Property-Liability Insurance - Research Paper Example

Property-liability insurance If you are thinking to start a new restaurant business, then you need to devise a plan in detail covering all aspects involved. It has been experienced that, generally, new entrepreneurs having little or no experience in such type of business planning and most of the time overlooks the importance of different types of insurance plans that undermines their chances of success. Before we discuss in detail different types of insurance for restaurant business, it is important to start from the basics. The question is “what is insurance”. It may be defined as “promise of reimbursement in the case of loss; paid to people or companies so concerned about hazards that they have made prepayments to an insurance company (www.wordnetweb.com). Different insurance plans are needed that not only save the owners from many problems in future but also to satisfy the requirements of government regulatory offices and in acquiring loans from commercial banks. Property, general liability, workers’ compensation, automobile liability, liquor liability, life insurance, loss of business, food contamination, and specific peril insurance are the most commonly used contingency plans available. We will discuss these options one by one in length. Firstly, all business owners are required to have property insurance. A small amount of annual premium is paid to the insurance company against a full coverage from incidents like fire. One such incident can bring everything to ashes. National Fire Protection Association reports that fire related cases are the second highest cause after arson and constitute 14% of the total number of commercial fires in the US from 1999 to 2002 (Patrick, Nolan. 2008). Secondly, general liability insurance plan protects from claims like ‘slip and fall’ or when a customer gets sick after eating food. Although it is named as ‘general liability’, business proprietors deal with such cases on a regular basis. Centers for Disease Control (CDC) reports that there are 25,000 food related shipments arrive per day from 100 different countries. Food and Drug Administration department manages to inspect only 1% of them (Patrick, Nolan. 2008). Therefore, food borne illness is on the rise more than ever. It makes imperative to have a general insurance plan. Beside an insurance plan that covers food borne illnesses, business owners should be careful about the inventory suppliers, technical specifics to store perishable items e.g. minimum required temperature for walk-ins and so on. Thirdly many states, like Texas, require restaurant owners to acquire liquor liability insurance. It responds to different liabilities cause by selling or serving liquor in the premises. For example if some drunk and gets involved in a fight than the serving party is responsible. The worst scenario is when someone gets intoxicated, drives away, and involves in a traffic accident. Fourthly, if a worker gets injured while at work then you need worker compensation insurance. Let’s understand the importance of such liability plan with the help of a practical scenario. Suppose an employee is driving a company truck and gets cornered by another vehicle. As a result, the employee gets seriously injured. Now who compensates the employee? Since the party at fault carries worker compensation insurance so the claim will be settled down by the insurance company no matter how much it is. However, the annual premium goes high and thus affects the employer to a great deal. Fifthly, Life insurance is another optional plan that the owners may consider for themselves. In case of the owner’s demise, the heirs may not have enough to pay for his debts. In this case the business will be possessed by the lender. Many multinational companies and corporations offer this plan to their employees also. But it costs a hefty amount to the employer in terms of premium. An employees’ death on the premises raise claims, then life insurance plan addresses such liabilities towards the employer. Sixthly, Loss of Business insurance helps you to recover from a disaster, like earthquake, flood or fire, when it is impossible to run the business as normal. However, it is important to find out what type of insurance is available since insurance companies have different plans in this regards depending upon the area the restaurant is in. Seventhly, Food contamination insurance pays the owner to replace any or all food items spoiled due unforeseen circumstances. For instance, power outage due to a storm causes the walk-in coolers malfunction or damaged. In this case, under discussion plan will reimburse for the inventory. It is important, however, to know that at the end of the day higher payments will leave the policy holder with break even. Finally, there is a Specific Peril Insurance that covers property damage due to any natural disaster that is not covered in the loss of business insurance plan. Business owner can demand from the insurance company to include the specially designed coverage in the plan. Apart from the argument whether it is beneficial or not there are certain high risk factor and should be included in a complete insurance plan. While making a risk management strategy, there is a common mistake that people make is the true understanding of what they are negotiating with an insurance company. Like any other business, restaurants inherit specific vulnerabilities that should be taken care of. There are general contracts, ready to offer like off the shelf, drafted by the insurance companies that do not mention special circumstances or talk about specific incidents that might occur at any given time. For a lay man it is rather hard to follow the legal technicalities mentioned in the document. The documents itself are so vaguely interpreted that it is not possible for a restaurateur to get a good bargain without a professional help, perhaps a trustworthy insurance agent and an expert on the local and state laws. Even if the agent has reviewed the doctrine, the owner should go through the document and nothing should be taken as granted. Such a blind faith or trust later cause confusions between the client and the insurance company, turn into a huge financial loss to the entrepreneur in future. One of such cases is SWH Corporation’s, owner of Mimi’s Café, appeal against its insurance company. The landmark lawsuit filed by employees against Mimi’s Café, in 2004, that it denied the overtime pay and won $1.9 million as a settlement money. The business operators asked their Select Insurance company to pay the damages on behalf of Mimi’s Cafe. To their understanding the liability to violate any federal or state law is covered in the insurance policy. The Select Insurance Co. refused to contribute in the settlement amount and argued that any misconduct, on behalf of the business owner, is not included in the contract. The parent company of Mimi’s Café i.e. SWH Corp. filed a petition in California Court of Appeals. The court in its decision ordered the insurance company to pay the due amount and declared that the contract’s language is too illusive. Similarly, in case of a natural disaster or a catastrophe, restaurant owners should have a disaster management plan of action. They should know how to be effective in getting their money’s worth that they already have paid over the years to the insurance company. Does insurance plan covers calamity that they are in? What is the extent of damage? What damages they can be incurred in terms of workers’ compensation? In case of a fire, What if the primary source is the neighboring business. Does your insurance plan address the situations? What type of documentation might be required by the insurance company? Are they safe and not on the premises? There are so many scenarios that might be considered and restaurateurs must be ready for that. University of Delaware-Disaster Research Center released a report in 2007 which reflect that in 2002 alone, there were cooking-related fires resulted in 80 deaths, and $481 million in property damage (U.S. Department of Homeland Security 2005e). According to NFPA, between 1999 and 2002 cooking equipment fires was the leading cause of fire (28%). These facts are not only true in USA, but around the world fire related injuries and insurance claims against such injuries are on the higher range. Generali PPF Holding (GPH), examined the top five non-life insurance claims and found that 45% of them are fire related. Also pattern indicators and statistical data shows that natural disasters are occurring more frequently than ever with more intensity causing extreme damage to the infrastructure. In conclusion it is mandatory for restaurant owners to research and find the best possible insurance options around them. A complete insurance coverage not only protects the business owners from being ruined by one misfortune but also promises a safe future. Work Cited Child, Cathy. “Test Your Workers Compensation Claims Knowledge to Avoid Pitfalls”. Western Grower & Shipper Magazine, n.p. Insurance Corner. Web. 1 March 2011. Nolan, Patrick. “Top Five Mistakes Some Restaurant Owners Make When Purchasing Insurance”. Insurance: Commercial, 24 April, 2008. Web. Berta, Dina.“Mimis Cafe sets precedent with Calif. wage-hour insurance win”. Nations Restaurant News, Nov 13, 2006. Web. Mealy, Lorri. “Restaurant Insurance Basics. Types of Insurance You Need For Your Restaurant”. Annual report, 2010: 46, n.d, Web. 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