Insurance & Employee Benefits
Important Considerations in Choosing an Agent to Service Your Retail Clothing Store
Knowledge of the Industry
Fast Certificate Processing
Billing & Finance Options
Access to Multiple Markets
Insuring Clothing Stores
By William F. Schaake, CIC, CRM
Whether it’s a suit store or chain selling outer ware, the retail garment industry face numerous exposures that should be addressed as a resulting claim can have a major financial impact if not covered properly. The various insurance concerns for any business, not withstanding an apparel business includes maintaining insurance based on statutory requirements, such as compensation, providing protection to the landlord or other additional interests, and covering the business investment and financial interests.
Statutory or Compulsory Coverage Requirements
Most states have requirements for employers to provide workers’ compensation benefits for their employees no matter what size the business. Workers’ comp provides coverage to reimburse medical expenses and provide compensation benefits to employees as a result of a job related loss. It also provides employers liability to cover third party claims of those financially affected by the injured employee, such as a dependent spouse of the employee or the children. Read more on comp >>
Some states require employers to provide disability benefits to provide ‘off the job’ payments for injuries and illnesses to the employee. Unlike workers comp, the cost of state disability can be shared between the employer and the employee. Read more on DBL, SDI, TDI >>
Landlords, suppliers, contractors, and lenders may have a financial interest in the business as a loss can have a direct or indirect impact on their balance sheet. A fire resulting from an employee smoking in stock room of a clothing store that causes the building to burn down can drastically affect the landlords interest.
Landlords typically secure coverage as a lessors risk for their interest, which may include the overall structure, mechanical equipment, and common areas, however most lease agreements require the tenant to maintain a certain level of coverage protecting the landlord. The tenant’s policy would generally be the primary source of protection for liability and property damage losses due to the operation of the tenant’s business. This transfer of risk is generally accomplished by virtue of a contract or lease agreement which may require the tenant to add the landlord as an additional insured and the primary source of coverage to the tenant’s policy.
Banks that loan money to a store to purchase inventory have an interest in the assets of the business therefore may require the store to list the bank as a loss payee with respect to the property. If there is total loss and the business were to fold, the bank that loaned the money to purchase the stock could face a delinquency on the loan to the business.
Business Owners Policies (BOP)
Unless the size of the clothing or apparel store is very large, commercial general liability insurance is normally packaged with commercial property coverage. Often times these policies are written on a Business Owners Policy form or for short -
How is the cost of these policies determined?
Business Owners Policies (BOP’s) are usually rated based on the contents limit. Other factors may include location, type of establishment, the building construction, and building area.
Commercial General Liability & Umbrella Insurance
A commercial general liability policy or CGL, covers the liability exposures such as premises, products, operations, completed operations, personal & advertising injury. Often times, these forms are combined with a commercial property policy or CPP to form a commercial package policy or CPP. An inherent exposure many apparel outlets face include product liability insurance in the event of importing or exporting their goods. Generally, the first entity receiving the goods from an overseas manufactures assumes the products liability exposure, hence it’s important to verify coverage prior to accepting goods from a foreign company. Is product liability provided by a domestic carrier or is secured by an international. If the latter, how would claims be settled and suits brought forth? In the United States or overseas?
An umbrella policy typically adds an additional layer of liability coverage over the underlying or base limits. A follow form umbrella generally matches the coverage including the limitations and exclusions whereas an excess liability policy defines what is covered which can deviate from the underlying policy.
How is the cost of these policies determined?
Commercial general liability policies are most often rated based on sales however payroll can be a factor.
Commercial Property Insurance
Commercial property insurance is a term to define any of the following; contents or business personal property, the buildings & appurtenant structures, time element lines of coverage such as business income, monies & securities and other ancillary lines. These policies are generally written on either a basic, broad, or special basis. The first two defines which perils are covered, while the latter covers all direct physical losses except for the exclusions. Again it is important to determine every aspect of what perils are inherent to the business. It is equally important to identify the limits of each line of coverage to be properly insured.
Inland & Ocean Marine
For goods in transit, how would damage to stock be covered? Property insurance generally excludes property in transit or held at a temporary located. This applied to goods shipped from a manufacturer or supplier or shipped to a customer. Inland marine or motor truck cargo insurance would provide coverage for the direct physical loss of the product while traveling to an from the business premises to somewhere else by roadway and ocean marine would proved coverage over seas.
Loss of Business Income & Extra Expense or BI & EE
Business owners policies most often offer loss of business income (previously termed business interruption) on an ‘Actual Loss Sustained’ basis (ALS) subject to the terms, conditions, and exclusions of the policy. Generally the coverage pays for the continuing operating expenses and net profits before taxes due to a loss caused by a covered peril (read policy form). This coverage is usually granted for a period of one year. On the other hand, the commercial package policy requires a specific monetary limit scheduled and a time period or term listed such as a period of three months. Coverage is determined by the type of form selected such as basic, broad, and special for both the BOP as well as the CPP.
Extra Expense provides for payment due to a covered loss to help mitigate the claim such as with the loss of business income. This may include the rental of a temporary location and the cost to transfer the contents to the location to help resume operations quicker than if no measures were taken. It may also include the payment for temporary help to expedite business operations.
As with most businesses, clothing stores derive most of its income from walk in traffic therefore it is important to properly protect against the monetary loss of income due to a claim that can shut down the operations. Commercial bakeries are also exposed to high loss of business income claims due to time necessary to rebuild the facility or the inability to manufacture the product elsewhere.
More and more retail establishments are offering their products online. This is also prevalent with outlets and wholesalers. The risk of hacking the payment system, fraudulent orders, and breach of confidential customer information poses new concerns for webmasters and online merchants. The liability exposure may be address by a cyber liability endorsement of policy for online sales.
By William F. Schaake, CIC, CRM © 2012 All rights reserved
What types of coverage are important to consider?
Retail Garment Industry
Inland & Ocean Marine
Electronic Data Processing
Personal & Advertising Injury
Monies & Securities
Tenants Fire Legal