This blog post was created for and originally published by Restaurant Canada.
There is a vast amount of information available for restaurants when it comes to operations, closing and reopening, but what about insurance coverage? Business insurance was a popular search trend throughout June and July. The top related search is “business insurance near me,” which signals the market for this insurance is likely to increase.
Restaurant owners and operators have learned to pivot in this crisis, but still need financial relief. One potential avenue for relief is insurance. All businesses should be seeking guidance as to whether their existing insurance includes coverage for COVID-19-related financial losses.
Below we summarize what insurance coverage may look like as the restaurant industry moves forward while still dealing with COVID-19. The recommendations will help you understand insurance coverage and the importance of tracking pandemic-related costs.
Insurance policy coverage
Insurance companies are pulling back on inclusions, and more importantly, certain wording is being added as coverage exclusions, such as outbreak, contagious, and infectious disease. Restaurant owners should be aware of the specific language in their policy and evaluate whether coverage applies.
Some policies may contain clauses that specifically include or exclude business interruption caused by disease outbreak. These clauses are sometimes found in riders or endorsements issued years after the main policy and can have a significant impact on its application.
Courts tend to interpret ambiguities in favour of the insured. Thus, it is likely worthwhile for restaurant owners to file a claim if coverage is vague. In what could be a precedent for COVID-19 insurance debates, a Paris court recently ruled that an insurance company should pay a restaurant owner two months of revenue losses caused by the pandemic.
Furthermore, if denied coverage, the restaurant industry should consider whether to pursue the insurance claims against their insurer directly or potentially join one of class actions to help recover from the COVID-19 related losses.
Tracking COVID-19 costs
Restaurant owners should maintain detailed logs of additional and abnormal costs, including disinfecting expenses and crisis management costs to inform the public or employees. Any additional expenses should be easy to identify and recorded independently from regular operating expenses.
Restaurants need accurate and timely bookkeeping to track additional COVID-19 expenses. This practice should extend to all business impacts including the following:
- Order cancellations
- Supply chain breakdowns
- Lost profits
It's essential for restaurants to separate the enhancement expenses from the necessary incremental expenses, as enhancements are usually not reimbursable in an insurance claim. Maintaining strong records of costs and related information will allow for an efficient claims process.
Protections for restaurants
Restaurant owners need to think beyond insurance policies. Access to a line of credit and funding are both key in seeing you through this difficult environment. It’s advisable to understand the exclusion in the policy and build a risk plan around those polices.
Restaurant operators should not discount risk management. Even if some expenses are not covered under current insurance programs, they can inform future risk mitigation in addition to potentially being recoverable through another avenue, such as government relief programs.
BDO can help
It can be difficult to understand insurance coverage as policies change. Restaurants should evaluate their policies, especially any extensions and exclusions, with their insurance brokers and claims consultants. Reach out to one of our BDO professionals for guidance on these challenges. Learn more here: https://insights.bdo.ca/restaurants.
Chetan Sehgal, Partner, Forensics & Litigation Support