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By Janice Jucker, President

In the summer of 2007 we were given notice our business insurance was expiring, so we needed to get a new insurance policy. I pretended to get in shape by swimming, and a woman in my lane owned an insurance business. Since I would see her multiple times per week, I wanted to purchase insurance through her agency.

In the summer of 2007 we decided to shop around for insurance, for ours was expiring in the near future. I had met Betsy Schreiber and thought I would talk with her insurance agency, GEM Insurance, about coverage.

Thank goodness we went to GEM Insurance. They took excellent care of us. Previously we had been buying insurance direct from the carrier. If we had continued in this manner, we would be out of business today.

On September 12th, Hurricane Ike hit Houston, and our building lost its roof over the production and warehouse area and had many leaks throughout the rest of it. Additionally one outside wall was so badly damaged, it had to be replaced. I called my agent from GEM, Susan Weil, on September 13th, and she was at home and was actually able to tell me exactly what coverage I had purchased (I found that to be absolutely incredible – she even had her own structural problems at home) and gave me the number to call in my claim. From that moment forward we have learned more than we wanted to know about insurance, but we did so with the team at GEM Insurance helping us and being with us side by side for what is now over two years.

Because of GEM Insurance, Three Brothers Bakery reopened on June 22, 2009. If we had not switched our insurance to GEM Insurance, who has taken wonderful care of us before, during and after Ike, we would be out of business today.

(To see a video about our experience, we visit www.3brothersbakery.com and click on the YouTube link and watch the video titled Sweet Memories. You will see all the damage and the rebuild, as well as opening day.)

Below are some of the lessons learned:

Lesson number 1: Use a reputable insurance agent – do not buy direct.
Let them do what they do best, which is make sure you have appropriate and enough coverage for your business, and you stick to whatever it is you do best.

Lesson number 2: Tell your agent you want insurance to cover you for the following:

If there was a fire and the business had to be closed for one year to rebuild, can you quote on coverage to pay for this scenario. This statement is almost word for word what I told Susan Weil. She gave us the book with our coverage, and I never read it (you should read it). Because GEM Insurance is a reputable agent, she fulfilled our wishes and gave us all the proper coverage.

Here are some of the items you want to make sure you see within your policy for major disasters.

• Lost business income for the entire period closed.
FYI after the disaster we had to agree on with the carrier a percentage amount to pay us, and then in January the insurance said because the country was in a recession we should not receive the agreed upon amount from November forward. It took quite a bit of negotiation, but we finally came to an agreement.

• Employee payroll and benefits for the entire period closed.
Most policies appear to cover 60 days payroll and benefits, but you want to pay your key employees, for you need them when you reopen. It is pretty cut and dry and does not require much negotiation, except your own salary and benefits.
Be sure you are on a salary, so you are covered as well.

• Full replacement cost of all contents lost – NOT depreciated cost.
This includes your big ticket items that are not attached to the bulding, ie., in our case our mixers.

• Full replacement cost of the entire building – be sure to reevaluate this item annually.
In our case it includes anything attached to the building, such as ovens and coolers/freezers.

• Full payment of extra expenses.
ie., we have a two office mobile home with a bathroom, approved purchase of a laptop, so our computer information could be locked up nightly.

• All continuing expenses (ie, utililities and anything you pay monthly and contractual commitments)
Another item you will have to negotiate on an item by item basis if faced with a disaster

• Ramp up income for as long as it can be provided.
Once you reopen, they make you whole for a certain amount of time on your business income.

• Outdoor sign coverage
Our outdoor sign bent over from the wind. Outdoor signs are NOT a part of the building.

• Code compliance coverage (ordinance of law) with an enhancement of more than the standard base (usually about $10,000) on how badly you believe you could be out of compliance.
We had $150,000 worth of insurance in this category alone, and it did not cover it in its entirety. We began with the barrier free accessible bathroom. Normally, this coverage does not kick in until the permit people turn down your plans, but we persisted and provided documentation from the State of Texas regulating this requirement and provided a letter from the head of the agency stating these items would have to be done after their inspection anyway. Our insurance company told us we were the first company to ever receive this item under code compliance. The code compliance insurance total included business income in the $150,000, which we did not understand until we were negotiating the payment. To date, we still have not received this payment, for it does not payout until the work is performed.

• Electronic Data Insurance
Have insurance for lost income due to a data outage, bad equipment and a variety of other items

• Food spoilage (if you are in this type of business)

• Business income for power outage
Many businesses were hurt in this area during Ike. We had coverage from the hurricane being the mitigating event, not downed power lines. Had we just had a power outage and our food spoiled we would not have been covered for the outage was caused by the transmission lines not on our property. We now have insurance to cover food spoilage and power outage due to transmission line problems to the maximum available. This coverage was not available before Ike.

• Damage to premises rented to you and the contents in it.

• Make sure you have flood insurance to the maximum levels available (or whatever is appropriate for your business), especially if you live in the Houston area.

• Earthquake coverage

• Other types of insurance which may or may not be needed during a disaster:

Asbestos (whatever you can purchase)
Mold (whatever you can purchase)
Business Liability
Electronic Commerce
Money and Securities
Valuable papers and records
Sewer or drain backup
Employee dishonest
Employment practices
Identity recovery
Flexible Limit Endorsement
Burglary/Theft
Fine Arts
Terrorism (yes, you can get this type of coverage now)
Mechanical breakdown
Accounts receivable
Workmans Compensation
Umbrella policies
Business Auto

• Remote locations – have all the same insurance you have seen above

Lesson Number 3: Ask your agent to always update you on available insurance and let you make the educated decision as to whether you need it or not, ie., the power outage insurance.

Lesson Number 4: Do not scrimp on insurance. Buy the lowest deductible you can afford. Insurance payments do not pay for upgrades, and if you have a big disaster and have to rebuild, as we did, we wanted our spare cash for the items not covered by the insurance.

Lesson Number 5: Have a good accountant. Should you be faced with a disaster, such as Ike, be sure you have a good accountant who has experience with the insurance industry. You and your accountant will end up closer to each other than you ever imagined.

Lesson Number 6: Do you need an independent adjuster in a disaster? Only you can answer this question. It takes a team to rebuild, and a part of the team are your adjusters and your agent. Because of GEM Insurance we did not need an independent adjuster. GEM has a dedicated person on staff, Catherine Ritter, whose job it is to help you, their client, through the claims process. She is our advocate. Because GEM insures their clients with good underwriters, we did not have to use Catherine’s services all that much during the process. You will always hit a few bumps in the road, so it was nice to know Catherine was there for us if we needed her.

Lesson Number 7: If you have not read your insurance policy and spoken to your agent in the past year about your coverage, do so NOW! Hurricane season keeps getting longer and longer, and when you are out of that season it is tornado season for three months. It is always something.

It is best to require in your contract that the additional insured endorsement(s) should provide coverage to the additional insured for completed operations and the additional insured’s sole negligence. You will need to establish procedures to ensure that the coverage provided is as requested. Checking the certificate of insurance normally will not be adequate to accomplish this. The certificate of insurance does not obligate the insurer at all; so, reviewing the additional insured endorsement(s) or the policy(s) is the only way you can safely satisfy that the coverage is provided. Though the two endorsements mentioned above are supposed to be standard endorsements we note that at least one carrier has revised the standard wording but has kept the same form number. This implies that the terms have not been changed, whereas they have. You will need to review the wording and compare it the standard endorsements which we are providing.

If you are interested in copies of the endorsements sited above send us an email and we will send them to you.

Employment Practices Liability (EPL) provides defense coverage and protects you even when claims are unfounded. The application for coverage will serve as a good check list for you to determine whether your employment practices are in line. Some insurance carriers make an attorney available to work with you to establish written procedures when they provide the coverage.

Exposures for EPL are:

1. Infliction of emotional distress,
2. Libel, slander and defamation of character,
3. Contractual interference,
4. Negligent hiring, retention and supervision,
5. Retaliatory discharge and,
6. Invasion of privacy.

Carriers look for you to have in place an employment application, specific and complete job descriptions, personnel manual, complete personnel files, and training meetings to reinforce written policies.

To manage the exposure you should establish written procedures that will:
 

• Determine how long you will retain emails. You should provide a business justification for destruction schedules and ensure that they are consistently followed. You need to have someone who can explain it and how it is accomplished.
• Email should be organized in a manner that will allow for it to be discovered quickly, efficiently at a minimum expense.

Email should never have original documents attached such as word documents or spreadsheets since it is possible to recover from them who the original author was and any changes that were made to the document. You should scan them and attach them as PDF files which will eliminate the problem.

Standard general and automobile liability policies normally provide coverage for punitive damages. However, the award of punitive damages would normally cause coverage to be sought also under the umbrella or excess liability policy(s) since the limit of the underlying policy(s) would normally be exhausted. Coverage for punitive damages in those excess layers is much more problematic and unfortunately that is where the coverage is really needed. Some umbrellas are silent concerning punitive damages, others specifically exclude it but few actually state that coverage is provided. When coverage is provided it usually is provided only if it is not against the law. If you are interested in a list of states where punitive damages are not insurable, please send us an email or give us a call.