Your Policy Should Prevent Bankruptcy If/When the Unthinkable Strikes
By John Paul Roggenkamp
Tragedy often strikes without warning. Blue skies can turn grey in the blink of an eye, unleashing torrential downpours. Debris can suddenly block an exhaust conduit, preventing the venting of hot fumes that then somehow ignite. In this piece, we’ll look at how four different drycleaners endured loss and rose from the ashes again – often literally. In three of our cases, having the right insurance was key to them bouncing back from the brink of ruin. Are you adhering to best practices as well as maintaining the right type of insurance coverage to keep the doors open?
Stories Of Loss And Recovery
A fire broke out “over a holiday weekend, so it was a little more difficult for the adjustor to arrive,” said Julie Buntjer of B & J Laundromat in New Ulm, Minnesota. Nevertheless, however, “our insurance rep was there while they were fighting the fire.” Having a dedicated insurance professional by your side can mean the difference between making a nearly full recovery and being up a creek without a paddle.
“I experienced the aftermath of a hurricane,” said Jason Loeb of Sudsies in Miami Beach, Florida, via email. “My business was affected and closed because of no electricity. Luckily, I had the right insurance. I’d switched to NIE [National Fire & Indemnity Exchange] 20 years ago because they understand the needs of drycleaners. They have policies that range from boiler insurance over environmental pollution to business interruption and much more. They understand the needs of drycleaners and will be able to go over the checklist with you.”
“We had a very large 5-alarm fire on Jan 4th, 2008,” said John Palms of Bibbentuckers in Dallas, Texas, via email. “Our largest store burned down. Thank God we had business interruption insurance.” In addition to having to build a “new store/plant with all new equipment,” said Palms, “I wrote checks to customers for $1.4 million for damaged garments. It was during the holiday season and customers used us as a closet. There were 10,000 garments in the store at the time of the fire. Our insurance broker at the time, Dexter & Company, did an excellent job of handling the situation. Since then we have switched to… more of an industry specialist. The total loss covered by our insurance was approximately $5 million which included reconstruction of the existing building, new equipment (we won American Drycleaner’s Plant Design Award in 2009), and $1.4 million in garment settlement payments to customers. We also incurred numerous costs to bring the route and counter production from this store to the next-closest store,” which was more than five miles away.
Get Insured, Properly
“Make sure to ask questions to understand what you are buying,” said Loeb, stressing the importance of taking the time needed to get things done right. “Don’t buy on premium numbers, only make sure you are getting what you are supposed to be getting. Buy what you need.”
“Reach out to your insurance rep,” said Buntjer. “Have as complete a list as possible of all items in your building. Keep good records of what you’ve purchased, and when you purchased it, for proof of costs.”
It turned out that “our insurance coverage was barely enough and required at least some client negotiations regarding garment replacement value,” said Palms. “So invest some time in this assessment when you procure coverage.” He urges business owners to “look at hanging inventory such as replacement price per piece of $50-$100 or more, depending on market concept of the cleaner. Use your POS [Point Of Sale software] to determine max inventory at any one time, then add a 10-25% safety factor. Make sure there aren’t any limitations as to the limit per garment or any individual garments or specialty garments (furs etc.) which have certain sub limits or coverage limitations.” These values can take a while to calculate, so consider setting aside enough time to get all the numbers right. “You should really have an agent that not only describes exposures where you are able to transfer the risk of loss to the insurance company,” Palms said, “but also how you can best manage the risk that is either uninsurable or cost prohibitive, or that you choose not to purchase insurance to manage.”
“Watch out for big insurance companies’ agents who know little or nothing about the business needs of drycleaner and laundromat owner/operators,” said Allan Johnson III of Peerless Cleaners in Corpus Christi, Texas. “They are in the business of getting a sales commission. This is especially true if you have a claim and the company agent knows nothing about the industry. Your claim may be unique – but you end up being lumped into an SIC (Standard Industry Classification) Code for settlement where hundreds of general services industry clients are placed into a big, big pool – the proposed settlement may be far less than you need to recover.” Instead, he suggests that drycleaners talk to “Ann Hawkins, underwriter at NIE Insurance, or Chuck Simpson, (800) 325-6570 or (314) 832-1112. These executives are industry specialists who make sure that drycleaners get the insurance they must have and need. They cater to the independent operators as opposed to those [insurers] who are owned by big franchise operators and big corporate oligarchs.”
Obtaining the right kind of insurance can be as tricky as many other things worth doing in life; after performing due diligence and a solid research session, however, the right solution should become more obvious.
Final Words Of Wisdom
For Loeb, the greatest benefit of getting the right insurance coverage was having “piece of mind that your team’s livelihood as well as your livelihood and legacy are protected.”
Insurance “isn’t a bank account where you try to withdraw more than you deposit each year,” said Palms. “It’s an asset protection device to level cash flow hits when the business cannot likely afford it.”
According to Johnson, maintaining appropriate insurance coverage allows you to transfer “known risk exposure to a third party so you can concentrate on the demands of your customers. And having the time and self-confidence it takes to provide outstanding Customer Service.”
“When something major happens,” said Buntjer, “if you’ve covered as you should be, you shouldn’t go broke. It should be able to get you by and keep you on your feet.”
For more information on obtaining the right kind of insurance for your drycleaning business, consider contacting NIE, DLI’s officially endorsed insurance partner. You can find a form to request a quote in DLIonline.org’s Members Only section. NIE was created by DLI (then NADC) in the 1920s and spun off into its own, separate and independent company. We wish you good fortune in all endeavors!