Are You Covered?
Make Sure Your Insurance Policy Meets Your Needs
Fire can happen at any auto recycling facility. It’s commonly said that it is not a matter of if a fire will start at your business, but when. Mecca Auto Salvage & Recycling was able to rebuild - and even grow - after a fire destroyed its warehouse, offices and parts, but the owners admitted extra insurance could have helped. Prepare now to determine if you have the correct coverage for your business.
A typical business insurance policy does cover a fire as a standard peril, but the devil is in the details.
“What you need to look out for are exclusions,” said Amee Freidhof, account manager commercial insurance for LSB in Waterloo, Iowa (www.mylsb.com). “Exclusions are changes to the policy form that can amend, delete, alter or add coverage. You’ll want to make sure you review your entire policy, and work with an agent you trust who is willing to clarify and answer any questions you may have.”
These exclusions can help your business get back up and running. Freidhof said extra coverage can include loss of income and / or extra expenses. Exclusions can also cover how a fire is started. For example, Freidhof said she knows of a company that has a separate deductible for any fire resulting from a spark from a torch or welding, which is a very common cause of fire at an auto recycling facility.
“Again, this is where you want to have a good relationship with your agent who understands you, your industry and your insurance needs,” she stressed.
That also means knowing what type of coverage you have. A fire can destroy your building, inventory and any equipment you use for work. You need to know how much your policy will pay back if these items or damage. Your policy might cover functional replacement cost, actual cash value or replacement cost.
According to the National Association of Insurance Commissioners (www.naic.org), functional replacement cost is the cost of acquiring another item of property that will perform the same function with equal efficiency, even if it is not identical to the property being replaced. Actual cash value is repayment value for indemnification due to loss or damage of property; in most cases it is replacement cost minus depreciation. And, replacement cost is the amount it would cost to repair or replace something in the current market.
“New, up-to-date buildings should definitely be replacement cost,” said Freidhof. “You have to be insured to 80 percent, 90 percent or 100 percent (depends on the policy) of the actual current replacement cost of the item to not incur a co-insurance penalty. Older buildings, buildings not in good repair, or even if you wish to retain some of the loss yourself, could be put on actual cash value.
“Actual cash value really becomes a factor in a partial loss, for instance, a roof partially torn off during a storm. If you are insured with replacement cost coverage and satisfy the co-insurance requirement, insurance will pay to either replace or repair the roof in full. In an instance of actual cash value coverage, the amount paid would be replacement cost less deprecation for the age and condition of the roof.”
Freidhof said new parts and inventory are covered as stock and most commonly would be covered on a replacement cost basis. But, used parts, rebuildables and vehicles in the yard are often not covered.
“If they are covered, it is usually on an actual cash basis; basically what you paid for them,” she explained. “I recommend keeping up-to-date inventory records to make it easier to recoup your limit at the time of loss. Remember, it is up to the insured to prove loss at the time of a loss.”
Know Your Agent
The key to coming out ahead after a fire is to talk to your agent to really know what coverage you have and what coverage you need.
“Quote out your insurance at least every three years or make sure your agent does, and know your agent,” Freidhof recommended. “Interview them, ask them questions. Auto recyclers have needs that are different than any other industry. Be leery of the agents who just say ‘it’s covered.’ Auto recycling is evolving quickly with a focus on green practices and technology. You need to work with someone willing and excited to be part of your industry.”