Editor’s note: In the August issue of Rough Notes, Jeff Pray, a producer in the Sioux Falls, South Dakota, office of Holmes Murphy & Associates, began his story of the yearlong journey he shared with his client Benchmark Foam following an early morning fire on December 6, 2008, that destroyed Benchmark’s building. Despite the devastation, Benchmark never stopped operating. In this second part of the story, Jeff completes the recovery timeline, which includes risk management advice and lessons learned.

It had been a month since Benchmark Foam’s Watertown, South Dakota, headquarters had burned to the ground. During that month, Benchmark had moved into its temporary office space and began to lease additional locations and equipment to continue operations.

By now the Benchmark production crew was working a second shift at the LiteForm plant in Sioux City, enabling them to meet their customer orders with their own production. A formal agreement was drafted to define the parameters of the use of the facility including insurance and risk transfer terms. Benchmark submitted the rough draft for our review.

Industrial Loss Consulting, Inc., was retained by Cincinnati Insurance, Benchmark’s carrier, to value the personal property side of this claim. The machinery consultant from Industrial, Charles Blackwell Jr., worked with Benchmark CFO Wendy Fransen to identify and categorize Benchmark equipment, customer equipment and property, and employee-owned property.

Bonnie Merz, one of our agency’s claims specialists, and I drove to Watertown, bringing with us Kyle Broader, our agency safety specialist. We wanted to pay close attention to safety in the temporary spaces, fearing that we might see an increase in employee injuries working in unfamiliar places.

Work to remove the rubble had not yet begun a month after the fire—not because of a delay by Benchmark. Rather, as a result of investigations by the insurance companies. Of course Cincinnati would spend considerable effort sorting through the debris. However, we would see an unanticipated delay with inspections by Travelers Insurance as the property carrier for the surgery center next door. It would not be until January 20 that they would be able to investigate.

A small lesson here: If you are estimating that you can rebuild in three to six months after a fire or windstorm, think again. In this case, nearly two months would go by before the insured would be allowed to remove property from their own site. The situation was made more difficult because there were several molds owned by Benchmark customers that were in the production equipment of the plant. These customers wanted very much to recover the molds and avoid the cost of making new ones.

The building valuation was expected to be completed soon and we anticipated that the entire blanket amount on the policy would be paid.

Amidst the turmoil of restoring operations and assessing the property damage, the sideshow of the auto loss loomed. Seven vehicles had been destroyed, including three truck tractors. There is some difference in value between Cincinnati and Benchmark. Not an unusual situation in a vehicle claim, but even more frustrating among bigger issues. We found Cincinnati to be very cooperative as Bonnie and I met with Patrick Schmidt who is with Cincinnati Claims to submit a progress report. There would also be licensing costs and the cost to paint the Benchmark logo on the trucks. These were not insurance problems as there was coverage; it just took a little more effort to get it all done.

On Monday morning Bonnie and Wendy spoke further about the impending need for another insurance check as they were exhausting the initial claim check of $500,000.

Benchmark went on record with Cincinnati concerning the customer tools. If there were any more delays by any party, then they would insist on permission to enter the site to remove the tools from the presses. The delays were creating problems for their customers. In one case, it was delaying a government order for munitions work that had been scheduled for delivery on December 22.

In another case, Benchmark was able to use old tools to meet the production demand by using them at their temporary site in Sioux City. However, the old tools were much more labor intensive and required more press time. These costs would be tallied as part of the Extra Expense claim. So, every delay in this regard would cost Cincinnati money as well.

As soon as Benchmark would be allowed to remove equipment, they were to record all the details of each item:

• Manufacturer

• Model

• Serial number

• Description of damage

• Age

• Measurements

• Location in the plant

Adding to the situation, a sprinkler pipe at Temp 2 broke. A two-inch pipe joint separated and flooded a portion of the building. The owner of the building was notified and damages were minimal. Fortunately a floor drain slowed the spread, sparing the office of any significant damage. Had the break occurred over any of the production equipment, we would have had a real problem. Although we didn’t need it, it is important to note the importance of maintaining Business Income at these temporary locations. Most policies extend BI to newly acquired locations, but only for a limited time.

The general liability claims adjuster for Cincinnati, Shauna Hoglund, confirmed that the Travelers Insurance investigators would be on site January 19 to inspect the premises on behalf of Mallard Pointe Surgery Center. The inspection of the site would be under the supervision of Cincinnati with Benchmark President Tom Devine and Wendy nearby to answer any questions. Each party would sign a liability release before entering the site.

We were still waiting for confirmation from Cincinnati on the Business Personal Property (BPP) limits. The policy had two BPP limits. The main plant and the warehouse building were insured with a $1,850,000 Blanket for Personal Property limit. There was also a $1,800,000 Business Personal Property Reporting Form limit that was used to primarily insure the inventory.

Benchmark had thought the reporting limit was available exclusively for inventory and consequently expected that they could recover only the inventory value from that limit. However, we pointed out that there is no distinction between stock and non-stock in the Property policy or the dec page description of these line items. Because of that, both of the limits could essentially be combined into a total available limit of $3,650,000. Bonnie sent a confirmation of our position to Cincinnati. Benchmark certainly appreciated our opinion, but it would take some time for Cincinnati to confirm our opinion.

Peter Korondi with NHI General Adjusters was still performing the adjustment on the building. He was working on the details with Young & Associates, a construction consultant. Even though the building was a complete loss, they needed to justify and document payout of the Blanket Building limit, not just the Statement of Values limit.

After inspecting the fire site, The Travelers decided not to pursue recovery against Benchmark. Still waiting for confirmation of the Business Personal Property limit from Cincinnati, Bonnie and I arranged a progress meeting with Pat Schmidt on January 23. The importance of this limit was even greater because would allow for enough limit to remove the debris within the policy limits, as this sub-limit is a function of the Property limits. Without it, Benchmark would cap out their limits for direct damage and have only $10,000 for debris removal under the Additional Coverage section.

We received word from the NHI adjuster on the results of the building valuation. Without accounting for electric and plumbing, the building replacement value was estimated to be $2,600,000. This was only “good news” instead of “great news” because it meant Cincinnati could finally issue payment for the Blanket limit. Obviously, there was bad news within this determination—the building was insured for an amount considerably less than it would cost to rebuild.

Under orders from the South Dakota EPA to test the soil for pollutants, Benchmark hired Coteau Environmental. Prior to doing so, Bonnie and I had discussed this with Tom and Wendy. Interestingly enough, the ISO Property Form pays a limited amount for pollutant removal, but it does not pay for testing. This would be about a $6,000 expense that was not covered by the policy.

As they prepared to clear the debris, Wendy asked a good question. LiteForm Technologies, a customer, had equipment in the plant that was insured under a different Cincinnati policy, along with a waiver of subrogation agreement. Would the LiteForm policy pay for their share of the debris removal related to their equipment? The answer is yes. The trick is isolating that expense; something Benchmark and the contractor would have to track. This was only a factor because Benchmark was still concerned about conserving their BPP limit.

One of Benchmark’s largest customers did have their molds specifically insured under their policy while two other customers’ molds were declared obsolete and at the end of their usable life, so no recovery under the Benchmark policy would be needed.

Although the customer molds were all salvaged in relatively good condition, independent fire investigator Dr. Bob Shroeder informed Benchmark that the heat stress that the molds underwent would eventually crack them after some use. After the long wait to recover the molds, they were determined to be useless and would have to be replaced.

The bid to remove the debris was awarded to Albin Stromseth Construction for around $80,000. Work was scheduled to begin in a few days. Cincinnati decided to have Cause & Origin expert, Carl Duncan, inspect the site again. He had been scheduled to investigate the scene earlier, but once he arrived, he found a formidable site of twisted steel sealed in layers of snow. Hope prevailed that conditions would prove better this time. Apparently they didn’t factor in that it was deep January in South Dakota.

We were able to close the chapter on the building settlement today as the check arrived for the full Blanket Building limit of $1,775,000. One more for the punch list.

Benchmark was finally able to enter the rubble site. To Wendy’s pleasant surprise, she found the company cashbox, three wooden lateral file cabinets and their contents, chocolates in a container, and Folgers French Vanilla coffee in a canister without the lid. Ironically, the file cabinet contained Wendy’s “Disaster Recovery File.” (Note to self: We need to make a point of keeping a copy of customers’ disaster plans at the agency.)

I received word from Cincinnati that they agreed with my interpretation of the policy limits for the Blanket BPP and the Monthly Reporting form. In essence, they agreed that the two limits were combinable for any type of property that met the definition of BPP under the policy. Now they were able to use the Monthly Reporting limit to claim loss of production equipment. Three new semi-tractors were delivered to Benchmark to replace the ones destroyed in the fire.

The clean-up and removal of the old plant left a three-foot drop off from grade level on the old south end to the concrete pad. Wendy and Tom feared that someone might drive over the edge at night. This was not a public roadway, but it was easily accessible and they were concerned about liability. Wendy wondered if there was any insurance money to pay for barricading or earthwork, etc., to make it safe. I shared with Wendy that there is no direct language to pay these costs, however, we would run it by Cincinnati. In the end, Cincinnati took care of it as part of the cost of debris removal.

Recovery activities escalated at Benchmark as Wendy worked with Account Manager Jodi Tjeerdsma to stay on top of the property value changes at all of the new locations. They are using four locations now, soon to be five as they negotiate the lease on the south side warehouse in Watertown. There were delays in the lease as the attorney and I worked with Wendy and Tom on the insurance terms.

The primary delay was that the building owner wanted an Umbrella limit equal to the value of the entire structure, some $10,000,000. Both Jon Brown, Benchmark’s attorney, and I advised against this approach because the Care Custody and Control exclu­s­ion made this an ineffect­ive approach. Instead we advised the use of a sound Waiver of Subrogation and a reason­able umbrella limit.

Wendy continued the arduous task of documenting their property claim with Charles Blackwell, the machinery consultant at Industrial Loss Consulting, Inc. Still in catch-up mode, Benchmark had to file for an extension with the IRS to file for the 2008 tax return.

Benchmark had already recognized that they had far more property in the building than what showed up on the Asset and Inventory Lists. For instance, they had approximately $10,000 worth of marketing brochures in 2008 and were trying to determine how many they had used so they could submit a claim accordingly.

The old plant had a water well, not a potable well, and not an active well. Still the water would have to be tested for contamination. Coteau Environmental did the testing and found that the results exceeded the SD Ground Water Quality Standards. Two separate tests revealed excessive amounts of benzene. The expectation was that the well would have to be drained three times and the water disposed of at the waste water treatment plant in Watertown. Wendy’s response: “That sounds expensive.” That would prove to be correct.

Cincinnati denied the Water Well claim under the Property policy because the limit for pollutant removal had already been exhausted. It occurred to me that the water might be considered “public” property. If so, we could gain coverage under the CGL for pollution contamination as a result of a hostile fire.

The CGL adjuster for Cincinnati rejected our claim for the Water Well clean-up, sending it back to the property adjuster, Pat Schmidt. The water in that section of the well was deemed to be Benchmark’s water, not public water. Testing and pumping three loads of water from the well would be on Benchmark’s tab.

The cost to clean up a fire site was higher than we expected. The invoice from the Watertown Regional Landfill was more than $23,000. This was simply the charge to accept 36 loads of ash-laden debris. The combined cost, including the contractor’s fee to scrape, load and haul was more than $64,000.

Benchmark purchased a portable paint booth for $22,000 to be used in the old Metz building to paint the signs they produce. However, it would be replaced in the new building, so this is a temporary fix. As such, and because they didn’t have one before, this was an Extra Expense claim that would be less than the $22,000 as they would sell the unit once they got to permanent operations.

Industrial Loss Consulting confirmed that the machinery and processing equipment that Benchmark would like to order was reimbursable and because it was of like kind and quality, they approved payment for the replacement cost. This was done only after ILC investigated the equipment options with other dealers and manufactur­ers. A check for $873,517 was issued the same day.

We secured Builders Risk coverage for the new building that would be located about a half-mile east of the original site in a new industrial park. While the old building was a steel building (technically a wood frame building under ISO rules) with no fire sprinkler, the new plant is a larger, precast concrete building with a fire sprinkler system. It also has a separate storage facility for raw material and a separate garage for the fleet.

The Builders Risk was challenging in the market given the circumstances. We wanted the soft costs to include Business Income for Benchmark under the Builders Risk as we were unable to persuade Cincinnati to add BI to the new construction site without insuring the building. After searching the market, we secured what we needed with Fireman’s Fund. The policy insured the structure as well as the production machinery and was in the name of both Benchmark Foam and Fiegen Construction.

Watertown Municipal Utilities surprised us with a claim for damage to their outdoor meter equipment. Apparently their department policy holds the customer responsible for damage or destruction of the meters, unless it’s an Act of God or the fault of the utility. Wendy and I talked at length on this one as we would rather preserve the property limits for Benchmark’s property. Unfortunately, since they control the hook-up of the new building, we will likely be stuck on this one.

Wendy was frustrated with the amount of detail required by the adjusters and the subsequent time demanded of her to comply. There were more than 2,500 items in the plant that required a record of age, descrip­tion, cost, and replacement value.

I delivered another check—$928,157. It represented the final payment on the Personal Property limit. However, we still had the Reporting Form limit left to exhaust.

Fiegen Construction moved quickly on the new building despite heavy rains early in the project. Before those rains it took Fiegen Construction only nine days to set all the wall panels, roof, panels, post, beams and columns. It was a very exciting time for everyone at Benchmark.

Cincinnati confirmed the final payment on the BPP and fulfilled the obligation to pay the entire combined BPP limits of $3,600,000 with a check for $721,000 which arrived at Benchmark on July 2.

Wendy was happy to learn that the Builders Risk covered the incoming equipment that was stored at the Acrotech Building until installation at the new site. She otherwise assumed that she would have to insure this kind of property under the Property policy at an additional cost.

Business Personal Property of Others was totaled by Wendy at over $54,000. This did not include the cost of molds that the customers had to replace.

Benchmark received its Permit for Partial Occupancy from the city.

Benchmark Foam was officially back in business, even though the company never really stopped operating. They produced their first molded block of foam from their new production facility. Tom Devine was the happiest man in South Dakota.

Cincinnati renewed its policy. We were happy that the underwriter stayed with Benchmark for another renewal cycle at a fair price. In addition to having a large claim, the nature of their temporary opera­tions and the new building would have made a change in carrier very difficult.

The Builders Risk was no longer needed so we simply added the new facility to the Cincinnati Property policy.

Just under a year after the fire, Tom cut the ribbon to open the new building, with his employees, management, and the Chamber of Commerce looking on.

I felt a high level of responsibility to take care of everyone at Benchmark. It was the realization that a lot of people were counting on me—not just the shareholders of Benchmark, but the employees, their families, their customers and even other businesses in Watertown. This is what our profession is all about.

In the end, if we aren’t in this business to help people—to really help people when they need it the most—then we are in the wrong business. Benchmark Foam’s recovery is a story of their resolve, ingenuity and determination.