Restaurant Insurance Programs – Watch Out For That Coinsurance Clause

Restaurant owners are busy individuals with little time to delve into the details of their restaurant insurance policy. So it’s little surprise that few of them understand the coinsurance clause on their policy. And often, those that are aware of it may not correctly understand how it is applied in the event of a loss. All of this can lead to the restaurant owner spending more out of pocket funds after a large loss than he or she expected. Talk about a cash flow killer.

First of all it is helpful to understand that not every restaurant insurance program will even have a coinsurance clause built in to the policy language. If your restaurant insurance is written on the business owners policy form, then you will more than likely not have any coinsurance clause to deal with. But if you are in an older building, or if you have high liquor receipts or have had past losses or are insured with a company that doesn’t specialize in restaurants, then your property insurance for your building and your contents might be written on the commercial package policy. If that is the case, then you will likely have a coinsurance clause embedded in your policy language.

So what is this coinsurance clause exactly? Well, it is a clause in the policy that helps force the policy holder to purchase enough insurance to cover a total loss of the property. Since most losses are partial losses, some crafty restaurant owners would attempt to purchase only enough insurance to cover the partial loss and not a total loss. If everyone were able to do this, then insurance rates would be much higher than they are now.

Here’s how a coinsurance clause works. Let’s assume that you have replacement cost coverage on your building and contents and you are in a building worth $1,000,000 and have contents valued at a replacement cost value of $300,000. If your policy has an 80% coinsurance clause, then to avoid the coinsurance penalty at the time of a loss, you need to carry a building limit if at least 80% of the replacement value of the building or in this case $800,000. Likewise, you must purchase a contents coverage limit of at least 80% of $300,000 or $240,000. As long as you do so, then you face no coinsurance penalty in the event of a loss.

Now let’s see just how the coinsurance penalty would work if you were not in compliance with your policy’s coinsurance clause. Taking the above example, let’s assume that you only purchased $600,000 of building coverage and $100,000 of contents coverage. And now let’s assume you have a small fire loss and the damage to your building is $10,000 and your contents loss is $5000. Here’s where some restaurant owners who are aware of the coinsurance clause don’t have a clear understanding of how the coinsurance penalty works. Many think that if you don’t carry the 80% required by the clause, then the insurance company will only pay 80% of the loss. But the reality is more brutal than that. You see, the insurance company will only pay the percentage of your loss that is in ratio to the percentage of coverage that you carried. Let’s crunch the numbers. In this example you purchased $600,000 of building coverage when you should have purchased $800,000. If we take a ratio of these two numbers then we divide 800,000 by 600,000. The result is 6/8ths or 75%. So you purchased 75% of the amount of insurance you should have purchased so you will only be paid 75% of the claim. If we ignore the deductible in this example then you would only be paid $7500 for the $10,000 damage to your building. Just think if the loss had been $100,000. Now you are out $25,000 on the claim. That’s going to kill your savings and your cash flow. In the case of your contents coverage, your ratio of what you purchased to what you should have purchased is 100,000 divided by 240,000 or 41.6%. Multiply that by the loss of $5000 to the contents and you see that the company is only going to pay for $2083 of that $5000 loss.

It’s clear from these notes that restaurant owners need to be very aware of any coinsurance requirements that are on their restaurant insurance policies as ignorance could lead to a financial disaster after a large loss. At Clinard Insurance Group in Winston Salem, NC, insuring restaurants all across NC and SC is our specialty. We have designed specialty Restaurant Insurance Programs for many different types of restaurants so that you don’t find yourself as a square peg jammed into a round hole. We have created specialized programs for Fine Dining Insurance, Casual Dining Insurance, Fast Food Insurance, and Bar & Grill Insurance as well as Catering insurance so we can help you with your restaurant insurance no matter what type of restaurant you own. If you would like help with your restaurant insurance issues, or if you would like a quote on your current restaurant insurance, please call us toll free at 877-687-7557, or visit us on the web at www.TheRestaurantInsuranceStore.com.

The source information for this blog can be found at The Restaurant Answer Guy blog site.

Restaurant Insurance – Does Your Umbrella Policy Cover Liquor Liability?

If your restaurant sells alcohol, then you should carry liquor liability coverage. And some restaurant insurance programs may even throw this coverage into the package policy for an additional charge. But purchasing this coverage as part of a package, or more importantly as a stand-alone policy could leave you with a gap in coverage that you don’t know you have. And if ever there was a need for high limits of protection it would be in the liquor liability coverage area. So how do you figure this one out?

First of all, a brief word or two about liquor liability coverage. If you sell alcohol and you don’t have it or don’t know if you have it find out now. This is one area of risk that can wipe you out and being without coverage just doesn’t make any sense. Also, if this coverage is tossed in to your package policy for free or for a very low cost, be suspicious. Check carefully to make sure that the limit of coverage here is the same as your liability limit as often the throw in protection will be for a very low limit of coverage. And believe me, if your client walks out of your establishment and has a terrible accident that kills young children or a family, the size of that claim is going to put you under without protection.

Now, the more savvy restaurant owners out there understand this and they also understand the need for high limits of liability protection. That is why they purchase a commercial umbrella policy to give higher limits of coverage above their business auto, their general liability and their workers compensation policies. But what few take the time to discover is whether or not their liquor liability insurance is also included in the umbrella protection. This is important because as I said before, the liquor liability claim can be huge and as I see it, there are 3 ways that your liquor liability protection may not be included in your umbrella limit. Here they are:

First of all, if your liquor liability policy is a stand-alone policy, then you want to make sure that it is listed as an underlying policy on your umbrella declarations sheet. If not, then your umbrella is not going to cover over the liquor liability policy. Secondly, if the liquor liability protection is an add on coverage in your package policy but for a lower limit than your stated liability limits, then the umbrella policy may not cover over the liquor liability as the underlying limit may not be high enough to qualify for umbrella protection. And last of all, your umbrella policy may simply have an exclusion that states that it does not apply to liquor liability claims. Any of these situations could leave you thinking you have umbrella protection when you don’t.

Your best approach is to hire an agent that specializes in restaurant insurance to help you navigate the complexities of this issue. If you don’t purchase your insurance from an agent who handles many, many restaurant clients, then you are probably taking an unnecessary risk with your livelihood.

At Clinard Insurance Group, in Winston Salem, NC, we have the expertise to help restaurant owners with their insurance needs. We have developed specialized restaurant insurance programs for several different types of restaurants, including Fine Dining Insurance, Casual Dining Insurance, Fast Food Insurance, and Bar & Grill Insurance as well as Catering insurance. Give us a call, toll free at 877-687-7557 or visit us on the web at www.TheRestaurantInsuranceStore.com.

Much of the source information or this article can be found in articles located at The Restaurant Answer Guy blog site.

Restaurant Insurance – The Hidden Rate Bias Against BBQ and Seafood Restaurants

As a restaurant owner you get to see the world from the kitchen looking out. In the insurance world I get the same type of view, one that my restaurant clients don’t see. And from this view I can see how some types of restaurants face hidden rate biases that drive their insurance costs up. And I can also see ways that the restaurant owner can avoid these biases. One of these biases has a big impact on BBQ restaurants and seafood restaurants.

You see, if you were to call up the average insurance company underwriter and tell him that you want to write a package policy for the local BBQ joint, you would find that most underwriters would shy away from that account. Why? Well, in the past there have been food borne illness claims associated with barbecue and seafood. And so the underwriter will check his notes and tighten up his rates a bit to protect against the possibility of having to pay this type of claim for you.

If you are the seafood restaurant owner, you are never privy to this conversation. Chances are you will never hear about it or know it happened. But it does happen and your rates are higher because of it. So what can you do to protect your restaurant from this inherent bias on your rates? The answer is that you need to deal with an insurance agent who has the experience of handling hundreds of different restaurant clients so he knows how to work the system to get you a better rate. In addition, you want the agent who has access to insurance companies who specialize in writing restaurants. There are two reasons for this.

First of all, the insurance company that actively seeks business from restaurants will have the law of large numbers working in their favor. Because they write so many BBQ or seafood restaurants, they will have a better understanding of exactly what the food borne illness risks mean and they will not have to overcharge to account for something that they don’t fully understand.

The second reason for you to seek out a company with an established restaurant insurance program is that these companies will be able to offer you loss control support and help to prevent this type of claim. And by doing this, they will be able to offer you a better rate as well. It is a win win situation for the insurance company and for the restaurant owner.

At Clinard Insurance Group in Winston Salem, NC, we specialize in helping restaurant owners with all of their insurance policies as well as their loss control needs. We have specially designed programs for your restaurant, whether you are casual dining, fine dining, fast food, bar and grill, or even a caterer. We want all of our restaurant clients to be informed insurance consumers. If you need help with your restaurant insurance, please call us, toll free at 877-687-7557 or visit us online at http://www.TheRestaurantInsuranceStore.com.