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Insurance: Are You Sure You’re Covered? (Part 1)

Tips for navigating the ever-confusing path to building proper protection

CHICAGO — It’s a product that no one wants to use, but putting together the proper insurance coverage can save a business when disaster strikes. While some types of insurance are necessary to have in place to acquire a business license, many of the products fall into a gray area where dry cleaners aren’t sure what to get — or how much of it to have. Add state and local requirements and it can become a mass of confusion that no dry cleaner wants to tackle.

American Drycleaner reached out to three insurance professionals who deal with the drycleaning industry to ask them some common questions business owners face — and get answers to questions often not asked.

Q: What are the basic components of a small-business insurance policy?

Tina Brazier, business development manager, Irving Weber Associates: The basic components of such a policy would be:

  • General liability, which covers your business against claims as a result of injuries or property damage connected with your business, or even non-physical acts like slander or libel.
  • Property insurance, which covers your business’ property and physical assets, including buildings, equipment, inventory, furnishings and computers from loss or damage in the event of man-made disasters like theft and fire, and natural ones like tornadoes, hurricanes and other weather events.
  • Worker’s compensation is required in most states and replaces wages and pays for medical care for employees injured while on the job.
  • Commercial auto provides coverage for you, your employees and the vehicles you own, lease, rent or borrow — both on the road and off.
  • Umbrella insurance gives your business added financial protection from potentially ruinous lawsuits and accidents. It serves as a backstop to other policies, including general liability, filling potential gaps when other coverages have reached their limits. It may also protect against additional liabilities not covered by your other commercial policies.

Harry Carranza, president, Select Risk Insurance Services Inc.: The first concept before addressing a policy per se is to start with an honest assessment of your goal. Too many dry cleaners — and most small-business owners in general — focus strictly on policy cost or what they can get by with to suffice for regulatory, landlord or contractual requirements. Our argument is that proper protection of the business and its assets through a well-designed risk management program will most typically lead to proper compliance in all such situations but also protect the business owners from exposure to catastrophic loss which could force them to lose most, if not all, of their time and financial investments in the business, as well as their ongoing livelihoods.

A business owner’s policy (BOP) is the typical property and liability insurance contract for small to medium businesses and generally provides a nice complement of typical coverages needed in general and often includes industry-specific endorsements to mirror the business exposures faced by the policyholder. The basic coverage parts included in a BOP are property, business interruption and general liability. Most add options for machinery breakdown (historically referred to as “boiler and machinery” in the fabricare industry) and occasionally add coverage parts for employee benefits liability; non-owned and hired vehicle liability; umbrella liability; and bailee (customers’ goods under your care, custody and control).

The most important aspects of a “small-business policy,” which a policyholder should review, include the declarations pages, insuring clauses (contract), endorsements and exclusions. It is of equal or greater importance to know what you aren’t covered for than it is to know where you are protected. Too many believe they are covered for anything that happens and then are disappointed in event of claim — a la COVID. Business interruption is a great example.

Ann Hawkins, vice president, NIE Insurance: The basic components of a small-business insurance policy will differ for each business. For dry cleaners, I would focus on:

  • Building coverage if the building is owned by the occupant
  • Business personal property coverage
  • Loss of business income coverage
  • Bailee coverage for customers’ clothing (This is where dry cleaners differ from other small businesses)
  • Equipment breakdown coverage
  • Liability coverage for any possible third-party incidents

There are many more things to consider but these are the basics.

Q: What do you see as the function of insurance when it comes to the post-COVID world? How has it changed? Will it change going forward?

Carranza: Unfortunately, COVID will have — and already has had — a material impact on cleaning operations. There were some fundamental mistakes in business categorizations as essential and the way PPP (Paycheck Protection Program) funds were used that created problems and I see many struggling just to survive. Post-COVID, I think many believe the at-home or remote worker trends will continue and perhaps expand, which I suspect will lead to a reduction in available pieces of cleaning and, therefore, more attrition. Business owners will have to be much more astute in making their future plans.

Hawkins: COVID has put many dry cleaners out of business due to people working from home. The ones who were able to hang on are struggling but determined to make it. They are offering more pickup and delivery, more laundry services, more contract work with apartments, clinics, and so on. Dry cleaners have had challenges before and have survived for many years. I don’t think they will go away. They are ingenious enough to make it work and, someday, people will be going back to offices to work. As for dry cleaners’ insurance, we will never be able to cover a pandemic like this in the property casualty sector without charging for it. Maybe someday there will be an endorsement to add that coverage, but it would be very, very expensive and I don’t see it coming soon.

Brazier: The need for alternatives to traditional services in the industry is more important than ever. Mobile apps, delivery or curbside pickup, and on-demand laundry service providers picking up and dropping off clothes are all becoming the norm in the post-COVID world. Insurance carriers need to follow suit, offering coverage for these types of services, taking into consideration the decline in business this industry has seen due to COVID.

Come back Tuesday for Part 2 of this series, where we’ll take a look at special coverages dry cleaners might want to investigate to protect themselves and their businesses.