We all know that insurance is the best protection from most forms of liability in a restaurant. However, there are a variety of things that insurance doesn’t protect against. Here are five things often omitted from insurance coverage, and some solutions to this issue.
1. Creditors In General – Creditors come in a variety of flavors. If your business fails, these creditors can be employees, lenders and banks, vendors, etc. In the event of a business failure, insurance will be little help.
2. Intentional Acts – If someone alleges that your restaurant intentionally harmed them, many insurance policies will no longer apply. The good news, however, is that most litigators know this and they want the insurance money in the event of a lawsuit victory. Nonetheless, if intentional misconduct occurs and the other side wins, plan on paying out of pocket.
3. Fraud – Another issue that comes up is fraud. Some creditors will allege fraud to prevent bankruptcy protection, and if they do, many insurance policies won’t apply.
4. Tax Issues – Tax issues are another area outside the realm of most insurance policies. If you fail to pay your taxes, don’t look to the insurance companies for protection.
5. Landlord Disputes -Landlord disputes are another issue not covered by insurance. In fact, most breaches of contract are outside the scope of most insurance policies in general. If this becomes an issue, insurance is unlikely to provide coverage.
What’s The Solution?
There are many solutions, but one of the best solutions to address these gaps in coverage is to keep your entity in good standing. Of course, that requires you to have a legal entity, like a corporation or LLC. After you obtain one, you need to keep it up and follow the corporate formalities. It also doesn’t hurt to have a different entity for each restaurant. In the event of a catastrophic issue where insurance coverage is not available, sometimes the protection of these corporate entities can make all the difference.
Have any insurance nightmares? Have you needed your entity’s protection? Please share your stories! We want to hear from you!