NEW YORK — In response to the $65 million lawsuit filed last month over a pair of lost pants, I thought it important and timely to stress a very important message: Be proactive and take charge to prevent these situations from happening to you.
The Washington Post said at the beginning of this saga that the lawyer/customer “sought $1,150, so he could buy a new suit.” Today, the cleaner’s legal bills alone have far exceeded the original customer claim.
We may not be able to help find the lost item, but as a trade association, we can provide good insurance programs as well as advice and guidance to help a drycleaner decide on the best course of action to provide a fast claims resolution. To pick the right insurance, a drycleaner must be able to understand the terms associated with claims so you can pick a program that’s right for you. The following are a few general terms to know:
“Replacement cost” is the dollar amount needed to replace a damaged item with a new one of similar kind and quality without deducting for depreciation — in other words, what it would cost to go to the store and buy a new one.
“Actual cash value” is the amount needed to replace the item at the depreciated or current market value — what it would cost to go to a consignment shop or eBay and buy another one.
“Depreciation” is the decrease in value due to age, wear and tear, and other factors.
Clearly, it is a judgment call as to whether or not you want to offer your customer “replacement cost” vs. “actual cash value.” In order to make a claim for replacement cost, the customer would need to submit evidence of what it would cost to replace the damaged garment(s). An insured member would then submit the evidence to our insurance program claims specialist, who would make a quick determination of the replacement value of the garment(s).
Most insurers generally pay claims in accordance with the American National Standards Institute (ANSI) Fair Claims Guide, which is a depreciated schedule based on the life expectancy of a given item. In some cases, The Guide works. In other cases, use of The Guide is sure to disgruntle your customer. What to do?
Our recommendation is that you gently remind the customer that they’ve already gotten some use out of the garment, and in light of that, ask the customer what kind of settlement they think is fair. If we assume most people are honest, they should come back to you with a reasonable number.
You’re probably wondering why I would recommend leaving yourself open to a demand for replacement value when drycleaners have the option to decrease the payment by taking depreciation into consideration.
Well, I’d like to answer with an example: I have been gifted with a Burberry raincoat three times in my life. The retail value of a standard trenchcoat is (gulp!) $875 today. I have never had such a raincoat wear out, nor do they look shabby after 10 years of wear.
I lost the first two — at a hotel the first time, on an airplane the second. If my cleaner lost or ruined these raincoats after I’d owned them for three years, I’d be appalled if he used the ANSI standards and told me that they had “no value.” In other words, he would lose a previously satisfied and happy customer. After three years of use, I would not ask for replacement cost, but I would ask for something more than a “token.”
Your Reputation vs. Depreciation Dollars
Do I have other raincoats where the “actual cash value” (nothing) would be appropriate? Sure. For instance, I have another raincoat that was honestly “shot” after only two years. If you leave the cost of the settlement with me (the customer), I’d tell you to forget it, it really wasn’t worth anything.
However, if the cleaner wants to control the offer, how does my drycleaner know which of these two raincoats has been lost or damaged? There are key questions to ask yourself as a reputable drycleaner and business owner before you decide you want to make the offer to a customer:
• Does your ticket specify the manufacturer’s label on the garment?
• Are you familiar enough with the various labels to know which course of action to take for each lost garment?
• Would you know for sure whether the garment was a Burberry coat or “the other brand”?
• How often do you lose or damage an item? If it is a rare occurrence, is the cost difference between paying the replacement cost vs. the actual cash value worth losing a customer-for-life and/or suffering from the bad publicity it can create?
If your answer to all of these questions is “No,” then I recommend leaving it to the customer’s integrity every time. Using the “Average Life Expectancy” tables, such as the ones provided by ANSI can create hard feelings in your long-term customer relationship. And remember, if your insurance policy covers the worst-case scenario — your customer demanding “replacement value” — you are covered for the risk anyway.
Sure, every textile product has a life expectancy according to its intended purpose, material content and fashion trends. But when an item is of exceptional quality or is in outstanding shape, try telling a long-term, exceptional customer that the item is no longer worth the “going rate.”
The last time a drycleaner wouldn’t pay the full retail rate for a new suit, they ended up with a $65 million lawsuit, legal fees way beyond the price of a new suit, and bad publicity on the front page of every news outlet in the country. If you don’t want the story that you lost or damaged someone’s item to show up on The View the next day, I recommend paying what the customer wants and calling it a day.
Of course, if your heart tells you the customer has no integrity after you’ve paid a claim, send that customer on their way. And remember that if the customer isn’t satisfied even after an offer of “replacement value,” most endorsed insurance programs including NCA’s provide replacement coverage and free legal representation for policyholders.