Restaurant Insurance - How to choose the proper coverage and the right policy

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When a fire broke out at one of Vaughn Frey's 13 Papa John's pizza restaurants scattered across Kentucky and Virginia, he was grateful he had the right insurance coverage. In this case, "right" included loss of business income coverage as well as the usual property coverages.

This wasn't his first brush with the headlines. In 2005, one customer filed a lawsuit in Roanoake Circuit Court claiming tooth damage after chomping on a rivet baked into the pizza she had bought from Frey's store.

When a business deals with the public as much as a typical Papa John's franchise, there is no limit to the possibilities.

No one knows this better than Frey, who is the president of WFL Management, a Papa John's restaurant management company. That's why he insists on insurance coverage in the areas of data compromise, crisis management, crisis business income, non-owned automobile and an umbrella policy above everything.

"People are always asking me, 'What's the right amount of insurance to have,' and you have to know your losses to make that call," he said. "The truth is you're not sure what type of coverage you need, so I'm a believer in covering for that."

These days, however, pricing holds a lot of water in an operator's final decision. It's not that restaurant owners try to skip the insurance policy altogether, noted Ken Hawkins, vice president of programs and special products at BB&T Insurance Services in Raleigh, N.C. "Anyone who owns a business knows he better have insurance," he said. "Instead, the questions is 'Is it possible to get a better price or less coverage?'" Helping clients balance having the right coverage without breaking the bank is the No. 1 pressure Hawkins faces as an agent.

The good news: There are plenty of options for the restaurant marketplace that didn't exist a decade ago, so the competition drives down costs.

The bad news: What appear to be bells-and-whistles packages often can save a company's bacon and financial health. And in too many cases, restaurant owners don't fully understand the insurance policy they settled for — until it's too late.

And Frey said that's where the secret lies. "It's not so much about choosing the right carrier, but the agency and its service. You have to depend on them to stay on top of the industry. That's why it's my priority to hire the right people, then forget about it," he said.

Here's a comprehensive look at what restaurant owners typically don't know about general liability, worker's compensation, property insurance, umbrella insurance and employment practices liability policies.