Don't Get Taken to the Cleaners; Make Sure You Have the Proper Business Insurance Coverage, I.I.I. Warns

NEW YORK, July 2, 2007 - The outcome of a ruling last week that favored a dry cleaner who was sued for $54 million over a missing pair of pants reinforces the notion that no business can afford to be unprepared for a lawsuit, according to the Insurance Information Institute (I.I.I.).

"Liability insurance protects your assets when your business is sued for something the business did (or failed to do) that contributed to injury or property damage to someone else," said Loretta Worters, vice president of the I.I.I. "Liability coverage extends not only to paying damages, but also to the attorney fees and other costs involved in defending against the lawsuit, whether valid or not."

With approximately 30,000 dry cleaners in the United States, dry cleaning is one of the largest industry sectors still recognized as a "Mom and Pop" business, according to the International Fabric Care Institute (IFI), an association for professional dry cleaners. These commercial dry cleaners, which remain a single facility, family-owned operation, can be exposed to a myriad of liabilities.

The standard business owners policy provides liability coverage, as does a separate policy known as a commercial general liability (CGL) insurance policy. Generally, commercial liability insurance, whether purchased in a separate policy or as part of a standard business owners policy, will cover bodily injury, property damage, personal injury or advertising injury. The medical expenses of a person or persons (other than employees) injured at the business or as a direct result of the operations of the business are also covered.

In the case of the Chungs, who were the proprietors of the dry cleaning establishment that was sued, the enormous financial and emotional toll could have been lessened had they purchased unexplained disappearance insurance, which provides coverage for items which may be lost during business operations.

Owners of dry cleaners have special liability needs that are not met in the standard business owners policy, according to the I.I.I. Coverages available for dry cleaners can also include:

• Property Insurance. This covers the buildings that you own, as well as business property and inventory, against physical loss or damage.
• Contents Coverage. If you don't own your building, you'll still need Contents coverage. With most policies, property insurance for business contents covers furniture, fixtures, inventory, office equipment and other supplies stored at your facility or off-premises. You may insure those items for Replacement Cost or for Actual Cash Value, which pays only for the depreciated value of the property. Replacement Cost policies have higher premiums; however, they can help your business recover from a loss faster, since you can replace all of the lost or damaged property with new items. If you lease some of the equipment at your business, the leasing company may require that you insure the property at replacement value.
• Bailee Insurance. Bailee claims involve the loss of garments or linen as a result of fire, water damage, loss or theft. There is also coverage for loss or damage to customers' property accepted for laundering, dry cleaning, pressing, dyeing, alteration, repairing or other similar work.
• Business Income Insurance. Also known as Loss of Use or Business Interruption insurance, Business Income coverage protects your revenue stream in the event of a loss or damage to your establishment. If your dry cleaning establishment suffers from a fire, water damage, collapse or any other insurable loss and you are forced to close your doors, you may be left without a revenue stream or income source. Business Income coverage can provide coverage for your lost revenue while your establishment is being repaired or even rebuilt.
• Errors and Omissions Insurance. This coverage protects a dry cleaner for failure to deliver customers' goods or for improperly selling or disposing of customers' goods.
• Contamination/Pollutant Cleanup and Removal Insurance. This provides coverage for cleanup and removal of pollutants often used in the cleaning process.

Owners of dry cleaning establishments should check with an insurance agent or company representative who specializes in this type of insurance to ensure they have the right type and amount of coverage.

For more information on business insurance, go to the I.I.I.'s Insuring Your Small Business site.

Download the associated I.I.I. audio file.

The I.I.I. is a nonprofit, communications organization supported by the insurance industry.