Restaurant Insurance Claims

Restaurant Claims: Recover versus Replace

By Jay Sutherland, President, RELECTRONIC-REMECH Inc.,

On a cold day in March, a restaurant was serving guests during the dinner rush, and all of the customers were enjoying the great food. Above the kitchen, however, there was something else cooking: an electrical device was overheating and smoldering.

When the staff smelled the smoke and saw burning, the normal dinner hour turned into a fiery spectacle. Emergency crews arrived and quickly contained a fire that had started in the ceiling and spread to a corner of the roof. The restaurant was saved, but the equipment and electronics inside were contaminated. Insurance company representatives, adjusters, loss recovery specialists and contractors arrived at the loss site, and the process of rebuilding a successful business began.

The steps involved in assessing and valuing the building and the equipment in a restaurant claim can be complicated. Many factors can influence the successful recovery of the business. It is imperative that you have a good knowledge of the equipment and an understanding of its value, as the equipment can quickly add up to the policy limits.

It is important to remove the equipment quickly! The proper assessment of the equipment should be completed both on an actual cash value and replacement cost basis, as some equipment may be damaged beyond repair or not worth recovering. A complete inventory will give both the adjuster and the insured all of the options as soon as possible after the loss.

A fire scene is a damaging environment and can be detrimental to this expensive equipment; extended exposure can cause pitting on metal surfaces (even stainless steel), causing permanent damage.

Surprisingly, 80% of the equipment involved in a moderate fire loss can usually be recovered, resulting in savings of thousands of dollars. Unfortunately, our experience is that many restaurants are underinsured. The building and the equipment limits are factors in these losses; therefore, saving a $6,000 stove or an $18,000 ice cream machine may allow other totally damaged items to be replaced.

In the case described above, physical damage to the exposed equipment, other than soot contamination, was minimal. All the items were inventoried and removed quickly; any irreparably damaged equipment was assessed, and replacement costs were estimated for these items, along with all values for coverages involved. Fixed equipment, such as the walk-in fridges and freezers, exhaust vents and air makeups, were included as building items, as they too were damaged by the fire and water. Most of the gas and electrical equipment was installed according to the code with quick-connects, and were considered contents. Older equipment that had fixed connections to the building was assessed, and was reinstalled afterward with quick-connects to meet the current codes. All equipment owned by others (leased equipment) was inventoried accordingly, as most leases specify that such equipment be insured by the restaurant.

This loss involved an extensive amount of electronics: a video arcade, Internet-based jukeboxes, point-of-sale registers, LCD TVs, and DJ and stage equipment, including lighting, were all removed, decontaminated and cleaned extensively. About 80% of this equipment was returned to a pre-loss condition, delivered and then checked for proper operation by the vendors.

Our experience shows that purchases and inventory levels can often be recovered from computers. If action is taken quickly and carefully, data can be obtained even from extensively damaged computers, as applying power to a wet or very dirty computer could eliminate the chances of retrieving the critical data required. A knowledgeable technician can often speed up the settlement of a business interruption claim by retrieving important data.

Food losses are a certainty in a restaurant fire: due to health codes, all food, even sealed products, has to be disposed of after a fire. The contamination from decaying food can also be very detrimental to equipment: remove this stock and inventory these areas first. The stock inventories for food and liquor are essential, and should be completed as soon as possible after the loss.

A professional consultant will prove invaluable in assessing damaged equipment, including determining “like kind and quality” replacement costs and damage analysis. This consultant can also provide project management, working closely with the insured, adjuster and contractor to reduce losses and helping create a win-win situation for all parties involved. The insurer, the insured and the insider’s customers all hope to see the restaurant returned to normal as quickly as possible. And because “recovery” falls within the spectrum of “reduce, reuse, recycle,” it will create a success story for everyone, including the environment.