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QVC, Amazon Warehouse Disasters Underscore Risks at Large Facilities

March 1, 2022

A massive fire at a QVC warehouse in Rocky Mount, North Carolina, on Dec. 19 destroyed 75% of the 1.5 million-square-foot facility and killed one worker, according to news reports. The five-alarm blaze rendered the site inoperable and has reportedly prompted the company, a major employer in the area, to plan to lay off all of its more than 1,900 employees at the location starting Feb. 1. Long-term plans for the site have not been determined, and the cause of the fire is still under investigation.

Just days earlier on Dec. 12, an Amazon warehouse in Edwardsville, Illinois, partially collapsed when an EF-3 tornado struck the 1.1 million-square-foot building, killing six employees. The tragedy raised questions over Amazon’s workplace safety procedures after reports emerged that workers may have had inadequate shelter or training for severe weather events.

Both incidents represent the type of natural disaster that can threaten life and property at large warehouses, which are in increasing demand. For these facilities, Commercial Property Insurance, Stock Throughput Insurance, Commercial General Liability (CGL) Insurance and other policies are of utmost importance.

In exceptionally large warehouses like the Amazon and QVC facilities, Cook said, the “pure aggregation of values of a single site” is a major consideration for Commercial Property Insurance purposes.The insurance has to cover all the values of that warehouse.

Warehouses face multiple perils, particularly as severe weather events increase

Commercial Property Insurance can cover losses related to natural disasters, fire, wind, collapse, hail, explosion and other perils. Covered expenses may include physical property repairs, business contents, damaged goods and, in some cases, loss of income. CGL Insurance would be needed to cover expenses related to third-party injuries or property damage, and Workers’ Compensation Insurance could respond to worker injuries.

The National Oceanic and Atmospheric Administration recently estimated that extreme weather events in the U.S. cost $145 billion in 2021, making it the third-costliest year to date for severe weather, according to a Jan. 11 NPR report. With climate change expected to continue increasing the frequency and severity of extreme weather, it is a risk that property owners should keep in mind, Cook said.

Alongside natural disasters like wildfire and tornados, thefts, whether perpetrated by warehouse visitors or employees, could also be covered by Commercial Property Insurance.

Be aware of aggregate values in large warehouses

After a loss occurs, a warehouse owner may need to begin storing products elsewhere during rebuilding, which is another cost that could be covered by Commercial Property Insurance. “There will be some additional transportation costs for the goods, and they may have to truck in items or get smaller warehouses for local distribution,” he said. “There should be risk management and business continuity plans in place to help offset some of that.”

When the cost or time required to rebuild a warehouse on the same site is too much, a warehouse owner may choose to permanently shut down the site, as in the recent QVC incident, Whitton said.

“If that was not a profitable warehouse for them, when insurance products pay out, they do not have to necessarily pay out at that site. They could use those insurance proceeds to offset the cost of another warehouse they are already building,” he said. “There may be a better place to build that warehouse, logistically, for them.”

That can be devastating for a community, Cook added. “The employees could have lost their home from the same event, and now they are losing their job. The social impact on a region can be pretty severe,” he said.

Consider business interruption, consult with experts

When a warehouse is inoperable due to weather damage or another covered event, Commercial Property Insurance may be able to help with the loss of revenue while repairs are made.

Lost revenue can be exacerbated when a loss occurs at a particularly challenging time, such as the holiday rush. Although a company like Amazon would likely have backup processes in place to avert major losses, there could still be unexpected costs like shipping items to a different location. “When Christmas is coming, the date does not change because a warehouse was damaged. A company can run the risk of losing customers from this type of event,” he said. “Smaller business owners are often the ones that really struggle because the sudden costs can be huge.”

In certain industries, such as fashion, a warehouse loss and the subsequent delays could mean missing industry trends. “The loss of customers and the delay of service to customers is something they may not have insurance coverage for, so that is a business risk,” Cook said.

Warehouse owners may also want to ask their insurance broker about Inland Marine Insurance, Flood Insurance and other policies that could potentially help protect them.

Risk management procedures such as employee safety and emergency preparedness training, regular warehouse inspections, monitored alarms, and sprinkler systems should be regularly implemented and maintained.

Find someone who is specialized in warehousing and who can link you to the correct market. A well connected Insurance Broker can save you thousands of dollars in premium per year.

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