Tag Archives: Business Insurance

Hospitality Industry Property Risks: West Virginia Restaurant Fire Caused By “Malfunction Of Freezer Compressor Unit”; Court Rules Owners May Not Seek Damages To Rebuild Business

After an investigation, the cause of the fire was found to have been a malfunction of the compressor unit and/or power cord…the plaintiffs claim the freezer was not safe for its intended use and also made claims of Restaurant Firedefective design, breach of implied warranty and negligence.

Porker’s made claims for destroyed property and lost business during restoration, but Goodwin’s Dec. 7 ruling concerned three types of other damages requested. They were the cost to build a new Porker’s, lost franchise and royalties fees and the cost of preparing the franchise agreement…Goodwin wrote Porker’s was harmed by the fire but not destroyed, and the insurance payouts were designed to get business resumed. The company requested $105,935 to rebuild in its lawsuit.

After being told it could not seek damages to rebuild itself, Porker’s Bar-B-Q settled its lawsuit against General Electric and Wal-Mart on the eve of trial. The lawsuit claimed they were responsible for property damages from a fire caused by a freezer GE made and Wal-Mart sold. It was filed in 2011 by Jack Bruer and Pam Napier, the owners of Jack and Pam’s who operated Porker’s, and the settlement was entered 10 days after U.S. District Judge Joseph Goodwin granted the defendants’ motion for summary judgment.

The plaintiffs claimed a General Electric freezer bought three years earlier at a Sam’s Club store caught fire and destroyed the business premises of Porker’s, located in Cross Lanes, on Aug. 19, 2009.

Despite insurance company payouts, Porker’s has been out of operation since the fire. During its years of operation, Porker’s never turned a profit, Goodwin wrote.

“The defendants rightfully point out that the plaintiffs stated in their deposition testimony that Porker’s restaurant closed not because of the fire but because the landlord refused to renew their lease,” Goodwin wrote.

Bruer planned to go back to business after repairs were completed, but they never got the chance. The plaintiffs claim the fire was still the proximate cause of the restaurant because it led to the breakdown in the relationship between them and the landlord.

Goodwin found that a reasonable jury could not agree with that argument.

For more:  http://wvrecord.com/news/256425-bbq-restaurant-settles-case-over-fire

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Hospitality Industry Employee Risks: Hotel Management Should Use Employment Contracts Which Are “At Will”, Do Not Discriminate And Define Scope Of Employment; Comprehensive Insurance Should Be In Place At All Times

Hotel Management and owners should set up uniform employment contracts, which:

  • Do not discriminate against people based on any of the protected classes as defined by federal or state law;
  • Define the scope of the employment;
  • Say if the employment is for a term or “at will”;
  • Assign the pre-corporate formation intellectual property to the company;
  • Assign all subsequently created intellectual property to the company; and
  • Protect the corporate intellectual property from disclosure.

The last two categories of protecting intellectual property of the company can be accomplished by drafting non-disclosure agreements, and Proprietary Invention Assignment Agreements.

Insurance - Getting insurance for your company is a bet worth taking, given the potential unpleasant surprises of not being prepared. Again, your needs will vary depending on your company, but among the standard offerings are:

  • Comprehensive General Liability Policies (“CGL”) – A CGL policy is usually geared towards protecting a company from personal injury;
  • Directors and Officers (“D&O”) Insurance – D&O insurance may cover the wrongful acts of the officers and directors of a company;
  • Advertising Injury Insurance – Insurance that covers defamation, invasion of privacy, copyright infringement and other intellectual property injuries. (The advertising injury is usually a part of a larger policy, like a CGL, and not a policy onto itself.); and
  • Employment Practices Liability Insurance (“EPLI”) – The EPLI is a specialized insurance policy protecting companies against employment lawsuits.

For more:  http://venturebeat.com/2011/06/27/4-legal-pitfalls-startup-owners-must-face/

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Hospitality Industry Insurance Risks: Florida Hotel Water Pipe Bursts Causing Lobby Ceiling To Collapse And Guest Evacuation

Guests at a Miami Beach hotel were evacuated after a water pipe in the building burst, causing the ceiling to collapse into the hotel lobby.

“…Gushing water spread into the hotel lobby and part of the ceiling collapsed, said Adonis Garcia, spokesman for Miami Beach Fire Rescue.…”

A water pipe located between the first and second floor of the Claremont Hotel on the 1700 block of Collins Avenue burst Sunday evening. Guests at the Claremont were evacuated and relocated to another hotel.

“The fire department said where the roof came down, it was actually leaking from inside and then it just blew out the ceiling,” said Ros Guttso, hotel general manager. No one was injured.

For more:  http://www.miamiherald.com/2011/06/13/2264379/miami-beach-hotel-evacuated-after.html

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Hospitality Industry Business Risk Management: Hotel Owners Must Have “Business Interruption Insurance” In Place To Protect Property From Disasters And Unforeseen Events

A regular commercial property insurance policy covers only the physical damage to your business. What about the profits which could have been earned during this period? How to pay rent, employees’ salaries and other important payments while your business is being rebuilt? This would definitely result in substantial financial loss.

Business interruption insurance (also known as business income coverage) helps businesses in situations like this. Many businesses without the business income coverage, shut down their business operations after their business is completely shuttered due to some unforeseen event. It covers the loss of income and helps a business return to the financial position as it was in prior to the disaster.

Hence, a business in hospitality industry should understand the importance of business interruption insurance and should go for this insurance. Critical aspects of business interruption insurance Business owners from hospitality industry should be aware of some of the critical aspects of business interruption insurance. Here, we will take a look at some critical aspects of hotel business interruption coverage and understand why it is very useful for businesses in hospitality sector.

 Business interruption period:  The business interruption period is the length of period for which the benefits are payable under an insurance policy. This period is the most critical part of quantifying the business interruption loss. It covers a business from loss of income for a specified period till the damaged business property is repaired or reopened. Some hotels being aware of the losses that may persist even after repairs are done; opt for “extended period of indemnity”. As it may take some time for the hotel to regain bookings and rebuild market share.

Loss of rooms revenues:   The business in the hospitality or the lodging industry may suffer financial performance as two of its main functions, occupancy percentage and average daily rate (ADR) may get affected. In simpler terms, a hotel damaged by a hurricane or fire or stuck in a deep local recession will not be able to generate any revenues because of closed rooms, especially in hotels and lodges. Business interruption insurance compensates you for lost income due to loss of rooms. It covers the profits you would have earned, based on your financial records.

Other lost revenues: Revenues from food and beverage, conferences, golf, spa, etc., can constitute a significant portion of a hotel’s income. When a business is interrupted, not only revenues through rooms are affected, some or all of these sources of income are typically interrupted. The business interruption insurance covers all the profits that would have been earned.

Ordinary payroll: Even if the business activities are temporarily stalled, operating expenses, and other costs such as rent, electricity bill, taxes, interest payable on bank loans, payroll costs etc., cannot be ignored. The business still needs to retain some employees such as accountants, front office executives etc. The business owner needs to pay salaries to them. In this kind of situations business interruption insurance is very helpful as ordinary payroll coverage is a common endorsement in many policies.

Extra expenses:  Business interruption policies generally allow an insured hotel to claim extra expenses incurred during the period of indemnity. It reimburses for reasonable expenses that allow the business to continue operation while the property is being rebuilt. Some policies also cover the extra costs required for moving the business to a different (temporary) location.

Business interruption insurance is one of the most important insurance policies that help in minimizing the adverse consequences of some unwanted events for the businesses in the hospitality industry. A well-thought out risk strategy by hotel owners or operators can make a significant difference at the most crucial times.

For more:   http://www.infobarrel.com/Know_About_Business_Interruption_Insurance_in_Hospitality_Industry

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Hospitality Industry Health Insurance: American Health Strategy Project Aims To Lower Health Insurance Costs Through Increased Data On Employees Medical Leaves, Drug Utilization, Disability Claims And Demographics

 Until now, most employers setting up value-based insurance designs have relied primarily on medical claims data, which may or may not provide a complete picture of health risks lurking in their workforces, said Marianne Fazen, executive director of the Texas group.

In addition to medical claims data, employers participating in the American Health Strategy Project will collect data on family medical leaves, pharmaceutical and prescription drug utilization, short- and long-term disability claims, workers compensation claims, employee assistance program usage, disease management and employee demographics

The Texas Health Strategy Project is one of five initiatives announced in May by the Washington-based National Business Coalition on Health as part of the American Health Strategy Project, which intends to help employers use data from multiple sources to develop and implement value-based insurance designs. Such designs remove barriers that might prevent employees from receiving necessary health care, such as preventive screenings and maintenance medications.

While the Texas project is under way, the four other projects involving other coalitions—the Midwest Business Group on Health in Chicago, the Oregon Coalition of Health Care Purchasers in Portland, the Pittsburgh Business Group on Health and the Virginia Business Coalition on Health in Virginia Beach—are in various stages of deployment.

For more:   http://www.businessinsurance.com/article/20100905/ISSUE01/309059972

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Hospitality Industry Health Care: Smaller Hotel Owners Will Struggle With “Medical Loss Ratio” And Must Find Hospitality Industry Health Care Insurance Specialist

The Affordable Care Act sets a minimum threshold for what’s known as the “medical loss ratio” — the percentage of premium dollars that go into medical care (a “loss” from Wall Street’s view) rather than into overhead or profits. For plans sold to small businesses or directly to individuals, that ratio must be at least 80 percent; for plans sold to large groups, it must be at least 85 percent.

For big insurance companies that sell predominantly to big employers, the medical loss ratio shouldn’t be hard to meet. With their economies of scale, these insurers and employers together provide coverage at relatively low administrative cost (although, it should be noted, Medicare’s overhead is even lower). But smaller insurers that deal primarily with individuals or small businesses will have a tougher time. Among other things, they typically lose 8 percent of premiums on commissions to agents and brokers who sell policies on their behalf. (Once the insurance exchanges exist, much of that cost will disappear.) These are also the insurers most likely to bilk consumers, since individuals buying coverage on their own typically lack the knowledge — or ability — to bargain as shrewdly as corporate benefits managers do. (The exchanges should also help with improved information and bargaining leverage.)

There’s leeway in the rule in two key places. The law doesn’t dictate a precise formula for calculating the medical-loss ratio. It’s up to the administration which “care management” activities count as medical care, whether taxes should be part of the calculation, and the extent to which carriers can average out the ratio among different plans. And while the law calls for the requirement to take effect starting in January 2011, the Department of Health and Human Services has the authority to phase it in; Sebelius could, for instance, set the floor at 70 percent for 2011 and then gradually ratchet it up until 2014. Some insurance and employer lobbyists have urged the administration to move slowly, lest insurers unable to meet those requirements go out of business. Then again, insurers that can’t meet those requirements are, by definition, less efficient.

For more:   http://www.tnr.com/blog/jonathan-cohn/77080/get-ready-sebelilus-v-insurers

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Hotel Industry Insurance: “Business Interruption Insurance” Benefits Are Dependent On Comprehensive Documentation Of Revenues And Profits

“…to recoup business interruption benefits from their insurance companies, we have found certain pieces of hotel data and documents to be extremely useful in our calculations of lost revenues and profits. The following is a partial list of reports (effective the day of the catastrophic event) that should be gathered and preserved by management:…”

  • Five-year history of competitive position reports (i.e. STR report), including current year-to-date.
  • Five-year history of your annual hotel financial statements, including current year-to-date.
  • Budgeted performance for the remainder of the current year.
  • Budgeted performance for the upcoming year.
  • Marketing plan for the current year
  • Marketing plan for the upcoming year
  • Capital improvement plan – current and future years
  • Guaranteed reservations and advance deposit activity.
  • Group contracts
  • Group booking pace for the next 10 years

(From a Hospitality.net article)   Once the historical performance data is gathered from the documents listed above, the next step is to estimate how the hotel would have performed if the catastrophic event had not occurred. To prepare this forecast, we utilize budget, marketing plan, reservation, and group booking information contained in the secured documents. In addition, we rely on the most recent forecast developed prior to the catastrophic event for the subject property’s market.

Using the market forecast as a baseline for future hotel supply, demand, and revenue conditions within the market for the projection period, we then estimate the market penetration of the subject property based on historical correlations to market performance. This provides us with estimates of the potential rooms revenue the subject property would have earned had the catastrophic event not occurred. From these estimates of hotel rooms revenue, we then prepare projections of net operating income (NOI) using historical hotel financial statements from the subject property, as well as data from our firm’s Trends® in the Hotel Industry database.

The calculation of lost business is derived from the difference between the performance of the subject property estimated under the “no catastrophic event” scenario, and the data from the actual performance of the hotel during the projection period. Estimates can be made for lost room nights, revenue, and hotel NOI.

http://www.hospitalitynet.org/news/154000320/4046598.search?query=hotel+insurance

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Hospitality Industry Insurance: Finding The Right Insurance Broker With The Proper Insurance Products For Your Business Is Essential

(From a BusinessInsider.com article)   As an entrepreneur /executive one of the decisions you need to make is who to use to help you insure your company.  

 For some reason many people go to great lengths to do due diligence when selecting an attorney or accountant, but then spend thirty seconds deciding who should handle their insurance.  

Those people tend to do business with one (or more) of five types of people. 

So here are the five types you meet when you buy insurance – and how they could impact your company.

1. The Buddy  -  You’ve just set up your company and you need the basics – General Liability, Workers Comp, Property, etc.  The guy on your whiffle ball team, who also helped you with your homeowners insurance, says he can hook you up!  He has no experience working with other companies like yours, no relationships with insurers that are familiar with your industry.  But he’s a great guy and he assures you it’s a no-brainer. 

He sends you some applications to fill out. The questions seem odd, don’t really apply to your company – and most of all it takes a sh*$! ton of time for you to complete.

You fax them back, wait a couple of weeks and he surfaces with a policy and a bill.

The Result:   No thought went into anticipating what you may need next – like Errors & Omissions when you sign your first client contract (E&O is coverage that addresses claims that your product or service didn’t work properly or caused some kind of harm to someone), Directors & Officers when you get your first round of financing (D&O is basically coverage that protects the management team and board from claims that they mismanaged the company), global coverage when you open a sales office in the UK, etc. 

 The insurer you are with – let’s call them Quicksand Mutual – can’t provide any of those coverages. So when they come up, which will be sooner than you think, there will be a mad scramble to find these policies with different insurers, costing you time and more money.

You end up with a disjointed, patchwork insurance program with multiple insurers and no economies of scale by having everything in one package.  Since your buddy has no experience in your industry, he has no ability to provide services that may drive down your cost and reduce the likely hood of your having a claim. 

Now you can get away with the buddy’s insurance program for a while – but if you have a claim, or need advice on a contract or industry specific issue you will find out the hard way that he was not the right broker for you.

2. The Biggest Broker in the World!  Your company is the next Facebook.   You have some high profile VC board members.  You need to work with the Biggest Broker in the World! 

In fact, one of those board members knows one of the top executives from the Biggest Broker in the World! from his country club.

The Result:  The Biggest Broker in the World! handles the insurance for companies like Microsoft, Dell and Cisco.  Their best talent handles those accounts.  Their average account brings in $50,000 of revenue in both commissions and other fees. 

 All of your policies combined will throw off a total of twelve hundred bucks of income.  You will have a lot of questions and need a lot of hand holding.  Your company will change a lot over the next couple of years – hiring and firing, adding locations, new products, new client contracts, etc.  

The Biggest Broker in the World! assigns you to their D team – maybe a recent college grad, maybe a service center…..until you can be more profitable for them.  Like when you are about to have your IPO. 

You’ll wait won’t you?  And will you also please let them know when you are bigger, cause no one at their company even knows they insure you.

3. The Butcher, 4. The Baker, and 5. The Candlestick-maker …. You already bought a policy from the Buddy (for this segment let’s call him the Butcher).  Now you open an office in San Jose.  The Butcher doesn’t have a license in CA and suggests that you contact someone local out there.   He knows a guy from insurance school, the Baker. 

 You call the Baker and he is happy to set you up with a set of new policies for your California office! 

Next, you land that big round of VC money and the term sheet says you need Directors and Officers (D&O) insurance.  The Butcher and Baker both say they can do it for you but you’re not so sure.  This one seems a little more sophisticated.  The VC suggests a broker that they use, that specializes in D&O insurance, the Candlestick-maker. 

This guy drives his Benz to your office, tells you about how he handles the D&O insurance for the last four IPO’s in the country and assures you that you are with the right broker (NOTE: some brokers specialize in specific types of policies as opposed to industry segments where they can handle all types of insurance for that niche.  This happens a lot with D&O as the premiums are usually high, and there is little or no service work involved – so they throw off a lot of income to a broker.  Hence the Benz.). 

He sets you up with a state of the art D&O policy.  It is the most expensive insurance policy you have ever seen.

The Result:  You have three brokers. 

 None of these characters communicates with the other.  You have overlapping coverages and therefore are paying duplicate premiums. 

None of them feel like they are “in charge” of your account, so they don’t make any recommendations, review/update coverage or take much of an interest in your company. 

None of them realizes you have salespeople working from their homes in 6 States and now each State’s insurance department is fining you for non-compliance on Workers Comp. 

You have bills coming in from 3 agents, at least 3 insurers and your bookkeeper can’t figure out which bill is for which policy.  A new client contract calls for evidence (a certificate) of insurance.  Hmmmmm, guess you gotta call all 3.  You have a claim and are unsure which policy would cover it, so you call all 3 brokers, none of whom think their policy will cover it. 

But go ahead and send it in; the insurers will fight it out.  Ahhh, music to your ears while your company is getting sued…

What to do instead:  So, when it comes time to get insurance – maybe the bank, landlord or VC is requiring it – rather than just hiring anyone so you can check a box and move on, spend a little extra time selecting your broker.  It will pay dividends down the road.  Here are some questions you should consider asking a prospective broker:
  •  What other companies in my industry/like mine do you work with?
  • Can I call someone at those companies and ask about your work?
  • My company is poised for growth an we expect a lot of moving parts – and insurance is not our main consideration.  How will you help us stay on top of these changes so we don’t miss anything?
  • Do the insurers you work with specialize in my niche and offer industry specific coverage?
  • What special services do you provide that will help me save time, reduce my premiums and minimize the possibility of us having a claim?
  • How much time should I expect to spend on completing applications?
  • Can you describe your smallest and largest clients?
  • Do you handle all areas of insurance for companies like ours or just one type of coverage?
  • Do you have any group buying programs where I can leverage the power of a bigger group in my industry?

Read more: http://www.businessinsider.com/the-5-brokers-to-avoid-when-buying-small-business-insurance-2010-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29&utm_content=Yahoo%21+Mail#ixzz0lK2TIRmK

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