Insurance: Your livelihood depends on it - Strive for the best outcome

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“He might not have a clue that if he goes into someone’s house and smashes a glass door he’s going to be in big trouble if he doesn’t have the money to pay for it.”

One might also want to consider such things as possible third-party issues, according to Bednarz. These can include damage or injuries on client’s property, which are usually covered by small business homeowner’s endorsement or comprehensive general liability policy.

As for asset protection, he advises looking into a Limited Liability Company (LLC), and making sure to separate your business from your personal affairs.

Strive for the best outcome
In his new building, Phillips has added a sprinkler system and a heat and smoke signal device to automatically notify the fire department. It’s been constructed from concrete, rather than wood. Phillips has made every effort this time around to understand what his insurance does and does not cover. He basically had to start over, since he was dropped by his original provider — quite common after a loss.

“Because we have sprinklers now, there are a lot more companies willing to cover us. Before, we were very limited in the amount of coverage we could get.

“Woodshops are considered a very high-risk category because of the finishes and solvents that are stored, and because of the particulate dust, which is very easy to ignite. Sawdust can very easily catch on fire and there’s also the risk of an explosion hazard within your dust collection system.”

Phillips reiterates the importance of sitting down with an agent and going through every detail, while getting as much coverage as you can afford. He lost things in the fire that weren’t covered, and they’re gone for good.

“Take a decent inventory of what you have; use a video camera. Two weeks after the fire, we were still trying to go back and remember what we had.

“We lost all of our business records: accounting, bank statements, computer records, everything. A lot of those things we had backed up onto disks in case the computer was damaged, but we kept the discs in the same office. We really need the capital to rebuild, but are not able to take a bank loan because there are no business records,” he says. Phillips is now backing up records using an online service and putting hard copies in a fireproof safe.

An ounce of prevention
In theory, a fire can be prevented, but it takes a real commitment, according to Steve Toffolon, vice president of Marsh Risk Consulting in Boston, a certified business continuity planner and fire protection specialist.

“When a fire does occur in a [shop], the majority of time you’re going to have a total loss … you have a potential of flammables being involved; you have combustible dust that wood generates; you have a total square footage that is sometimes very small; and most of these facilities don’t have automatic sprinkler protection.”

He stresses preventative maintenance such as cleaning out dust collection systems on a regular basis and proper disposal of finishing rags.