About Your Laundry’s Insurance: Cautionary Tales

As we enter this new year and the feeling of nervousness that comes with it, it may be time to review a lot of things, including our laundry insurance coverage. Many will be tempted to cut back and economize in every way they can to defend against the expected tough times the country faces. One unwise way to cut would be to lower insurance coverages. We need to cut where we can, but not on insurance coverage, because we are also facing accelerating rises in costs to re-equip and build our laundries,

To emphasize this, we need to give readers two cautionary tales. One of being too tight with premiums and thus too tight on the actual amounts needed when things went wrong, and one tale of being too loose with enforcing good requirements for coverage.

When she purchased her coin laundry, it was absolutely in the perfect place for her. It was located in a nice suburban town and her condo was just blocks away. She put one third down and signed a note for the balance owed. This woman used up most of her savings to go for the down payment. One of the requirements of the deal was that she had to carry a policy naming the previous owner a co-insured, which she reluctantly did.

She bought enough insurance to cover the face amount of the note. When, after two years, it came time to renew the policy, she had it adjusted down to the balance owed at that time. This laundry operator didn’t understand what the insurance was really for.

In her mind, the previous owner collected, and got it all. She felt abused because she had to carry insurance and it didn’t really protect her. Her agent tried to explain, but it was done long distance from another part of the state. When the next renewal came due, she kept the coverage the same this time.

When the early morning fire started in the dry cleaners next door, it spread to the laundry, and it spread to every business in the entire building and wiped them all out. All that remained in the laundry were the melted hulks of washers and dryers. She optimistically thought she would rebuild.

That’s when the realization of her problems began. The cost of building a laundry had risen and she didn’t have nearly enough insurance to begin again. After paying off the previous owner there wasn’t enough cash left to get started. Her shock at losing almost everything she had built up during her ownership was great. The loss of most of her down payment, in about six years, meant she couldn’t just start over again.

 

First of all, the purpose of having insurance is to protect the parties, such as the holder of the notes and the owner of the business. In the case above, the laundry owner chose to save a little money by buying only the amount of coverage required by the sales contract to cover the previous owner. When the coverage was later reduced to save a little premium for the next two years, the die was cast.

The entire value of the laundry should be the goal, including inflation to cover the costs for replacement of equipment lost, facilities and loss of income during the reconstruction time needed to get a coin or card laundry back in operation. This laundry owner was too cute by half because she bought only the amount of insurance coverage required by her sales contract with the previous owner.

Too many operators buy insurance on the cheap hoping to save a few hundred bucks a year. They thereby risk losing almost everything they worked for all their lives. There are many other ways to save a few hundred dollars that make more sense. After a fire, good enough coverage is never really quite good enough.

There were two good friends. One owned a laundry business, and the other thought it would be great to own one too. The two friends talked about the business all of the time. Then, the company the laundry owner worked for transferred him to another city. He offered his laundry to his good friend. Of course he quickly and happily accepted.

They had a more or less hand shake agreement. They did write up an agreement, but felt it wasn’t necessary to have it reviewed by an attorney or real estate broker to make sure that there were no snags. The two hadn’t even bothered to notify the landlord. The amount of the down payment was minimal, because, after all, they were good friends. There wasn’t any written requirement for insurance to be carried to protect the seller.

When a fire started in the coffee shop two doors down, it totally demolished the strip center that housed the laundry. It turns out the buyer had purchased insurance in his own name, and it was for about what was owed for the laundry. But, the seller wasn’t listed as a co-insured party.

The amount of the insurance coverage was not enough to rebuild, but it was for far more money than the good friend and new owner had ever seen. Since it wasn’t for enough cash to rebuild, there really wasn’t much choice in his mind. He chose to walk out on his friend and keep the proceeds of his insurance policy for himself. The seller was in another city, and ended up being stuck with the entire loss.

Yes there was a lawsuit filed, and some attorney fees were paid. But the original owner dropped the case when his formerly good friend moved back to his home country to retire quite well on the cash proceeds of the policy.

In the first instance, the buyer was required to carry insurance adequate to cover the loan money owned to the previous owner, and had to provide proof of insurance. The buyer didn’t seem to understand the principal purpose of having insurance, and so bought only enough to cover the original owner.

In the second instance, there was no need for the buyer to cover the seller’s interests as there was no written contract to do so. Even between friends, a deal has to be carefully written and checked to protect all parties.

 

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