Salvage: Dealing with Damaged Inventory After a Loss

terms of the consignment with respect to damage while the goods are in the “care, custody, and control” of the insured?

2. Location

  1. Where, geographically, are the salvageable goods located in relation to where the salvage is going to be sold?
  2. What special considerations will have to be made:
    1. Are the salvageable goods hazardous? Will protective clothing be needed by the salvors?
    2. How difficult will it be to get access to the damaged inventory?

3. Handling

  1. What size staff will be necessary to separate the salvageable goods from the non-salvageable goods, and prepare or verify an inventory? (Note: Separating damaged goods from undamaged goods is the policyholder’s responsibility but a salvor may want or need to further separate goods for salvage and those costs are the salvor’s responsibility.)
  2. What special considerations will have to be made to obtain an accurate description of the goods, assign lot

numbers to groups of salvage, and perform an accurate count?

  1. What will be required to pack and “dig out” the salvage from the loss site? Just some cardboard boxes or multiple refrigerated containers?
  2. Will it be necessary to transport the goods to the buyer or will the buyer pick up the salvage?
  3. Will three men and a pickup truck be enough or will professional riggers, heavy equipment movers, or engineers be needed to properly transport the goods?

4. Market Value
The value of salvage is only as high as someone is willing to pay for it. It has a different value to different people and different industries located in different parts of the world. A Ralph Lauren business suit that retails in New York City for $1,000 may become “unsaleable” by the business owner because it has smoke odor from a fire. This same suit with the smell of smoke may be very saleable in a special sale or distressed goods market.

5. Other Considerations
The value of the salvage also depends largely on the expertise of who is selling it. The larger your base of potential buyers, the higher the value the goods will have. An insured may be most in tune with their

“niche” market or industry and thus be in a better position to handle his/her damagedinventory than a professional salvor. On many occasions salvors consult with other prior insureds as to the market value of goods.

A policyholder and their insurance company usually have some similar considerations when evaluating the salvage potential of damaged goods, however, the insured must also consider “tomorrow.” The insurance company will also be more interested in the insured’s future if there is Business Interruption or Loss of Earnings coverage in the applicable policy, but the insured needs to protect their business in the immediate future and in the long term.

Additional considerations:

  • Is the inventory value of damaged goods accurate?
  • How long will it take to make the premises tenantable again, or will relocation be necessary?
  • How long will it take to replace the inventory?
  • Can the damaged inventory be sold at a special sale to recoup more than the insurance company’s salvor is offering?
  • Should a “fire sale” be held and:
    • Have “some” inventory to sell
    • Maintain customer flow
    • Retain good employees
    • Not appear “out of business” to the neighborhood and competitors.
    • (By doing so you may need to sell the salvage for less than the insurance company’s valuation.)
  • Should a portion of the salvage be kept, surrendering the remainder to the insurance company?
  • What is the lead time to replace the inventory or equipment?