Smoke that billowed from the fire in the club's sauna seeped into the rubber floors and the rubber on the equipment, rendering all of it useless. The sheet rock and duct work had to be ripped down. Ceilings had to be washed with a solvent. Other damaged property included tables, chairs and temporary signage, as well as the company's membership files, which had to be moved off-site and were frozen before going into an ozone room for contamination removal. Adding insult to injury, someone later stole the club's IT equipment for its makeshift operations.

It has been nearly a year since a fire erupted on July 26 in the women's sauna of the corporate club of WOW! Work Out World in Brick, NJ. After initially trying to reconstruct the 30,000-square-foot club, owner Stephen P. Roma has instead decided to sell it and open a new club in the area.

Roma said all of the damage from the fire was covered by his insurance, except for one element — the stress level. In the months since the fire, Roma has had help in reducing his stress level by working with his insurance agent and a public adjuster to detail the damages, estimated at well over $1 million.

“If it was not for us obtaining and retaining the public adjuster, I think we probably would have achieved at best 60 percent of what we're achieving financially through the insurance company,” says Roma, who also has nine other locations.

In this tight economy, some club owners are contemplating cutting back their insurance premiums, but examples such as Work Out World should make them reconsider that notion. Ken Reinig, senior vice president of Association Insurance Group, Kennesaw, GA, says he's received more questions from club owners about cutting insurance costs in the past few months than he has over the last 20 years. Each time, Reinig advises club owners to keep their premiums.

“It is definitely on the minds of club owners today, trying to just figure out ways to hang in there,” Reinig says. “Their insurance costs, at least in their mind, is an area that they may be able to cut back in, but really, they can't.”

To the Rescue

Roma's insurance agent, Jon Denley, senior vice president of Creative Agency Group, Holmdel, NJ, arrived at the scene of the World Out World fire on the day it happened — thankfully, no one was injured. The cause of the fire, Denley says, was a protruding nail that had been touching a live wire since the sauna's renovation. It took months for the nail to create a spark, Denley says.

Denley, who serves as the go-between for his client and the insurance carrier, surveyed the damage and immediately contacted a company to begin clean-up work the next morning. Roma was out of town on the day of the fire. When he returned home that night, he found an introductory packet from Leslie Knox, a public adjuster from the firm Andrew K. Knox and Co. in Toms River, NJ, already in his mailbox. Knox would end up putting together several hundred pages of photos and other details of the club's damage to show the insurance carrier.

“The damage was great enough that you've got to get a public adjuster involved,” Denley says. “An insurance agent is just not going to be in a position to advise and counsel in a catastrophic position. An insurance agent is not trained for that. Public adjusters are. They will attempt to get advance money for the insured. They will attempt to get all of the necessary permits. They'll make arrangements for the debris removal and the reconstruction. They get very deeply involved.”

The three types of claims a public adjuster prepares for the insurance company are a building claim (detailing construction costs), a business personal property claim (featuring furniture and fixtures, equipment, stock and supplies) and a business income portion claim, which estimates the amount of revenue the company lost from the time of the fire.

“The devil is in the details,” Knox says. “The more detail I can provide to document the loss and prove the value, the more satisfactory the settlement is going to be for the insured.”

The public adjuster and the club owner agree to a contract in which the public adjuster receives a percentage of the insurance payment, usually between 4 percent and 10 percent, Knox says. The check from the insurance company to the club will include the club owner, the mortgage or lien holder of the building and the public adjuster. Once the club receives the check from the insurance company, the club owner then writes a check to the public adjuster.

Knox says the insurance company has paid off the building claim and the business personal property claim so far in the Work Out World case. The business income portion check from the insurance company is expected to arrive soon, Knox adds.

At first glance, public adjusters might appear to be stepping on the toes and the duties of the insurance agent. Regardless of whether egos are damaged, the public adjuster knows what role he or she has to play, Knox says.

“Very often, there will be a battle of wills between the insurance agent and the public adjuster,” Knox says. “That's not unusual. But as long as both sides enter the relationship with the goal of getting the insured paid as quickly as possible and an amount that is truly representative of the loss in damage, then all parties will come out much better.”

Denley says: “It has nothing to do with ego. It has to do with satisfying my client to the best of my ability in the attempt to get them back in business as quickly as possible. Agents get commissions by insurance companies to write business with them. An agent, in my opinion, earns that commission at that time of need when you have a claim.”

A few days after the fire, the office was back up and running, complete with temporary cables that connected the company's two T1 lines for phone and Internet connection. Roma's team put together a makeshift operations center in one of the areas of the building not as heavily damaged by the fire.

The 3,500 Work Out World members at the Brick, NJ, location were allowed to work out after the fire at competing neighboring clubs, to which Roma paid a monthly fee. Roma had hoped to continue those agreements with the other club owners into this year, but when reconstruction went slower than anticipated, and it was apparent the club would not be ready by the start of 2009, Roma decided to sell the building. Roma figured it wasn't worth the $2 million to re-build a club that he estimates might have only a quarter of the membership returning.

Other Insurance Claims

Midtown Athletic Clubs, Chicago, experienced a similar situation about two years ago when a fire erupted in its club in Evansville, IN, says Steven Schwartz, CEO of TCA Holdings, which operates Midtown Athletic Clubs. Like the fire at Work Out World, the Midtown fire started in a sauna. And like Work Out World, Midtown initially attempted to rebuild the club but ended up selling it, Schwartz says.

“We realized that the cost to rebuild was going to be more than our mortgage,” Schwartz says. “We already spent a significant amount of money trying to repair the club. We sat down with our insurance company and negotiated a final settlement, which would have saved them money from having to completely rebuild but got us enough to be whole.”

Schwartz adds that Midtown sold the club to a company that finished construction at a lower cost than his insurance company could have paid to reconstruct it. Because of Midtown's cooperation with the insurance company, the company did not raise Midtown's premiums, Schwartz says.

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