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Burned to the ground
An agent’s story of a client’s recovery—Part 1
By Jeff Pray, CPCU, RPLU, AFSB, CIC
Shortly after 4 a.m. on Saturday, December 6, 2008, I was jarred out of bed by a phone call. If you have a son or daughter away at college, you know the thoughts that race through your mind as your reach for the phone. Thankfully, it wasn’t the kids. It was Wendy Fransen, the CFO of Benchmark Foam, an agency client. Her first words were, “Jeff, the plant has burned to the ground.”
Within 30 minutes I was driving to Benchmark’s headquarters in Watertown, South Dakota, 100 miles away from our agency in Sioux Falls. It was the beginning of a yearlong journey with the people of Benchmark. Despite my 26 years in the commercial insurance business and all the insurance designations I had earned, when the phone rang that morning, I felt ill-prepared.
What did we do before the age of cell phones, e-mail, and the Blackberry®? On the way to Watertown, I called Bonnie Merz, one of our agency’s claims specialists. She, in turn, called two adjusters at Cincinnati Insurance Company, the carrier on the account. Before 9 a.m., one of those adjusters was enroute to Watertown and had assembled a team that included a subrogation attorney out of Chicago, a Cause & Origin expert from Missouri, and a local independent adjusting firm, Dakota Claims. The adjusting team was on the scene Saturday and Sunday.
My next call was to the president of Benchmark, Tom Devine, who would meet me on the service road north of the plant.
It was still a very dark, very cold morning as the lights of Watertown began to brighten the horizon. I was probably three miles south of town when I could first see the long, thick black trail of smoke that somehow stood out against the dark morning sky, winding southward with a strong north wind behind it. As I slowed to exit off the interstate, the red glow from the fire lit the sky only a few hundred yards away. After clearing the checkpoint with emergency officials, I found Tom Devine on the service road. He climbed into my truck.
“I bet I ruined a good pheasant hunt for you today,” were Tom’s first words. Talk about cutting through the tension of a difficult moment. By that time, the plant was completely destroyed. The large flames on the west end of the plant were fueled by a stockpile of polystyrene inventory, an insulating material that is Benchmark’s main product. There was no stopping that fire; the firefighters could only let it burn itself out.
An anonymous caller had reported the fire to 911 at 2:15 a.m. The plant had not run a third shift that night, so the facility was empty. That meant that no one was injured or killed. However, had there been a shift working that night, early detection might have controlled the fire.
Nearby businesses
As we sat together, briefly reviewing the information I brought for Tom and Wendy, we watched the heavy black smoke billowing to the south, engulfing the Mallard Pointe Surgical Center next door. This smoke damage would shut down and interrupt those operations for several months. Later we would see that despite the shutting down of the air intakes for the building, soot coated everything in the building. The soot penetrated computers and medical equipment; even medical supplies that were packaged tightly together had soot between the packaging.
Glacial Lakes Orthopedic and Mallard Pointe Surgical Center would be forced to conduct operations at the hospital until restoration could be completed. This was a potential general liability claim.
Fortunately, the smoke was from the north, and not from the northwest. A northwest wind would have placed the Terry Redlin Art Center (home of a large number of original paintings by a local, nationally renowned artist) in harm’s way of that thick, black smoke. While the fire was raging, the museum’s curators and employees scrambled to consider evacuating the paintings, but in the end, no action was necessary.
The business immediately to the west of the plant is Enercept, Inc., a manufacturer of pre-engineered building components that incorporates the Benchmark polystyrene product into their product. The destruction of Benchmark would certainly impact the Enercept supply line. However, before the smoke would clear, the owners of Benchmark would have a supply solution in place to preserve this critical business relationship. By 8 a.m. the doors of Enercept were opened to bring the owners, their spouses and the managers of Benchmark together for the emergency meeting, the first of many to come for their Disaster Recovery Team.
What to do?
There was no agenda, just a cold room full of questions. All eyes turned to me. It was my responsibility to reassure everyone that we would put the insurance plan to work and support their recovery effort. I outlined the post-emergency issues that they would be facing in the coming weeks. Among the topics:
• Communication with employees
• Press communication
• Customer and supplier communication
• Temporary operations
• Security at the plant
• Personal belongings
Communication with employees. This was a December fire. There wasn’t a worse time of the year for anyone to worry about having a job. With a significant Business Income limit in place, based on an annual worksheet completed by Benchmark, payroll was protected. Word would go out immediately to the employees that they need not worry about their jobs. Many of the workers would be enlisted to provide security at the fire site, and some would become carpenters to set up temporary offices the next day.
Press communication. Benchmark President Tom Devine would be the spokesperson for the company, and employees were notified to redirect all inquiries from the press to Tom. It wouldn’t be long until Tom was interviewed by several print and broadcast reporters. The message was that recovery was already under way and that jobs were safe. Two days later, on Monday, Benchmark released its first press release to let everyone know that Benchmark would rebuild and the company would survive.
Customer communication. A top priority was calling every customer. Because Benchmark was diligent in backing up their computers every day and storing that information off site, they were able to recover the customer database. Each customer was telephoned by the salespeople to deliver a simple message: “We had a fire that destroyed the plant, but it did not destroy our business.”
This is a message that would resonate not with only their customers, but with every person who worked at Benchmark. This clear and simple message instilled the confidence employees needed in order to stay on board with high spirits and the confidence that customers needed to continue to place orders. A message like this works only if it’s real, and it’s only real if the company leaders believe it with passion and conviction. The owners and leaders of Benchmark believed.
Temporary operations. As a manufacturer, arranging temporary operations seems almost unimaginable given the complexity of operations, the specialized equipment and the space needed to operate. However, at the outset, before the smoke would clear, plans were being formulated to put operations back on line at full capacity in temporary facilities as soon as possible.
Speed was critical to preserve customer relationships. Interestingly enough, Benchmark would be able to work with a competitor in Minneapolis to help maintain supplies to Benchmark customers, an act viewed as cooperation and generosity by a competitor when you would otherwise expect a more predatory approach. This support would continue for about a month until Benchmark was self-sufficient with its own temporary operations.
A big part of the temporary operations plan included a similar operation, LiteForm Technologies, a sister company of sorts, in Sioux City, Iowa. This company would be able to provide production capacity in a matter of days by running a second and third shift staffed with Benchmark employees. As fortunate as this arrangement was, it presented significant logistical challenges.
Besides the cost of renting this production space, there were higher transportation costs, as Sioux City is nearly 200 miles south of Watertown. Oh, and then there’s the matter of the workforce. They couldn’t drive back and forth every night between Watertown and Sioux City all winter long, so room and board would have to be secured.
Security. At the time of our meeting that morning, the site was in the hands of the fire department. We began making plans for when the site was returned to Benchmark’s control. We would utilize Benchmark employees to secure the site, professional security services for night patrol and public safety issues. We were concerned about protecting the debris in case there was any recoverable property, but we were also concerned about the safety of anyone who might enter the site out of curiosity.
Because of ongoing investigations by insurance companies, the site would remain secured for six weeks—far longer than I anticipated. This is an issue that is overlooked when estimating recovery time for Business Income purposes. Conservatively speaking, you might want to add eight weeks to recovery time for unexpected delays related to investigations by insurance companies and government officials.
Personal belongings. Each employee would be advised to account for any personal belongings that were destroyed to take advantage of the limited coverage under the property policy for these articles.
Navigating the maze
When I returned to Sioux Falls, I pored through the Cincinnati Insurance policies to compile a report that Benchmark could reference throughout the claim process. I wanted to be sure they were aware of important rights that they had under the policies along with their responsibilities. The report referenced the Coverage Part, Policy Form, the section, and page of the policy, followed by my description of the policy provision. I used my judgment, based on my knowledge of the claim, to highlight pertinent policy information.
Even though I fully expected that the insurance adjuster would treat our customer fairly, I considered it our duty to guide them through the maze. If they knew what was and was not available to them early in the process, then they could make better decisions as they planned their recovery and documented their expenses properly. Some of the turns in the maze included:
• Permanently installed machinery and equipment qualifies as either “building” or “business personal property.” This allows flexibility in constructing the claim to maximize the limits given the large amount of permanently installed production machinery.
• Excavations, grading, below grade foundations are not covered “building” elements. This impacts the decision to rebuild on site vs. relocating.
• Fire department service charges. Even though they are located in town, there were two or three volunteer fire departments that also responded to the fire call. So if they happened to incur a cost for this, at least they would know there was some protection.
• The auto policy does not apply a deductible to a fire loss. Benchmark lost seven vehicles in the fire—normally worth $7,000 in deductibles without this provision.
The report included property, general liability and auto details. There were no worker injuries as the plant was shut down for the night, so we did not have to address workers comp. The general liability and umbrella policies were possibly in play as the potential for third-party smoke damage claims existed.
Aftermath timeline
December 7
It wasn’t long into Day 2 (5:30 a.m.) that I received my first e-mail from CFO Wendy Fransen. This was Wendy’s first chance to absorb what had happened and assemble a list of issues that she could foresee, which included:
• Establishing documentation and accounting records
• Documenting replacement value of ordinary supplies like paper goods
• The need for a building diagram to inventory equipment
• Tracking costs of employees’ work to build out offices in a temporary site
• Is personal property of employees at replacement cost or ACV?
• Is customer property that was in their custody covered?
• Phone, fax, and computer set ups: replacement vs. temporary costs overlap
• Can we build a different configuration than the original building—how is that determined?
• Will Cincinnati advise on building a better building that will reduce the chance of loss?
We would learn on Monday, December 8, that Benchmark had already leased temporary office space just a few blocks west of the plant in a retail strip mall where, the day after the fire “Team Benchmark” erected makeshift offices.
December 8
The regular work week returned on Monday. It wasn’t even 5 a.m. and I had already received a detailed e-mail from Wendy outlining the status of operations. They had nearly 20 people housed at the new Emergency Office—Temp 1—and were expecting to be in production that very week at three different sites.
They were leasing a portion of the Enercept building to run their cutting operations. You will recall that Enercept is their neighbor and customer. The cutting operations involve using heated wire to slice large blocks of polystyrene; by “large” I mean 16 feet long by four-foot square blocks.
Benchmark would lease the building and equipment from LiteForm Technologies in Sioux City to make blocks and signs. LiteForm, which normally runs only one shift, would run two more shifts to meet production demand for Benchmark. A crew of six would be relocated to Sioux City where they would arrange for housing and transportation. This arrangement would continue throughout the recovery.
Two sites were found in Watertown that had unused paint booths which could be used to resume their sign production. Special urethane painting equipment was ordered on Saturday—yes Saturday, the day of the fire.
We noted the new locations and advised Wendy of the automatic coverage available for newly acquired locations and asked her to apprise us of the details—values, locations and leases. Now we would face the busy task of keeping the Cincinnati policies current in accordance with all of the operational changes Benchmark would undergo throughout the recovery.
Before 6 a.m., Wendy was working on restoring the complete Benchmark insurance portfolio. (Everything she had was either destroyed or inaccessible in a pile of smoldering rubble.) Wendy needed our help to put it all back together. Account Manager Jodi Tjeerdsma assembled a packet of information that included a copy of the policy, the audits from last year, outstanding invoices, a claim history, a month-end inventory reporting form, the most recent inventory report and a building diagram that included the production floor plan that we had on file.
I’ve told people over the years that when it comes to disaster recovery, it is surprising how many little things can complicate the process. That morning Benchmark needed an undamaged car towed to a dealer because the keys for the car were destroyed in the building. This was one of those little things. The question was: Can we pay for the towing under the property or auto policy? Answer: Yes.
Later that Monday morning, Pat Schmidt with Cincinnati Claims, Carl Duncan, a Cause & Origin expert, and Peter Korondi, NHI General Adjuster, all converged on the plant site to interview the owners and the employees. This can be a confrontational situation as these people are investigating the possibility of arson and are prone to ask direct “in your face” questions.
However, once Benchmark personnel passed this acid test, a cooperative and friendly relationship ensued between Benchmark and this adjusting team. An “area of interest” at the plant was identified by investigators and was tarped off to protect it from the wintery weather. The adjusters would now review the accounting, inventory and equipment records to document the claim.
December 9
The Benchmark people were able to take stock of what survived the fire. That day, the Watertown fire chief turned the site over to Benchmark Foam. They were then able to identify that there were storage trailers that held inventory parked outside the building that were undamaged and a storage building next to the plant that fortunately held a number of tools that had just been moved into the building on Friday afternoon.
A small lesson was learned that day. Wendy dropped me an e-mail that evening thanking me for sending her a copy of the plant layout. It was the most recent copy they could find because those drawings were otherwise stored in a former employee’s computer hard drive. In other words, the documents had not been saved on the network drive that was backed up and stored off site. All of that documentation that the underwriters demand of us can pay off.
December 10
Claims Specialist Bonnie Merz and I drove to Watertown on Wednesday morning to meet with Tom and Wendy. We could see tangible signs of renewed activity. On a large flatbed truck parked just outside the office was a brand new forklift.
When Bonnie and I walked through the doorway we could see Tom and Wendy in the archway of one of the makeshift offices off to our right. I anticipated that this could be an emotional moment for me. A home or a business appears to be just sticks and steel, but somehow it’s so much more. With Benchmark, the livelihoods of so many people were at stake, elevating the emotional element far beyond what I had ever experienced. Tom greeted me, not with a handshake but with a hug.
The four of us sat down in Tom’s office and spent the next three hours going over the papers Bonnie had brought, catching up on developments, answering questions, and talking about “what next.”
We were interrupted at one point by an employee from the South Dakota Department of Agriculture. He showed up, unannounced, to get Benchmark’s approval to take a sample of the soil at the fire site. This was being done in response to a nearby rancher who was concerned that his cattle might ingest feed that had been coated with soot from the fire. Before signing off on this, we contacted Cincinnati to confer with them. Obviously this could lead to a general liability claim.
Even with Cincinnati’s approval, Benchmark was under no obligation to grant the sampling. However, with Cincinnati’s approval and a spirit of cooperation seen as more productive than harmful, permission was granted. A Benchmark employee accompanied the Department of Agriculture rep along with the Watertown fire chief to take two samples—one for the Ag Department and one for Benchmark to keep for their own protection.
During our meeting, Mike Larsen from Dakota Claims stopped by. His company was the independent adjusting firm retained by Cincinnati to reinforce their claim team. He was authorized to secure bids for debris removal and the salvage value of the steel and copper that could be pulled from the rubble. Mike hoped that this would be close to a net zero cost given the high value of steel and copper. As it turned out, that would not be the case as landfill costs would run high.
Peter Korondi, NHI General Adjuster, called to let us know that Cincinnati would be appraising the actual cash value of the building to make an initial payment, later to be followed by the replacement value once construction was underway. Originally, as early as this same morning, Cincinnati had planned to cut a check for the limit shown on the statement of values in keeping with the Valued Policy Law of South Dakota.
However, by that afternoon they realized that the Valued Policy Law does not apply to property insured on a blanket policy. Therefore, it would be handled in a more traditional manner. In the end, this is how we wanted it handled, because we would not want to be limited to the value shown in the statement of values. He also advised us that he had hired Industrial Loss Consulting to perform replacement estimates for the production equipment.
Tom asked a good question: What is a public adjuster and why should we hire one? It turns out that Benchmark had been solicited by a number of public adjusters from coast to coast, literally. One such adjuster flew to Watertown from California, unannounced, on Tuesday for the opportunity of a “cold call.” I told Tom that claimants will hire a public adjuster when they feel they are not being treated fairly by their carrier; if their agent is not advocating for the customer or advising them properly; if they buy their insurance directly from an insurance company without an agent; or in some cases, if the owners and managers do not want to deal directly with the claim process.
The governor of South Dakota, Mike Rounds, had already called Tom to offer support. Benchmark was not the largest employer in South Dakota or even in Watertown, but Governor Rounds wanted Tom to know that the state would do whatever it could to protect those jobs and help Benchmark recover as quickly as possible. Is it perhaps the nature of rural states to care just a little bit more?
December 12
Friday saw more activity from the Cincinnati adjusting team as they brought in a new Cause & Origin expert to investigate a potential source of the fire that could give rise to subrogation recovery. The initial investigators had determined that the fire may have started with one of the seven vehicles parked in the plant that night. Since one of the trucks had work done by a local garage just two weeks prior to the fire, they were putting the mechanic and the dealer on notice and were making plans to meet with their representatives later in the month.
Bonnie got word from Pat Schmidt of Cincinnati Insurance that they had the first check drafted in the amount of $500,000.
On this day, Benchmark inked a deal for the former Metz Baking building. It had been vacant for about two years but would now give life to Benchmark until they could rebuild. The new building—Temp 2—would become the site for all Watertown operations, eliminating the need for two other painting sites and the first emergency office, Temp 1.
December 15
We met with the Benchmark people at Temp 1 to discuss the general progress of their recovery efforts and field any questions they might have. Most of the discussion centered on the new lease for the Metz building and the state of third-party claimants, such as the cattle rancher and the surgical center. Now there are two claimants you don’t expect to see on the same claim! It seemed as though the cattle claim was not materializing—the cows were doing fine. The surgical center, on the other hand, had shut down its facility and was undergoing significant smoke damage restoration via ServiceMaster.
December 23
The fire destroyed all of the physical records, including the Air Quality Permit issued by South Dakota’s Department of Environment and Natural Resources (DENR). Without proper permitting and communication with the DENR, there could be no temporary operations and the potential for a delay in full restoration was very real. Benchmark’s Safety & Regulation Director, Brenda Hansen, contacted DENR on Monday after the fire. Before that day was over, the DENR had sent Brenda a copy of their Permit and would visit the site the next day. We can be very cynical about government, but it’s fair to say that the people of DENR were responsive and supportive.
The testing, removal and disposal of the debris is the oversight responsibility of DENR. By this time, two contractors were providing estimates on debris removal. Once a contractor was selected, Benchmark would have to submit a “Written Contamination Incident Follow-up Report” to the DENR. Some of the clean-up issues would include:
• Composite samples of ash
• Asbestos presence
• Hazardous waste chemical parameters that the landfill would require
• Sample of fire-fighting water if washed into a body of water
This would be the last day of any security at the fire site, a decision made by Cincinnati. Any further security would be at the discretion of Benchmark, but it was no longer seen as an important issue because the site didn’t present an attractive nuisance or attractive salvage to the public as it continued to fill with snow.
December 30
Early in the morning, Wendy heard from Charles Blackwell Jr., the machinery consultant for Industrial Loss Consulting. He was checking on the status of the building and equipment replacement reports. Earlier, he had provided Wendy with a spreadsheet that she could use to document and itemize all of the equipment.
However, the job of recording the equipment end of this loss was easier said than done. Aside from the daunting task of physically entering the fire site, sorting through the debris of twisted and fallen beams through layers of snow that had fallen over the previous several weeks, there was still the problem of having access to the site. Even though Cincinnati had concluded its cause and origin investigation with two different experts, and even though the fire chief had released the site, there was still the problem of a potential third-party claim.
Cincinnati’s liability adjuster, Shauna Hoglund, was working with Mallard Pointe Surgery Center. She had given their carrier, Travelers, 10 days to respond as to whether they wanted to inspect the premises themselves. That 10-day notice would be up on January 2. To date there had been no response. Until then, Benchmark was unable to enter the site.
Benchmark was eager to enter the site as there were three presses in the debris that held tools (molds) owned by their customers. It was entirely possible that the molds were not damaged and could be used in the new presses. If not, new molds needed to be ordered so as not to further delay the recovery once the new presses were online.
In addition, any tools that needed replacing would be done at Benchmark’s expense and would be included in the inventory being prepared for Industrial Loss Consulting. As there was no written agreement in place between Benchmark and tool owners, it was likely that this would become Benchmark’s burden, as these owners are their customers. A contract with a waiver of subrogation and proof of insurance would have reversed this situation.
As soon as possible, Benchmark was to pull those presses and tools. Blackwell would try and get there by the January 5, but he did not want them waiting for him. Just be sure to take lots of photos and video in the process, he said.
Editor’s note: In the conclusion of this article, agent Jeff Pray completes the timeline for Benchmark Foam’s recovery and provides more risk management recommendations from the trenches.
The author
Jeff Pray, CPCU, RPLU, AFSB, CIC, is a producer in the Sioux Falls, South Dakota, office of Holmes Murphy & Associates, a regional firm with headquarters in West Des Moines, Iowa.
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