It is highly unlikely that any business owner, including a restaurant owner, would operate without property and liability insurance. It is also true that most business owners view business interruption coverage as vital if they want to recoup lost income in the event of a serious property loss that shuts down their business. But there are other important insurance needs that some restaurant businesses, particularly smaller operations, may not believe are essential, but could cost as much or more than a typical property or liability claim. This article identifies two of those insurance needs and describes why they should be seriously considered in creating the restaurant’s insurance program.
Equipment breakdown insurance covers the insured for loss by accidents caused by the breakdown of mechanical, electrical, and production equipment, as well as explosions of steam boilers. Loss of business income and extra expenses incurred as a result of the equipment breakdown is often covered as well.
Certainly larger restaurants and those with commercial cooking operations need to ensure that their equipment is covered due to a malfunction or breakdown. But virtually all restaurants rely on refrigeration equipment, such as walk-in refrigerators and freezers, ice makers, beverage coolers, etc., and are exposed to serious spoilage losses in the event this equipment malfunctions.
In addition, the electrical exposure, in particular, has grown tremendously in recent years as business firms, including restaurants, have become more automated and integrated through electronic networks. Even small restaurants have become dependent on computer networks and other forms of electronic equipment to store customer account information or for inventory management. In addition, restaurants rely on scanners, fax machines, card readers, and other computer equipment to run their businesses. The equipment is exposed to power surges, short circuits, and other electrical disruption that can cause serious losses.
It is important to note, too, that standard commercial property insurance policies contain exclusions for electrical disturbance, mechanical breakdown, and steam boiler explosions.
Aside from the damage or loss to equipment, the loss of revenue and the temporary loss of customers until the operation fully recovers can be extensive. Some restaurants might opt to rely on equipment maintenance contracts as an alternative to equipment breakdown insurance. The risk in doing so is that maintenance contracts rarely, if ever, offer protection for loss of use of the equipment. Hence, to minimize what otherwise could result in an extensive loss, restaurant owners need to give serious consideration to equipment breakdown insurance.
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