CHICAGO — Fire, liability or a worker injury is a risk that a coin laundry faces every day. If the business doesn’t have the proper insurance protection in place, an incident could be difficult to recover from. In a worst-case scenario, it could even put it out of business.
American Coin-Op invited representatives from the industry’s major insurance providers to answer some questions that the average self-service laundry owner might have about protecting their business investment.
ACO: What specific coverages do you believe are absolute requirements for any coin laundry, and why?
Adam Weber, president, Irving Weber Associates: There are many coverages that are industry-specific, such as bailee coverage for operations that offer attendant service (as well as those that don’t) such as wash and fold, but may experience an equipment malfunction that damages a customer’s clothing while being processed.
Other important coverages are water damage caused by sewer system backups, signs, general liability, parking lots, and equipment breakdown (including equipment and/or boilers and machinery if present). Also, business property coverage should be considered not just for machinery but also folding tables, TVs, chairs, vending machines, computer systems, card readers, etc.
Anne Hawkins, senior underwriter, NIE: At a minimum, every coin Laundromat should carry these coverages:
Building (when owned by the business owner) — If it’s an older building and you wouldn’t rebuild, insure for actual cash value. If you would rebuild, insure for replacement cost.
Improvements and Betterments (when the business owner is a tenant) — You will need to replace the building owner’s property that is part of the building if you have a loss due to your negligence. This would include flooring, lighting, paint, wallpaper, etc.
Business Personal Property (at replacement cost) — When you determine the replacement cost, be sure to include delivery, installation and taxes because these are included in the loss amount.
Loss of Income (for minimum of three days) — This pays your profit and continuing expenses while you are out of business due to a covered cause of loss that occurs at your location.
Utility Services-Time Element — This pays your profit and continuing expenses while you are out of business due to a covered cause of loss that occurs away from your premises, i.e. downed power lines due to windstorm.
Utility Services-Direct Damage — This pays for damage done to your equipment due to a covered cause of loss that occurs away from your premises, i.e. when the power comes back on, some or all of your equipment is not working.
Equipment Breakdown — Even if you do not have a boiler at your location, there are many other pieces of equipment that can fail due to an accident such as a power surge that is not caused by a covered cause of loss, i.e. power company equipment failure.
Bailee — If you are doing drop-off dry cleaning and/or wash/dry/fold, you need to have coverage for your customers’ items that may be in your store overnight or for any length of time.
Liability — Coin laundries have high liability exposure due to the volume of customers who enter their store and stay on the premises while doing laundry.
Larry Trapani, president, Brooks Waterburn Corp.: While a Laundromat owner needs many types of coverage, here are what I feel are the most important:
Business Personal Property (AKA Contents) — This coverage protects your washers/dryers, vending machines, coin changers, basically all your stuff inside the building. Make sure the coverage is valued at “Replacement Cost” rather than “Actual Cash Value,” because if there is a claim, you want what it cost to get new machines, not the value of a 10- or 15-year-old machine. When you buy this coverage, think of how much it would cost you to replace all of your equipment if you had to buy it today.
Tenant Improvements (AKA Build-out) — This is the cost that you put into the space you are renting. It includes electrical, plumbing, lighting, flooring, etc. Sometimes, these values can be $75,000 to $100,000. It is by far the most overlooked coverage when I review competitors’ policies.
Liability — This covers slip-and-falls, children running into tables, or any other type of incident that might get you sued. Standard coverage is $1 million but some landlords require $2 million or more.
Workers’ Compensation — The truth is, the Laundromat industry is a cash business. Many store owners pay workers “off the books.” The IRS is cracking down on small business. In most states, employers are required by law to carry workers’ comp insurance. And classifying employees as “independent contractors” will not fly. More than one of my customers has been caught doing that and paid significant fines.
Steve Brodie, senior vice president, Wells Fargo Insurance Services USA: Key insurance issues are property coverage and adequate liability protection. Within these two broad segments, you want to make certain on the property side that you have full replacement cost for both equipment and tenants improvements, along with business income protection. Get your distributor involved by asking, “What would it cost to rebuild my store today?” Once you have that answer, discuss it with your insurance broker. Many times, fees (sewer hookups are a good example) do not have to be paid again.
On the liability side, review your lease as a minimum requirement, then discuss your own personal net worth, or that of the LLC, corporation or partnership that owns the store.
Last item of importance, but by no means should it be forgotten, is workers’ compensation. Laws differ in each state based on labor codes. Do not have a person in the store, even if advised by your CPA, that you call an “independent contractor” who is not covered by workers’ comp. If you have that exposure, take out a minimum premium compensation policy, evenif your CPA gives them a (Form) 1099 and classes them as independent. The only time this is questionable is if you hire another company (janitorial, for example). Make sure they supply proof of insurance and a “waiver of subrogation” from their workers’ comp carrier.
ACO: What are the biggest insurance risks in a coin laundry setting, and why?
Hawkins: The biggest risk is the liability exposure due to wet floors and/or damaged floor tiles from water leakage, plastic furniture that can collapse, lack of supervision of children, stools used to reach equipment controls, and improper maintenance of equipment.
Burglary is another big risk. When someone burglarizes a coin laundry, they usually destroy the coin boxes on each machine and vandalize coin changers. This gets expensive and happens frequently.
Trapani: The biggest risks in a coin laundry setting can be broken down into two areas:
Property Losses — The largest and most frequent claims are dryer fires. It usually has to do with not cleaning lint traps or ducts. As you can imagine, most fires cause significant damage because the dryers and washers are closely grouped together and the fire easily spreads. A good housekeeping procedure can help reduce these types of claims.
Liability Losses — While trips and falls are common, lately, I see more children getting hurt in stores. Parents don’t always pay close attention to their kids, who run into things, pull down tables on top of themselves or fall from carts. I always suggest that a store owner bolt down tables to minimize some of the risk.
Brodie: Fire and liability claims are your biggest exposures to loss and cost the most when they happen.
Weber: Fire is probably the most common and easiest to avoid. Fires can easily begin in these businesses due to buildup of lint in dryers/exhaust vents, poor maintenance of heat-limiting safety devices (switches on dryers), combustible material stored near dryers or water heaters, washing materials soaked in flammable liquids such as gasoline, and buildup of oxygen agents (bleach, for example) through overuse.
Additionally, liability claims for alleged slip-and-falls are prevalent with this industry group.
ACO: How does the status of a store—unattended or attended—affect its insurability?
Trapani: The status of a store has a significant impact on insurance premiums. Unattended stores obviously are not as closely watched as attended stores. If something goes wrong, nobody is there to minimize the damage. Insurance companies know this as well and charge accordingly. The premium can be up to 40% more for an unattended store.
A note of caution here: If your store is unattended, make sure your insurance company knows it. If there is a loss, you may have trouble collecting because the insurance company can state that if it had known the store was unattended in the first place, it would not have written the account and thus deny the claim.
Brodie: They are both insurable; the attended store might get a little bit less premium based on someone attending the store during operational hours. Around-the-clock operations, as sometimes can be found in cities like New York and Las Vegas, pose different risks and must be 100% attended, usually with two people on duty at a time.
Weber: Unattended stores are at a higher risk of theft, vandalism and claims in general. Any time a business is left unattended, it is at a much greater risk of incidences that would require the use of your business insurance policy and generally are not as desirable to insurers.
Hawkins: It may depend on the individual insurance carrier. It’s been my experience that the unattended Laundromat pays more premium than the attended Laundromat due to the vandalism issue and the lack of a witness when someone reports an injury.
Check back tomorrow for Part 2!