Be Prepared

Pizza Today

Pizza Today cover, August 2008

Be Prepared

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."