Locking Out Idled Threats

Locking Out Idled Threats

A temporary plant shutdown can leave manufacturers susceptible to risk if precautions aren't taken.

Plant shutdowns have become an all-too-common sight since the recession began in December 2007. While shuttered plants can provide cost savings for manufacturers, the risk that goes along with operating a facility doesn't disappear. Whether it's protecting the assets that remain in the plant for later use or securing the surrounding community from potential hazards, idling operations requires careful consideration, say risk management and legal professionals.

Between 1982 and 2008, commercial and industrial property insurance company FM Global recorded 1,112 idle or vacant building losses from its clients totaling $393 million. That amounts to an average of $354,000 per loss. The top causes included fire, vandalism and weather-related damages.

1989-2008 Loss History --
Idle Vacant Buildings

Loss Costs:
percentage by peril

Fire

48%

Arson/ Vandalism/ Theft

20%

Weather

31%

Other

1%

Number of losses:
percentage by peril

Fire

24%

Arson/ Vandalism/ Theft

37%

Weather

34%

Other

5%

Source: FM Global

Manufacturers can help shield themselves from such human and natural threats by undertaking a thorough risk-assessment process, says Tom Delorie, the Midwest zonal leader for Marsh Risk Consulting's property risk practice. He recommends involving multiple divisions within a business operation in the process to ensure all potential risk factors are covered.

"It should be a multisiloed approach," he says. "It should not just be risk management or just operational. It should be a confluence of all those things because each one of those groups will have an expectation of what should be done."

The team should include someone from the operational side who is most familiar with the building, he says. In addition, it might be necessary to contact a consultant or the insurance carrier to ensure the company is meeting the requirements of its insurance policy.

"Not every insurance policy will continue to stay in force at the same level as it did before if the property is no longer running as an operating facility," says Jeff Beauman, vice president and all-risk underwriting manager at FM Global. "In other words, when the insurance was purchased, it was presented as an operating facility that was fully manned. Now you're down to a basic shell of a structure where you're going to have a security force and not the same level of individuals present."

Legal professionals can provide advice on any potential agreements or liability concerns. Aside from the obvious issues, such as rent, an attorney may review energy agreements that require certain minimum consumption obligations or municipal rules and contract covenants, says Mark Aiello, a partner at Foley & Lardner LLP and member of the firm's automotive industry team and construction practice.

When conducting an assessment, some of the common areas manufacturers should review before a shutdown include potential weaknesses in the site layout, security gaps and heating requirements in the winter. "One of the single largest cost factors when you think about an idled location is that of heating, so if it is a sprinkler property, for example, you can't just arbitrarily shut the heat off because the pipes can burst and you can have water damage," Delorie says.

Manufacturers that plan to eventually restart a facility will need to think about performing preventive maintenance tasks that will keep machinery from rusting, Beauman says. In some instances they may need to put an inert gas inside piping systems to keep them in working order, he says.

Manufacturers also need to consider the day-to-day maintenance tasks that can easily be overlooked when planning a shutdown, Beauman says. "The kinds of things that, when you have a workforce showing up day in and day out that are generally done for cleanliness, become important," he says. "For instance, roof gutters can clog and a winter storm can cause rain to back up into the building."

One area that's of increasing concern is metals theft. For instance, in June copper thieves were arrested for stealing about $11,000 worth of copper wire from a former Oreck Corp. plant in Long Beach, Miss., according to news reports. Such thefts can be costly in more than one way for manufacturers since companies often are responsible for "protecting trespassers from themselves," says Aiello.

Tom Delorie, Midwest zonal leader, Marsh Risk Consulting's property risk practice

Delorie recounts a situation in the Pittsburgh area in the 1980s when plant closings were widespread. "I know of a client who had someone slip through the perimeter fencing, coming in scavenging for copper, which is popular these days, and cut into a live wire and fell to their death," he says. The client was eventually found responsible for not properly securing his property.

Keys for Plant Shutdown Preparation

Commercial and industrial property insurance company FM Global says companies can mitigate risk to idled facilities by:

  • Keeping sprinkler systems in operation, including an inspect and test program
  • Removing unnecessary combustible material from inside and outside the facility
  • Keeping vegetation trimmed
  • Removing flammable liquid and turning off utilities, if not needed
  • Monitoring hot work operations
  • Informing the public fire service of the building's vacant condition and providing them access, if necessary
  • Making sure the building is secure to deter arsonists and vagrants
  • Maintaining the building heat at no lower than 40 degrees Fahrenheit, or 4.5 degrees Celsius

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