The Devil Is In The Details

As a risk manager focused in hospitality, there are a number of coverage issues I frequently see when reviewing a prospective client’s insurance policies. Although this just scratches the surface, the following are a short list of coverages that need to be reviewed closely and if not, can be very costly (and even devastating) for restaurant owners.

• Coinsurance Penalty
• Wind/Hail Deductible
• Exclusions
• Employment Practices Liability
• Employee Benefits Liability
• Liquor Liability
• Business Interruption Coverage

The good news… it isn’t too late to identify your exposures and make the necessary changes to protect your assets!

If you are still reading this, you are most likely thinking “great, but how much is it going to cost me”? You might also assume this is going to cost a lot more than you are paying AND be a lot of work to fix.

The reality is, if you know what to look for, it only takes a few minutes to review your policy AND oftentimes, you can make the necessary changes at little or even no cost!

Is a few minutes of your time worth potentially saving thousands of dollars and having the peace of mind you are well covered?

Coinsurance

Your policy may contain a coinsurance clause requiring that the limit of coverage be a minimum percentage (typically 80 or 90%) of the insurable value of your property. If the amount of insurance carried is less than what is required by this clause, any claim payment may be reduced by the same percentage or deficiency. Here is a basic formula to figure out if you are adequately covered:

Wind/Hail Deductible

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IHOP Restaurant, Joplin MO, April 2011[/caption]

Wind related perils are very common. A few years ago, many carriers moved to a separate wind/hail deductible to respond to the excessive claims costs they were incurring. Your policy may have a separate deductible for wind and/or hail related losses.

Although claims like this are rare, smaller property claims from wind and/or hail events are common.

Look at your policy. How much is your deductible? If it is a percentage of your property limit ($1,000,000 for example) or $10,000 and you have property damage of $8,000, would you want to pay for this out of pocket?

* Not all carriers REQUIRE a separate wind/hail deductible. If you have one, there are better options out there.

Exclusions

There are a number of exclusions within your policy. I frequently hear “I thought that would be covered by general liability”. I hate to be the bearer of bad news, but it isn’t! There are two important exclusions relative to your operations that often get overlooked. I have included examples of actual language used in a standard policy.

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Recent Bay Area restaurant wage/hour lawsuit[/caption]

Employment Practices Liability — any claim arising out of employment related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or malicious prosecution directed at that person.

Liquor Liability — any claim (bodily injury or property damage) caused by:

• contributing to the intoxication of any person
• furnishing of alcoholic beverages to a minor
• alleged negligence in supervision, hiring, employment, training or monitoring of others
• providing or failing to provide transportation with respect to any person that may be under the influence of alcohol

If you sell alcoholic beverages and don’t have liquor liability coverage OR have employees and don’t have employment practices liability coverage, you have a major exposures that could be devastating! I often hear is “that will never happen to me”. It can happen to you and when you look at these coverages as a cost of doing business, the premium is pennies on the dollar for every drink you sell, plate you serve and employee you hire.

A third exclusion often misunderstood is employee benefits liability. With healthcare reform, the hospitality industry faces more exposure than ever before. I will provide more information on this subject soon.

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First Watch Restaurant
Fairway, KS November 2015[/caption]

Business Interruption Coverage

There are three parts of business interruption coverage (also know as Loss of Business Income) that can be very costly if overlooked:

• Limits
• Deductible (Waiting period)- commonly ranging from zero hours to 72 hours
• Period of Indemnification- how long will you be covered?

Using the claim below as an example, if this occurred just one week later (Thanksgiving) and there was a waiting period before coverage applied, it could have cost this owner thousands in lost revenue. Let’s assume that this restaurant had a 48 hour deductible and this incident occurred on the Wednesday night before Thanksgiving. Coverage would not apply until Friday night. How much revenue do you typically make on “Black Friday”? Granted, this would be very poor timing, but crazier things happen every day.