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Insurance: Are You Sure You’re Covered? (Part 2)

Determining the specific needs of coverage for dry cleaners

CHICAGO — Insurance is a necessary element for any business — from a sole proprietorship to a large corporation. Because dry cleaners deal with the personal property of their customers, however, they can have different needs than other companies. In Part 1 of this series, we covered the basics of insuring a company. In this section, we’ll take a look at the specific needs of dry cleaners.

Q: What special coverages might the average drycleaner owner want to explore? Are there any riders that should be discussed?

Ann Hawkins, vice president, NIE Insurance: The additional coverage that should be discussed are:

  • Utility services time element, which is an extension of loss of business income. It covers the situation where there is no physical damage at your property but there is physical damage to services around you, such as electric transformers, wires, etc., that keep you out of business.
  • Utility services direct damage, which would cover repairs to equipment if the above situation did occur and your equipment was damaged when you tried to turn it back on.

There is a myriad of other components such as attached and detached signs, fences, retaining walls, money coverage, employee dishonesty, computer coverage, cyber liability, employment practices liability and many others.

Tina Brazier, business development manager, Irving Weber Associates: Probably the most important coverage to a dry cleaner is bailee coverage. Bailee covers customer property while it’s in your care, custody and control. That includes while it’s in your locked vehicle — even when your vehicle is away from your store. Bailee covers customer property for all the perils that your property has coverage.

Harry Carranza, president, Select Risk Insurance Services Inc.: A true total cost of risk analysis is important to meet the insured’s primary objectives — and possibly educate them as to why they might want to consider alternative perspectives from their current risk appetite position. Too many dry cleaners think premium first. It’s understandable — insurance is an intangible business expense and a service you hope to never use! They want the cheapest policy possible and when you start discussing the likelihood of certain scenarios, most typically believe it will never happen to them and end up uninsured or substantially underinsured. Some examples on a line-by-line basis of things we look at include:

  • Workers’ compensation — Is the payroll allocated in the proper class code categories? Has a rate study of the marketplace been completed? Has the labor been physically separated to make sure work comp dollars are being efficiently used?
  • Commercial auto — Has permanently installed equipment, like racks or carpet cleaning equipment, been taken into account? Does the insurance properly cover often-expensive vinyl wraps? Is “Symbol 1” coverage for auto liability in place, allowing named insured individuals to drive any company vehicle? Are the vehicles in the proper rating category (service, commercial or retail)? Is lease gap coverage in place so that, if the vehicle is totaled soon after delivery, the insured is not saddled with the depreciation?
  • Bailee — This is probably one of the most poorly understood coverage parts in drycleaning insurance. A true bailee policy is “inland marine” insurance — property moving on land from place to place. It is non-standard and has both liability and property aspects to it. It can, in some circumstances, provide legal defense in the event of claim. True bailee also deals with hundreds or even thousands of claimants as individual claims in the event of fire or total loss, whereas “property of others” insurance usually provides for a single settlement check to the owner, who is then left to pay claims. As you might imagine, this is a nightmare.

Again, each one of these coverage parts is almost never perfect out of the box, and subtle differences in structure strategy can mean a huge difference in up-front cost and proper indemnification in the event of loss.

Q: Where are the greatest areas of risk in and around the average drycleaning business?

Brazier: As mentioned previously, bailee coverage is vital to the fabricare business owner, but another important concern for the drycleaning business owner is boiler and machinery coverage/equipment breakdown, which, in turn, can lead to business interruption. Unfortunately, many business owners wrongly assume that their property insurance will cover any damages or breakdowns that occur with their equipment. However, typical property/casualty policies will only cover damage to equipment from “external” causes — that is, natural disasters, fire, or even a tree falling on the roof of the establishment. A dry cleaner needs to be sure that equipment breakdown insurance includes coverage for equipment damaged from an accident or electronic circuitry impairment as well. This can include data restoration for computer equipment and expenses to make temporary repairs or expedite permanent repairs as well.

Carranza: Fire loss, loss to property and customers goods, historical environmental loss, vehicle accident liability, wrongful termination and labor issues and business income losses (including utility time element-type losses).

Hawkins: The greatest areas of risk in and around a drycleaning business are liability and fire. Whether it be a customer or the general public, people are prone to have accidents. When they do, and if it happens on your property, they often get an attorney. They may sue you whether you own the building or not, even if the accident occurs in the parking lot and the upkeep is supposed to be taken care of by the landlord. Of course, people can also fall in your store and that’s almost always on you. It’s best to leave bags and stacks of clothing behind the counter, and always be vigilant about what could potentially cause someone injury.

Fires in dry cleaners have many causes. Spontaneous combustion is a big one. If you are doing laundry, you may take the laundry out of a hot dryer and place it in a cart and leave. The contents of the cart can begin to smolder and hours after you have gone a fire starts. Dry cleaners don’t always know what is in the laundry they have just washed. There could be various types of oil and other substances that will become ignition sources for the basket of hot laundry. Oils don’t always wash completely away, and a small amount can be hazardous. Some other causes of fire are lack of equipment maintenance, faulty wiring and lint and dust accumulation, just to name a few.

Come back Thursday for the conclusion of this series, where we’ll explore how to find balance between reasonable insurance premiums and having the proper protection for your business. For Part 1 of this series, click HERE.