Understanding your insurance coverage is vital to keeping
business up and running
By Robyn Davis Sekula
Pizza Today | August 2008
Scott and Kelly Hoover thought they did everything right when it
came time to open Paoli Pizzaria in Paoli, Indiana, in June 2006. They sought
out an insurance agent and bought coverage for property, equipment, business
interruption and workers' compensation.
But they skipped
a crucial step that has cost them thousands: they didn't take the time to
actually review the policy. Because they didn't understand what they were
reading when they read the policy, they didn't realize that their agent had
signed them up for only $75,000 in equipment coverage, when they had requested
$150,000, and $200,000 in property coverage, when they had requested $400,000.
They discovered
the error after an electrical fire in a storeroom ravaged the business just 18
weeks after they opened their doors. A long battle with the insurance company
ensued.
The restaurant
is back up and running, but the Hoovers have found a new insurance company and
a new agent who doesn't mind taking time to explain their coverage. The Hoovers
relied on a local agent in Paoli for their coverage.
It's crucial,
Scott Hoover says, to understand your coverage. "If you don't understand
your insurance policy, take it to a second agent, or an attorney who knows
insurance and have them make sure that you understand the policy you have, your
liability and your coverage on your building," he recommends.
"Understand it all."
Every
restaurant owner knows they need insurance, says Cheryl Downey, senior vice
president for Hilb Rogal & Hobbs Insurance Services of California Inc.
(HRH), which insures many pizza restaurants. But what she sees
often are restaurant owners like the Hoovers who don't have enough, or are
missing a few different types of insurance. "Where they may have problems
is they may not have high enough limits," Downey says.
Most often, HRH
sells a business owner's policy to pizza restaurants, which is a package of
coverages. That package typically covers property insurance, business
interruption insurance, liability, employment practices, crime and, depending
on where the restaurant is located, earthquake and flood insurance.
Property
insurance is what most people are familiar with, she says, and covers damage to
property such as fire and vandalism, but it often excludes earthquakes and
floods. Those potential catastrophes need to be insured separately. The higher
the risk, the more expensive the insurance will be, but Downey says if you're
in a high-risk area, it's a necessity. In Florida, she recommends that clients
get coverage for wind, which helps pay for damage from storms such as
hurricanes. "If you are in downtown San Francisco or somewhere near a
fault, then you need to consider earthquake insurance," Downey says.
"You need to consider if you can afford not to have it covered. The same
goes with flood insurance. It's going to be very expensive if you are in a
high-risk area. If you are in a low-risk area, then it will be very
cheap."
Business
interruption insurance pays a portion of a business' lost income and expenses
while it is out of business following a claim such as a fire. Liability
insurance covers the restaurant if the business was sued for some type of
injury such as a fall on the premises or food poisoning. An employment
practices policy covers workplace discrimination, such as sexual harassment or
wrongful termination, or a discrimination claim by a customer. And a crime
policy covers the restaurant in case it is burglarized or its employees are
robbed.
For any business
that has employees drive their own vehicle for delivery services, Downey
recommends a non-owned auto policy, which covers the restaurant for liability
if a driver gets into an accident while on company business. That can include
deliveries as well as going to the bank or to pick up supplies -- anything
where an employee is driving their own car on behalf of the restaurant.
While some
restaurant owners believe that their drivers have their own insurance, and
that's enough, it's not, she says. Many personal auto insurance policies
exclude any claims while a vehicle is being driven for work purposes. If a
driver had one of those type of policies, and got into an accident while
driving for work, the restaurant would be entirely liable.
As for the
Hoovers of Indiana, their new insurance agent is patient and has helped them
understand their policy. Hoover has also relied on his brother, who is an
attorney, to review his insurance policy for him. The restaurant now has the
$150,000 in equipment coverage and $400,000 in property coverage the Hoovers
originally wanted, and also coverage in the event of crime. The restaurant has
a $2 million liability policy.
The Hoovers' new
agent reviews the restaurant's policies periodically and calls Scott Hoover if
he thinks the restaurant is missing any coverage. Hoover takes photos of any
new equipment in the restaurant and saves receipts for major purchases so he
can prove the cost of items he's bought. He doesn't have earthquake or flood
insurance, but he plans to buy it soon.
"People
just really need to read their policies," he says. "This is
absolutely crucial."