How to Maximize Value From Your Insurance Professional
By Neil Owens, Principal, Elias B. Cohen & Associates
For many restaurants, the insurance transaction occurs annually without much fanfare. There is a meeting, a few options are presented, some forms get signed, and checks get cut. If this sounds familiar it is very possible you can, and should, get more for your hard earned money. Following is a summary of some areas to explore and some questions to consider to maximize the value you receive from your Insurance Professional.
Insurance Policy Agreement
While the array of policies may seem similar from one restaurant to the next, a closer examination of the policies and the risk management services that go along with them differentiate those Insurance Professionals (brokers) interested in selling another policy from those that have real expertise and bring value to your organization. Following is a checklist of insurance policies and recommendations on what to ask your broker regarding each.
Must Haves: 1. Workers’ Compensation 2. DBL 3. Commercial Package 4. Umbrella Liability 5. Employment Practices Liability Insurance (EPLI)
This group of policies should be purchased by every restaurant, regardless of size. Here’s why:
- Workers’ Compensation is required by law in NY. Ask your broker if you have the lowest cost option, if dividends are available through Safety Groups (most recently near 35%), and how the audit of your payroll will impact cash flows. It is surprising that many restaurants still do NOT utilize the NY Restaurant Association’s, or the many other, Safety Groups for this coverage.
- DBL is required by law in NY. Ask your broker whether increased benefit levels make sense.
- Commercial Package. A thorough review of your organization should be conducted prior to receiving any offer for insurance. Do not take the easy way out and just meet when the broker gets numbers. Instead, insist that an evaluation of your risk and exposures be conducted at least annually. Organizational, financial, accounting – internal control, HR, operational, and physical plant changes should be reviewed to make sure the policy is tailored to your needs and to ensure you are not purchasing excessive insurance that can never be claimed or used. In addition, contractual and other agreements can include exposures that may be addressed by this policy. Since this policy is the one most likely to be used, ask your broker about their claim experiences with the company. Make sure you ask for and receive a summary of your claims with status updates regarding any open claims. Your claims history is a significant factor in determining the cost of insurance in the future, and it is an important business record.
- Umbrella Liability. Make sure you maintain a limit that not only satisfies your contractual (lease) requirements, but also protects the assets of your organization(s). Ask your broker for a typical range of limits for a restaurant your size.
- EPLI. Make sure you have spoken to a labor attorney about what labor laws may apply to you and have employment procedures that comply. Maintain at least $1,000,000 of EPLI coverage with a deductible that you can afford if an allegation or lawsuit is made. Make sure the policy includes at least $150,000 of coverage applicable to defense expenses related to labor laws and illegal alien investigations. Make sure you can use your preferred choice of legal counsel in the event of a lawsuit. Given the very aggressive approach against restaurant employers that both the department of labor and plaintiff attorneys are taking, addressing these items properly is mandatory for any successful restaurant organization.
For consideration: 1. Professional Liability 2. Directors & Officers 3. Outbreak Expense 4. Identity Protection 5. Pollution Liability 6. International 7. Intellectual Property Abatement
Make sure you know what claims reporting procedures are required. Ask your broker about their claims department and how claims are handled. A broker is truly an advocate for the restaurant and should manage the claims process. A quality claims department reviews and scrubs all 3rd party incident reports before submitting to insurance companies.
Risk Managment Discussion
Do NOT underestimate the importance of Risk Management for your organization. Ask your broker to conduct a review of the organization and outline protocol to manage risk. Among the areas of Risk Management that you should require of your broker are as follows:
- Document review – before signing any agreement, have your insurance broker review the entire agreement to determine whether it creates any new exposures or impacts your insurance program in any way. This is especially important as it relates to leases and Restaurant Agreements (operating agreements, management agreements, and license agreements). The details of risk, exposure, and liability should be clearly defined (see below). Make sure your Insurance Professional has experience reviewing these types of agreements.
- Risk Transfer Technique – learn how risk can be transferred from your restaurant to the contractor and vendor involved in an incident or accident. Make sure you get sample language to add to your “work order” agreements with contractors and vendors. Your broker should have sample language or model language available as a reference.
- Certificate Review – utilize your broker to review certificates of insurance from your contractors, vendors, suppliers to make sure they can support their products and services in the event of a lawsuit.
- Train your management team. Request that your broker meet with your management team on a regular, periodic basis or whenever a General Manager changes to make sure your team knows what to do if something happens. Specific techniques regarding handling incidents can help improve a legal defense, and significantly impact the result of a claim against you.
- Facility survey and checklist. Your broker should periodically be surveying your space and kitchens and offering safety suggestions. Your broker should also supply you with a facility checklist that you should require a manger to complete at least monthly.
Restaurant Agreement Discussion
Whether titled an Operating Agreement, Management Agreement, or License Agreement, any agreement that I call a Restaurant Agreement can be layered with pitfalls. The allure of income without having to invest and getting the deal done often overwhelms any patience in hammering out the details. However, the details of risk, exposure, and liability need to be addressed within Management Agreements far more often and in more detail than they are now usually done. While some attorneys have experience with these arrangements, many do not. Therefore, before the deal goes to the lawyers, it is prudent to address the following items:
1. Which entity, Property Owner or Restaurateur will be responsible for and liable for the following:
- Risk of Direct Physical Loss or Damage to the space
- Risk of bodily injury or property damage to third parties
- Risk of injury to employees
- Risk of employment claims or allegations
- Risk of breach of contract claims related to restaurant vendors, suppliers, and contractors
- Risks related to construction of the space
2. Discuss which entity will be paying the cost of insurance associated with the above risks
3. A limitation of damages clause should be included of not more than the value of the agreement.
4. If the agreement is most like a license agreement, allowing the Property Owner to use the Intellectual Property of the Restaurateur, but then adds that the Restaurateur must design, hire, supervise, train and oversee, it is imperative that the Property Owner provide full indemnification including liabilities associated with the above risks. In the absence of doing so, the Restaurateur may need to purchase additional insurance as protection for some or all of the above risks, which very often, is not in the spirit of the agreement.
5. If the agreement is most like a management or operating agreement in which the Restaurateur actually employs some or all of the staff, some delineation of the above risks is needed. Usually, this can be done with a mutual indemnification related to the liabilities of each party. In this scenario, a joint venture type insurance policy can be very useful so as to keep both parties from having to purchase overlapping insurance which may include a rating basis that also overlaps. In this way, if the parties agree on the limits, both can share a policy as Named Insureds thus eliminating litigation about who may be negligent with respect to the above risks.
There are many other insurance and risk related provisions to review, but the above primer is useful to expedite the negotiation of a Restaurant Agreement in a manner that addresses the details of risk, exposure, and liability. Your broker should be consulted prior to these negotiations.
There is much to know, and be mindful of, when considering how you protect your organization, investment, and creation(s). Make sure the Insurance Professional you select possesses the caring and expertise to address your needs in a personalized manner. Make sure you receive the most value for your insurance premium dollars.
About Neil Owens
Neil is a principal of Elias B. Cohen & Associates and has been in the insurance business for 11 years specializing in risk management consulting and commercial insurance. He is an Allied Member of both the New York Restaurant Association and the New Jersey Apartment Association. Neil earned his Certified Insurance Counselor (CIC) designation in 2000, JD from Seton Hall University in 2005, and is a member of the New Jersey Bar. He is married and resides in Montclair, NJ.
Elias B. Cohen & Associates is
a full-service, independent insurance brokerage with a concentration
in the hospitality industry. EB Cohen serves as broker, agent, and/or
consultant to many of NYC’s finest restaurant organizations. Committed
to a caring and a professional approach to serving clients, EB Cohen
implements tailored risk management programs designed to reduce its
clients total cost of risk.