For your review: Insurance policy coverage

fire_0208Insurance policies should be reviewed annually to assure adequate coverage. Although pizza restaurant operators should notify their insurance agents whenever a change has been made that increases the value of the business or its exposure to liability, an annual insurance review offers the opportunity to really take stock, ensuring there’s sufficient protection that would enable the business to survive should a calamity strike.

Ideally, this annual review would put the current policy and the restaurant under exacting scrutiny, yet sometimes this task gets short shrift, says Cheryl Downey, senior vice president/ principal of EPIC Insurance brokers, which provides insurance to the pizza delivery industry. Restaurant operators are busy, she explains, and if they’ve never had a claim they may feel undertaking a thorough review with their broker is unnecessary — an unfortunate assumption because it doesn’t take much to create an underinsured situation.

There are numerous ways this can happen, says Karen Kiernan, PizzaGuard Insurance Program manager for Willis Programs. Located in Portsmouth, New Hampshire, the company offers customized insurance solutions for pizza delivery restaurants.

“There may have been additions or expansions to the store but the limit of coverage doesn’t reflect these changes,” she explains. “We sometimes see where they want to insure the ovens, walk-ins, etc., for less than replacement costs. The policy needs to reflect the full replacement cost value to be adequately insured.”

In addition to the amount of equipment coverage, other changes affecting coverage include adding liquor or delivery to the operations, Kiernan says. “These all need to be addressed to be sure the restaurant is fully covered for all operations at all times. If a loss occurs and the insurance policy doesn’t reflect the current operations there could be a loss with no coverage and potentially put the operator out of business.”

The onus isn’t entirely on the restaurant operator — the insurance agent should always provide operators with a review of their coverage before the policy’s expiration date, says Keith George, managing director of AmWINS Program Underwriters Inc., a wholesale insurance distribution firm. Still, for a successful outcome, restaurant operators must actively participate in the process.

Grady Verrett, principal/CEO of Premier Companies, headquartered in Thiboudaux, Lousiana, has three restaurants (including two Peppers Pizzerias) and a catering company. Verrett says they begin compiling data for their annual review about three months out. Their internal document lists all of their areas of exposure — loss of income, food spoilage, boiler and machine coverage, robbery, and so on — taking into account the differences in their various buildings and operations. Included is information on property and equipment values, sales volume, percent of liquor sales, number of employees and more.

“I’ve learned over the years to ask the right questions of our agent and to get the answers in writing,” says Verrett, of the review process. “For example, after (Hurricane) Katrina we had a loss where what we thought was covered hadn’t been properly noted. The agent was no longer with the company and so they denied the claim. We had to hire a public insurance adjuster to help us recover the money from the company.”

Other suggestions from Verrett? Inquire about loss of income, how many months this covers and what it covers (his is for six months and also covers operating/carrying costs). And get very specific, he advises.

“We had a case where we had spoilage because of a loss of utilities,” he recalls. “We thought we had coverage for this but because the utility loss happened down the street and not at the restaurant, we weren’t covered. So make sure the policy covers any loss of utility, even off-premise.”

Operators should also ask their brokers to recommend coverage they may not have but could need, says Downey. This can include employment practices liability, network security, umbrella excess liability, foodborne illness and earthquake and flood. “Operators should also verify the broker is using correct delivery sales to avoid a potential claims issue in the event of a serious claim,” she adds.

Store owners must be forthcoming, says Kiernan. “It’s essential to list all their daily operations and go over each one with the agent to be sure they’re covered for those operations.”

Some items for discussion include:

  • If the building is owned or leased, and if leased, the operator’s contractual obligations, says George.
  • The full replacement cost values of the building and personal property.
  • Total projected sales. If selling alcohol, they need liquor liability coverage and will need to know what percent of sales alcohol comprises.
  • What potential loss of income they’d face over a specific timeframe, says Kiernan. “Some policies are paid on actual loss sustained but some aren’t and are a specific limit,” she says.
  • Total payroll — this determines the premiums for workers’ compensation coverage, says George.
  • If you deliver, do you use company-owned or employee-owned vehicles? asks Kiernan.

As for the likelihood of being over-insured? Don’t worry, it’s very rare, says George. “The limits you purchase are a function of how well you want to sleep at night,” he explains. “The usual question in today’s litigious society is ‘how much is enough?’ ”

Tip: Delivering Liability

“The whole insurance game changes when an operator offers delivery,” says Keith George, managing director of AmWINS Program Underwriters Inc. It’s one thing if a company-owned vehicle is used and insured on the owner’s business auto policy for liability. But employee-owned vehicles are another story. Typically, personal auto policies contain a “business pursuit exclusion,” or will exclude food delivery specifically, he says. If the driver gets into an accident the restaurant operator is on the hook. Consequently, owners should purchase “non-owned auto liability coverage,” says George.

And make sure the limits are sufficient, cautions Cheryl Downey, senior vice president/ principal of EPIC Insurance brokers. She recently advised an operator to increase his one-million-dollar delivery liability policy with an umbrella excess liability policy. He listened; six months later his driver hit and severely injured a bike rider. However, the operator is expected to have adequate coverage. “Accidents can happen even with the best of drivers,” she reminds. “A one-million-dollar limit is no longer adequate.”

Pamela Mills-Senn  is a freelancer specializing in writing on topics of interest to all manner of businesses. She is based in Long Beach, California.