure indicated (structural, electrical, or mechanical). Obtaining pre-loss video and photographs of the sign in place before failure and after the loss is critical. Furthermore, protect the sign components.
It is essential for claims professionals to preserve contracts, warranties, and maintenance records related to the sign. Carefully review contracts and warranties, which can vary dramatically, with some providing limited warranty for parts only and others attempting to limit consequential damages caused by sign failures. Claims professionals should explore sign recall databases, e.g., saferproducts.gov, and websites on the manufacturer for proper installation and known defects.
Also, determine whether or not the installer was licensed to install the sign. Were permits pulled? Did the building department inspect the work? If the sign failure is not an installation problem, providing notice to the distributors and manufacturers is critical, especially if the latter are located in China. The distributor of the sign may be the only viable subrogation target if the manufacturer is outside the United States.
Signs of Defects
While these are necessary first steps, fully investigating the failure—and identifying a responsible third party—means you need to “read the sign” as to why it failed.
All signs, whether stadium size or small window signs, interior or exterior, are not created equal and are subject to failure according to their unique characteristics. Here are some examples of how to identify specific sign defects that might provide an opening for recovery.
Channel Letter Signs. Channel letter signs are typically made of aluminum, and computers are used to guide machines to cut smooth letter patterns. Check to see if the channel letters are handmade; it can be an indication of an inferior product. The letters can be painted inside, and a protective plastic cap is placed on them.
Confirm that channel letter bases are made of heavier aluminum because soft aluminum is weaker and corrodes more easily. Hard aluminum provides a superior wind and hail resistance. The channel letters should be welded, so if you see screws, staples, or pop rivets, it may be an indication of inferior installation. Seams should be caulked to eliminate water intrusion, and drain holes must be provided to meet the national electrical requirements.
Neon Signs. Improper removal of letters from neon signs can trigger losses. Investigate whether the transformers supplying power to the sign were disconnected from their primary power source before letters were removed. Transformers take the 120-volt input and boost it to a range of 3,000 to 15,000 volts. If that voltage escapes, it is more than enough energy to ignite nearby combustibles, such as wood structures.
LED Signs. LEDs, or light-emitting diodes, are small light sources that can be integrated into all sorts of products, such as general lighting, traffic signals, and signs, some using digital electronic messaging systems, e.g., Jumbotrons. Carefully evaluate weather conditions when looking at related failures in these signs, which are sometimes served remotely with proprietary software programs. Rain, ice, heat, cold, tornadoes and winds can contribute to a loss. Be sure to inspect any fiber optics running to the control system. The system can also be controlled by phone, radio frequency (RF) wireless modem communications, or Wi-Fi modems. While the benefits of LED signs are chiefly less heat and lower operating costs, initial start-up costs are higher than other traditional sign technology, so the potential recovery here is greater.
Freestanding Signs. Check the construction of these signs and confirm that certified welders were involved. Generally engineered to handle high winds, freestanding sign frames may be welded to the faceplate to ensure structural integrity. Aluminum is needed for the exterior surfaces to combat rust since they are typically exposed to the elements—steel cabinets should not be used, and the faceplate should not be bolted.
Certify that a sign has been designed, installed, and maintained to deal with high temperatures (some outdoor signage can reach internal heat levels of 200 degrees Fahrenheit) and water intrusion issues. Water needs to channel away from internal electrical components, so they should be gasketed and sealed to prevent moisture from entering the sign face.
Internal Controls. Claims professionals should assess outflow and inflow ventilation and internal cooling fans when examining the components of a sign’s internal controls, e.g., whether they are subject to freezes, lockups, and other failures. Humidity and temperature fluctuations may impact sensitive components, e.g., some equipment requires significant cooling. Often, inexpensive signs do not have cooling fans for LED displays, which include a separate processor. Better quality systems have a motherboard that is not heat sensitive.
Whether looking at the terms of the contract, required certifications, or the physical nuances of the sign itself, recognizing all the signs of failure in these losses will help claims professionals achieve recovery in this growing area.
Peter A. Lynch is a member of the subrogation and recovery department at Cozen O’Connor. He can be reached at firstname.lastname@example.org or follow him on Twitter @firesandrain.