It was around 3 a.m. August 19, 2019 when the call first went out that a fire had engulfed part of the property at Oregon Pallet in Salem, Oregon. It’s the kind of call that no pallet company wants to receive, and Bryce and Carly Taylor were alerted to the blaze at their pallet plant. The Taylors were lucky; it could have been worse. But the biggest surprise was the cost of the cleanup.
Carly Taylor, co-owner of the company, said, “We lost our grinder and excavator. But the firefighters were able to work to save our office and production warehouse with no injuries or lives lost. We’ve rebounded quickly, but not without lasting effects.”
Video surveillance proved that the fire was started by an arsonist. It became a four-alarm fire requiring a major response by firefighters. The good news is that much of the operation was saved including a new Smetco repair line in its main production building.
Having just went through this process over the last year, Carly Taylor shared the lessons learned from this difficult incident. It all starts with choosing the right insurance agent. When you buy a policy, you are also buying the agent’s services. Make sure you have someone who will go to bat for you and make your company his/her priority. Your agent will help guide you through the process instead of you trying to fight the insurance companies yourself. The right agent will also help you choose the best policy and keep it updated at least yearly. Smart pallet companies meet with their agent at least yearly to reassess business changes and look for laps in coverage.
A common mistake that companies make is they assume things about their coverage that aren’t true. You want to understand your coverage. In the case of Oregon Pallet, it was the cleanup that ended up costing so much money and hampering the company’s ability to get back up to speed. This included dealing with insurance claims from neighbors and handling debris removal as well as wastewater runoff.
A major fire will impact your business. It’s a good idea to have personal property liability and business interruption coverage. Even with more generous coverage, some things are not usually covered, such as asphalt and concrete. Normally this is not a concern for most plant fires. But because pallets can burn so long, and the ground can get very hot, a pallet fire can render ineffective the glue that holds the asphalt together.
Carly Taylor advised, “When calculating appropriate business interruption coverage, consider the worst-case scenario based on your most profitable months, which is usually August through September for most pallet recyclers.”
One area of insurance that proved confusing for Oregon Pallet is how a co-insurance penalty can impact your payout. Carly Taylor explained that most policies include 90% coinsurance. What 90% means is that you must insure 90% of your assets at all times. We don’t really hear about co-insurance too much because it only kicks in if you find yourself uninsured or underinsured. How do you calculate co-insurance in a loss? Well, the basic plan is it’s what you did insure, divided by what you should have insured multiplied by your loss. In other words, you did carry $500,000 in building coverage. However, you should have carried a million to replace the building. You experience a $500,000 loss leaving with 50% coinsurance. Most insurers think that because they have 500,000 coverage, they will receive enough to replace the loss. However, this is not true because you only insured 50% of the actual building replacement costs. The insurance company will only reimburse you for 50% of the loss. In this example, that would be $250,000 leaving you with what’s known as a co-insurance penalty.
Getting back up and running can be hampered if you aren’t insured to the appropriate levels. Base your coverage on replacement costs versus actual cash value. In the pallet industry, there is a lot of specialized equipment that can’t quickly, easily or economically be rebought.
When it comes to fighting a fire or containing spread, yard and facility layout are crucial. One reason the fire wasn’t worse at Oregon Pallet was the distance between the pallet and lumber piles and the main buildings and the office. Create fire breaks and follow industry best practices. Have lumber not pallet stacks stored closer to the buildings. Create lanes where fire crews can work safely and have easy access to all parts of your lot. Taylor warned, “Be careful where you place vehicles. Keep away from storm drains. Don’t line all of your trucks up in nice rows, locate them near pallet stacks or fuel them at night.”
Oregon Pallet’s fire was caught on tape and started by arson. Your security measures can go a long way in helping to reduce fire risk. Evaluate your facility for safety considerations from walls, lighting and cameras to security guards. Did you know they have thermal cameras embedded with fire detection that are connected directly to the fire department? There also are infrared cameras that detect intruders and know the difference between a real intruder and a cat or birds. See the article on page 30 about how video surveillance and fire detection are improving fire safety in commercial buildings.
To ensure that your customers will be taken care of, it is crucial to protect your data off-site including customer information, employee contact information, etc. Can you get in touch with everyone you need to if your entire office burns to the ground? Delays in support documentation can extend your loss time. Do you have a response network in place? Build relationships with companies that can help you if a fire or other tragedy strikes. This includes other pallet companies and transportation companies for getting orders to customers in a timely manner.
At the National Wooden Pallet & Container Association’s (NWPCA’s) Annual Leadership Conference held in early March in Florida, John Smith, president and CEO of Pennsylvania Lumbermens Mutual Insurance Co., spoke on insurance risks, especially pallet fire challenges.
Most pallet companies are facing skyrocketing insurance rates. Many are struggling to even find insurance providers willing to cover their operations. John Smith said, “Fires happen a lot in the pallet industry… The insurance industry is being pounded by these and other fire losses.”
Insurers have to get rates to a level where there is enough premium to pay the losses. Smith applauded the pallet sector for developing new outdoor stacking best practices for pallets. But he called for even more space considerations given how hot pallet fires can burn. Companies with larger yards and lower pallet densities will have an easier time obtaining coverage. He explained, “If you are in an urban area and have a small yard with limited storage, that’s why you are having trouble finding insurance coverage.”
Every pallet company needs to have a fire prevention and mitigation strategy. The Pallet Enterprise has run many articles on fire safety and planning. See what you have been missing at www.palletenterprise.com. Do a keyword search on “Fire.”
The NWPCA has also developed a Fire Safety Compliance Manual that is free to the industry and covers best practices. It can be downloaded from https://www.palletcentral.com/page/ComplianceManual.
Smith suggested that companies fill out a Business Income Worksheet when calculating coverage needs to ensure adequate calculation of business interruption costs. He also advised that companies should conduct a Fire Risk Assessment and develop a plan based on the Risk Management Cycle. Focus on housekeeping, storage and electrical hazards. Also, assess your water resources and analyze the capability of a fire department to respond. Getting your employees involved can make a huge difference. Smith suggested developing a Fire Safety Strategy Team that will meet regularly to identify ways to reduce risk and promote awareness.
Nobody expects a plant fire will occur today. But it can start almost any time. As Smith stated, how you manage risks today will impact your ability to grow and remain strong in the future.
