Fire brings home lessons of large property loss

Standing in the cold and watching your facility burn to the ground is a good test of how well you have prepared to respond to a major fire loss.

You can wait your turn and hope you’re prepared, or you can learn from the experience of Peggy Klecha, MHA, NHA, CHE. As assistant vice president for risk management services at Lancaster (PA) Health Alliance, she was largely responsible for the financial and physical recovery when the system’s outpatient clinic burned to the ground.

"Once in a lifetime, you’re going to face one of these," she says.

The story begins at 2 a.m. on January 18, 1995, with a phone call to Klecha at home. The caller said the Walter L. Aument Family Health Center was "up in flames." The risk manager’s first response was a burst of adrenaline, followed by this thought: "Wow, I wonder what insurance coverage I had on that building."

The outpatient center was located in Quarryville, PA, 75 miles southwest of Philadelphia. The clinic provided laboratory and radiology services, served as a training ground for family practice residents, and housed a paramedic unit. About 100 patients a day were served. The heating system in the building had been malfunctioning for two days and contractors had been brought in to repair it.

Early in the morning, two paramedics were the only ones in the building. They saw a glow in the ceiling, and immediately after they left the room, the ceiling collapsed.

No one was seriously injured in extinguishing the blaze, but the building was a total loss. The attic heating system is suspected as the origin of the blaze, and the heating contractor’s insurer may be partially liable.

There was no sprinkler system in the building, and the smoke alarm sounded briefly but then reset and sounded again. The fire was fueled in part by oxygen tanks. The total cost of the fire loss was $1.7 million, with almost all of it covered by insurance.

Minimize the impact

Klecha raced to the clinic as soon as she got word of the fire. One of the first priorities was to arrange for alternative sites of care for the patients normally seen at the clinic. Staff were posted at the facility to inform arriving patients of the situation and direct them to alternate sites for their scheduled testing and treatment. ews reports also helped get the word out, and Klecha says no scheduled appointments had to be canceled.

Construction of a new facility was begun almost immediately and it should be open by the end of 1996, marking total recovery in less than a year’s time.

"You shouldn’t underestimate the importance of minimizing the interruption to your business," the risk manager reports. "It’s not just a matter of not inconveniencing your customers, although that certainly is important. You have to minimize the revenue loss because you’re already losing money from the disaster, so you want to make sure that all patients are seen without delay."

The insurance adjuster was particularly pleased with the efforts to minimize business interruption.

The Lancaster Health Alliance staff responded admirably to the crisis, partly because they were experienced with disaster drills and similar planning. But some of the most important responses occurred right on Klecha’s desk — administrative, risk management responses that made the difference between a disaster you can recover from and a disaster that throws the whole hospital system off balance.

Klecha divides her lessons into points to consider before, during, and after the property loss. She points out that most of the advice can apply equally well to any sort of large property loss, whether it comes from a fire, hurricane, earthquake, or an extremely unlucky hit by a meteorite. She offers this advice:

Before the loss

Predetermine your data collection process.

Before disaster strikes, know who will be responsible for helping with the facility recovery. Several managers will have to work together as a team to respond to the crisis, so identify those roles beforehand. Potential team members include the risk manager, the managers of the affected departments, accounting, maintenance, and engineering.

Understand what your insurance policies cover and what they don’t. Take the time to study the policies beforehand, while you can sit comfortably at your desk. Finding out that most everything is excluded is all the more unpleasant when your desk has melted.

Maintain an accurate equipment inventory.

Ongoing diligence will be necessary to keep the inventory accurate. Have you recently bought new equipment? Is your coverage high enough? After the fire, Klecha found that the capital assets ledger and the general ledger were the best sources of information.

Also, maintain good information on loaned equipment. The facility had $15,000 worth of loaned equipment, and the owner wanted reimbursement. For the reimbursement to be covered by the insurance, Klecha had to prove that the equipment was there. And even then, the insurance only covered $5,000 of loaned equipment.

"The lesson is that when you borrow equipment, make sure you know whose insurance covers it," she says. "If it’s yours, make sure you have enough."

To help document all inventory, many risk managers recommend you walk through the facility with a video recorder to create a taped record of both the building and its contents. (Many people do the same thing at home.) No big production is necessary; simply walk through and narrate as you go. Remember to store the tape off the premises so it is not lost with the building. Klecha did not have a videotape that had been made for inventory purposes, but she used one that had been made to help recruit family practice residents to the Walter L. Aument center. The tape showed the building and most of the contents, and it also explained some contents that were not visible. To impress the residents, the narrator showed how light cables and similar items were run through the ceiling to keep them out of the way, for instance. After the fire, that kind of comment proved useful. "We took the videotape home after the fire and went through it very carefully to find things that were not listed on the inventory list," Klecha explains. "We were surprised at how much we found. There were lots of small things like fire extinguishers and waste baskets, things that add up."

Protect vital records.

Recreating evidence of what existed before the loss can be the biggest challenge, so protect blueprints, inventory records, financial statements, and similar documents, along with patient records.

Visualize potential loss scenarios.

Some losses, such as a fire, can strike any facility. But also consider local risks from flooding, hurricanes, and other hazards. How would you respond with no interruption of business?

During the loss

Bring all keys to the fire.

Simple, but important. The fire department already may have opened the front door in its own special way, but in your excitement, don’t show up without the keys you will need to retrieve important papers, for instance.

Set up a command post.

A central command post will help ensure efficient communication. You can use any nearby location with phones, warmth, and coffee. The Walter L. Aument staff used a branch office of their insurer.

Notify your insurer, insurance agent, the police, and the local health department.

Klecha forgot to notify the health department for two months. They did not issue a fine or any other punishment, "but they weren’t happy with us about that."

And of course, notify any other health care facilities that may refer patients to you or depend on you for services.

Assign security immediately.

"Don’t waste a second getting some guards out there," Klecha advises. She waited two hours and, in the meantime, the burned building’s alarm system disappeared. It was later determined that the system was taken by the outside alarm company, the rightful owner of the equipment, but it should not have been retrieved so quickly. Potential evidence should not be removed from a disaster scene until the proper authorities give the OK.

Klecha recommends using your own security guards if possible, instead of hiring outside help. Their familiarity with the facility and the staff will be a benefit. But she cautions that your insurer may balk at paying overtime for the guards. She knows of another hospital that ran into trouble when the insurer would pay only the cost of hiring outside guards, considerably less than the cost of paying overtime for the hospital’s own guards.

Take still photographs and videotapes right away.

If possible, start photographing the scene during the disaster. That may help show exactly what sort of damage took place. After the situation is under control, record the scene before any recovery and before any secondary damage occurs from weather. The damage from the elements probably will be reimbursable also, but immediate recording provides the most accurate account.

Salvage records immediately.

Preservation and restoration of records, both paper and computer, can be very expensive. Your insurance adjuster needs to be on board with you in determining what is and is not salvageable. Let him or her know what you are deciding to do.

Move the medical records off-site as soon as possible for both confidentiality and restoration. Only half of the paper records at Klecha’s facility could be retrieved at all, and only 30% of those could be restored. The hospital system spent $66,000 to restore the records. Fortunately, computerized backup records were available so that no information was permanently lost.

"We had the restoration company call frequently with updates on the cost, and I passed those on to the adjuster so there were no surprises," she recalls. "It’s very important to stay in close contact with the adjuster."

Identify a restoration contractor for equipment.

Salvaging medical equipment may require a speedy response, so don’t delay in getting a contractor on-site. Consider sending your own biomedical engineers to assist with the restoration and testing of equipment.

Consult with your insurer and restoration contractor about having the warranties recertified. If they cannot get the manufacturer to recertify the warranty, you may want to insist that the insurer pay for replacing the equipment.

Look for subrogation opportunities, and maintain needed information.

Klecha and her staff took statements from employees about the problem with the building’s heating system and the work done by the heating contractor. The work order for the heating work was found in an administrator’s burned desk in the building, in a "to read" file for the next day.

After the loss

Track the claims costs.

This can be the most challenging aspect of the disaster. Your system’s accounting department must set up a separate account for all expenses related to the loss. Occasional group meetings with department heads can be useful.

"We sent a wide memo stating that anything new going into Quarryville as a result of the fire must be tracked through this account," Klecha says. That included costs such as a $2,000 newspaper advertisement to thank the community for its support, and a restaurant party to thank employees. Both expenses were reimbursed by the insurer.

Some of the reimbursable expenses may be surprising. The insurer covered extra employee travel time to the temporary clinic, insurance on the temporary site, all utilities there, the cost of housing the paramedic unit at a local fire station, and the loss of employees’ personal property. One doctor reported the loss of about $3,500 worth of medical books.

A loss of more than 85% of the building meant the clinic lost its zoning in the community, so the insurer also reimbursed attorneys’ fees for rezoning. Insurance paid for the replacement cost of the new building with the exception of a few upgrades. The new building features a full basement, an elevator, and yes, a sprinkler system.

Klecha advises staying in very close contact with the insurance adjuster throughout the recovery. Any disagreements will be much smaller if addressed concurrently, not long after you have incurred the expense.

Include the adjuster in your inspection.

Have the insurance adjuster with you as you perform your first full inspection of the damage after the disaster.

Make sure employees come to you with questions, not the adjuster.

The adjuster can be your best friend or your worst enemy. Close communication with him or her will improve the relationship, but do not allow others to go directly to the adjuster. If they do, the adjuster can easily take control of recovery efforts, to your disadvantage.

Recognize the staff.

The facility staff should be thanked for their hard work. Also be sure to acknowledge their sentimental loss, the loss of comfort, and the disruption of their normal routines. No matter how much they may joke and deny it, the facility probably represented more than a workplace to them.

(Editor’s note: For more information, contact Peggy Klecha, Assistant Vice President, Risk Management Services, Lancaster General Hospital, 555 North Duke St., P.O. Box 3555, Lancaster, PA 17604-3555.)