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Business Builder: Properly Insuring a Pet Shop

Posted: July 27, 2012, 2:30 p.m. EDT


Staying ahead of potential problems and carrying smart insurance can save a pet business and help it grow.
By Keith Loria

Having the proper insurance to protect a small business from damage is important to pet store owners, and planning for losses or lawsuits is an integral part of a business plan. When it comes to pet stores and groom salons, there are a plethora of risks and hazards that differentiate these establishments from an ordinary retail environment.

In the pet business, the risk comes in the form of the pets themselves.

“While pets bring a certain magic to a pet store environment, they also add a lot of complexity and a significant amount of risk other retail establishments simply do not have,” reported David A. Thompson, president of PetBizInsurance.com, an online insurance company.

Pet business insurance
A customer could easily be bitten or clawed by the pets retailers have for sale, resulting in a compensation claim if the store is deemed to have been negligent. Pets or cages with sharp corners can also damage customer clothing or jewelry. Then there’s the concern of theft or damage to the animals or the building itself.

“Having the proper coverage in place will not only protect you and your business, but it will provide you with the peace of mind of knowing that if a loss were to take place, you do not have to pay for all of the damages yourself,” noted Gerald Dubos, an agent with Governor Insurance Agency in Vienna, Ohio. “With the proper coverage in owned buildings, loose items such as furniture, fixtures, perishable stock and animals can all be covered for replacement.”

How Much?
An old adage says businesses can never have too much insurance, but every business owner and business is unique, so owners need to find a trusted insurance agent to really figure out what’s best for their store.

“I think you should get the most extensive policy you can, and consider a personal umbrella policy through your homeowners insurance that will provide even another level of protection,” said Patti Storms, owner of the pet boutique Well Bred in Chester, N.J. “Always make sure that your policy covers you for varying levels of inventory so that you will be covered, say, at Christmastime when you have more inventory.”

Formal methods of calculating how much coverage to carry are also available. The U.S. Small Business Association suggests doing a risk management assessment, which will provide a list of potential events that could lead to a loss, the estimated cost of such a loss, and how best to address each risk. This analysis will most likely include: property losses, business interruption losses, liability losses, key person losses and injury to employees.

“When I first started, I had a low inventory but was worried about what would happen if we would have a fire,” said Robert Bray, owner of House of Fins in Greenwich, Conn. “I had basic business owner’s insurance, but once I started doing installations and going out to people’s homes, I became more concerned about my coverage.”

During one tank installation, water spilled on a $100,000 carpet and Bray realized he needed to be covered outside of his business. He spoke with an insurance adviser, who created an ideal policy for him.

Best Types of Coverage
An important policy for any pet store, fish store or grooming service is business liability insurance, which protects businesses against claims for injuries to customers and the general public.

“The exposures for your business would typically include your premises, such as slip and falls, a customer’s dog or one of your dogs biting customers, or other customer-related injuries,” Governor Insurance Agency’s Dubos said. “Your product liability would include someone being harmed or injured because a product that you sold to them was faulty or malfunctions.”

Preparing for Disasters
In addition to having to worry about fires, damage and stolen property, any small business will also have to prepare itself for a natural disaster.

“Typically, wind coverage is included in a standard policy, though some areas may have wind or named storm exclusions,” said Gerald Dubos, an agent with Governor Insurance Agency in Vienna, Ohio. “Earthquake coverage is excluded on all standard policies but coverage can be added by endorsement.”

Business owners should also ask their agent if their policy covers all disasters or only those occurring on the property of the store itself.

“I know of a pet store in Florida that was wiped out by a hurricane, but the owner was able to keep paying his staff and himself while the store was being rebuilt,” noted Barry Berman, founder of NexPet Retailer Co-op, located in New York. “He reopened very successfully as a result.”

Another store in Massachusetts was knocked out for two weeks last year when the power went out due to a heavy snowstorm, and many valuable fish died. In this case, insurance did not cover the damage because the incident occurred off-site.

It is important for retailers to discuss these items with insurance agents before anything tragic happens.—KL

If businesspeople own the building they are operating from, they would obviously need to insure it, as well as the business contents that they operate the business with.

“When insuring your building and contents, you need to be certain you have replacement costs included for both,” Dubos continued. “By including this, you will avoid the insurance company depreciating your building and or contents in the event of a loss. You must also verify if a co-insurance clause is included within your policy and ask your agent if you are insured properly so as not to be subject to a penalty at the time of loss for your property.”

Other Considerations
Mechanical breakdown of refrigeration units and spoilage coverage for perishable stock are definitely two areas of concern that need to be included on a pet retailer’s policy.

“Money, glass, sign and sewer or sump backup coverage are also some of the items you may need to insure within your policy,” Thompson of PetBizInsurance.com noted. “Keep in mind that sewer and sump back-up coverage is not flood coverage. Flood coverage is a separate coverage and is available if needed.”

Loss of income insurance is also something to consider. If property is damaged or destroyed, this type of coverage will typically pay for lost income until property is repaired or replaced.

Well Bred’s Storms learned the value of having business interruption insurance when a fire on her block destroyed three nearby stores.

“My store was thankfully barely damaged, but we were able to collect for the small amount of damage,” she said. “Because we had business interruption insurance, we were able to collect for the day and half that we had to be closed for cleanup.”

A groomer or kennel would need to purchase professional groomer/kennel liability, Thompson added, which would protect the business in the event of a lawsuit that could arise from the performance of professional duties as a groomer/kennel operator. This will also include payment of veterinarian bills in the event of an injury to a customer’s pet while in a business’ care, custody and control.

Shopping for Coverage
Chances are, if prospective business owners begin the process of actually starting a new pet shop or pet-related business, the insurance agencies are going to directly market to them.

When it was time to choose her policy, Lauren Conrad, owner of the Austin, Texas-based boutique Dogadillo, decided on business owner’s and workers compensation insurance.

“We opened our store five years ago and it seems like at the time, we were contacted by a lot of insurance companies just because they knew we were building and starting to open,” she noted. “We started with our ‘friend of the family’ insurance guy, but also called several other insurance companies to compare pricing. At the end of the day, we ended up with our family insurance guy as all the quotes came in about the same.”

Various sources can serve to educate business owners about where to find coverage. Elizabeth McNeilly, owner of the holistic dog grooming shop, Equus & Paws in Missoula, Mont., learned of appropriate insurance companies for her business while in massage and grooming school.

“The main thing I learned was to make sure that the policy truly covers you and where you are located,” she said. “Sometimes a landlord will require an amount of insurance to do work in their location. You should always be aware when working off-site.”

Don’t Forget the Animals
Another important action for pet retailers is to get in writing from their insurance company how pets are insured and for what amount they are insured.

“This means you have to verify with your agent for what perils your policy includes to specifically insure your or your customers’ pets,” Dubos of Governor Insurance Agency said. “Most insurance policies provide very limited coverage to pets and animals owned by you and held for sale, or sold but not delivered. You need to pay very close attention to the coverage exclusions when it comes to this particular exposure.”

A pet care business is a very specialized business most insurance companies know nothing about, PetBizInsurance.com’s Thompson said.

“Standard commercial liability covers accidents and fire and human injuries, but even though you’re in the pet business, that type of coverage ignores liability related to the death or injury of the pets themselves,” he added.

PetBizInsurance.com offers customers “Animal Bailee” coverage, which pays for the direct loss of animals that a client leaves in a business’ care, Thompson said.

Pets held for resale also represent a potential loss. If a pet store is burglarized and a large number of pets and animals are stolen, without the proper coverage, this could be a very expensive loss to a shop owner.

Bray once lost $20,000 worth of livestock in his retail store due to a power outage from a storm, and collecting from his insurance company was not easy.

“I did have in my policy that livestock was covered but we ended up fighting about it and settled on $8,000,” he recounted. “But then my insurance rate went up by $3,000 the next three years, and I looked at it as excessive financing. From that point forward, I signed a rider saying I would never claim on livestock again.”

Not all of Bray’s insurance experiences have been bad. Once, a float valve on a remote osmosis unit failed in a customer’s home because of human error, and it caused a major flood. The $30,000 of damage was covered.

Customers’ Pets
Nearly all insurance policies exclude any coverage for customers’ pets, and those that don’t only insure them against fire, lightning, windstorm, hail and vandalism.

“The coverages that you need to have on your policy are customer’s pet coverage that is not limited,” Dubos said. “This coverage would include loss or injury to a pet if there is death, destruction, theft, escape or even if the customer’s pet is in a fight with another customer’s pet. Also, you need to verify within your policy that your personal property coverage does not exclude owned pets or at least extends a specific limit for owned pets if they are lost, stolen or otherwise destroyed.”

Some carriers don’t provide any coverage or may just provide coverage for theft of owned animals, so business owners need to check with their insurance company regarding how owned pets are insured and for how much.

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