Weathering the storm: Insurance you didn’t know you needed

August 14, 2019
image-of-a-flooded-street
After a severe weather event, your business will need help to recover.

Talking about your insurance plans with your agent and updating your policies before disaster strikes will have a huge impact on your restaurant’s ability to recover quickly and your own peace of mind. You’ll survey the damage very differently when you know you’ll be getting an insurance check to cover it.

Property damage coverage

The first line of insurance defense is property damage coverage, which covers actual physical loss and damage to property. This coverage serves as the principal source of funds to repair and/or replace the building and equipment. Also listed below are a number of additional insurance endorsements (a special addition to your main insurance policy that changes its terms or scope) that you might want to consider.

A couple of up-front tips: 

  • Don’t skimp on coverage. Insurers usually require you to purchase insurance that covers at least 80 percent or 90 percent of the value of your property. That’s tempting, but possibly short-sighted. If you don’t insure to your restaurant’s full value, you won’t get paid 100 percent of your loss in the event of a natural disaster. And truth be told, a natural disaster is going to cost you out-of-pocket cash, no matter what. Your goal is to minimize that amount.
  • Don’t simply consider buying insurance that replaces the cash value of your goods. Consider whether you need replacement value insurance. You need insurance that supplies you with funds to replace what you lost at today’s prices, not at the price they cost you years ago — if you can even remember what those costs were. To minimize hassles with your insurer over the actual cash value (ACV) of items, consider replacing your policy’s ACV assessment with a replacement endorsement. However, you might want the ACV for items you can’t replace (or perhaps won’t want to replace, in the case of decor), such as antiques or artwork — these items may need to be separately insured anyway, if they’re valuable.

Restaurant-specific policies

As restaurateurs, you’ll want to investigate additional insurance coverage as endorsements to your main policy or as separate policies. Some specific endorsements to check out include business interruption and extra expense (think rentals, generators, equipment, emergency supplies, leasing space temporarily, etc.), flood insurance, code upgrades, debris removal, expediting expense (the overtime costs to rebuild fast), food spoilage (cost of lost inventory), and mold. Have this list in front of you when you talk with your insurance agent to see if you need any of these additional protections or if they’re included in your main policy. Ask your agent about others, as well.

  • Business interruption. Essential to most restaurant businesses, this covers the actual loss of income sustained during a disaster or other emergency because of repairs or rebuilding. Business interruption generally only kicks in after a covered cause. And it usually won’t kick in before 48 or 72 hours have passed, depending on the policy. Business-interruption coverage typically extends to keeping your payroll going. Ask your insurance agent specifically what official sales or financial data you’ll need in order to file such a claim and make sure it is stored in a safe, remote location (the safest would be in a cloud). You’ll most likely also need your sales history.
  • Extra expense. Combine this one with business-interruption coverage. This usually pays any additional expenses relating to operating your establishment from a different location. It also can cover purchased expenses you have before, during and after storms, such as plywood, generators, fans, etc.
  • Flood insurance. Flood damage is typically not covered in any traditional property insurance policy and has to be purchased on its own. If you have any risk of flooding (even a so-called 100-year flood can hit twice within five years), you should strongly consider getting flood insurance.
  • Earthquake insurance. If you’re in an area prone to earthquakes, you might want to look into a special policy to cover your business. Like flood insurance, earthquake insurance is typically not covered in a traditional property insurance policy.
  • Energy systems. Did you know that if your electric company can’t supply you power, keeping your business dark for days, that’s usually not covered in your insurance policy? Look into an endorsement that will reimburse you for business lost when your utility can’t deliver. And another point to remember: If you have an electric sump, and the power goes out, so does the sump. That could mean water and sewer backup into your unit from flooded lines — and that damage is only covered with a sump pump endorsement.
  • Code upgrade. How old is your restaurant? Rebuilding or repairing damaged or destroyed buildings might require you to bring the building up to current codes, which can be an expensive process.

    fire-line-yellow-tape-image
    Water, wind and fire leave a huge mess. Consider a debris-removal rider for your insurance plan.
  • Debris removal. Most property insurance policies provide for some debris-removal reimbursement. Double check to see what debris-removal assistance you will get when cleaning up your restaurant after a storm and decide if it’s going to be enough. Storm damage is a very messy business and potentially includes hauling away big equipment.
  • Expediting expense. This coverage usually means the insurer will pay additional costs relating to having the repairs to the damaged property done fast, e.g., with overtime or double shifts. Be careful with this one, though. Make sure it doesn’t nullify or adversely impact the terms of the business-interruption insurance you purchased.
  • Food spoilage. Replacing food that’s been ruined because of a storm can be costly. Most insurers offer a tiered deductible and payout limits to fit the operation’s size. In addition, check the amount of your fine-spirits coverage; restaurant operators often forget to insure their wine cellars for their true value. 
  • Mold. Most policies either exclude mold or limit mold payments. Especially consider adding this endorsement if your restaurant is in a warm, humid climate where mold is more likely to grow if your restaurant’s heating and air-conditioning system goes down or you’re flooded. 
  • Other considerations. Also consider getting an improvements-and-betterments rider to cover the remodeling and decoration needed to turn a leased space into a unique restaurant. Do not forget to insure any valuables, such as works of art, antique fixtures or tiling or furniture that are unique and difficult to replace. Finally, items not typically covered in policies, such as plate-glass windows or cash, could be added into your policy through endorsements.

Spell out what’s covered. In any policy or endorsement, work carefully with your agent to make sure you clarify exactly what’s insured. For example, your policy might ensure that your key employees continue to get paid while you rebuild. Consider naming those employees specifically by position or title in your policy. If you don’t, you risk arguing the point later when your provider disagrees with your definition of “key employee.” If you lease your space, make sure insurance covers your rent while you undergo reconstruction, or you’ll risk losing your lease. Too often, insurance coverage is open to interpretation. Be specific.

Determine your deductible by assessing your own risk averseness. Are you willing to gamble with a high deductible? It’s tempting because the premiums are less expensive, but will you be able to cover that large deductible out of pocket, comfortably? Remember, you could be closed for a while…

Make sure you keep copies of your policies and the records you’ll need to file a claim in a safe place. That place needs to be outside of the restaurant and, in the case of natural disasters, in a truly remote location. Options include online in a cloud, in the home of a relative, or in a safety deposit box at a bank. You may also want to have your insurance agent’s number (office, home and mobile) listed in your emergency contact list.
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Cell phones make it simple to document the valuable items you have in your restaurant.

This article is provided to you for general informational purposes only and does not constitute professional advice. We strongly recommend that you consult with a professional regarding your specific circumstances prior to taking action. While we try to ensure the accuracy and completeness of the contents of our articles, we make no guarantees and are not liable for any loss or damage arising out of any use or reliance on the content of this article. We reserve the right to supplement, change or delete information in this article at any time.

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