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Behind the Line: Restaurants learn to plan for disaster
Restaurateurs recommend reviewing insurance coverage in the wake of Hurricane Sandy
By Lauren Kramer
March 01, 2014
When Hurricane Sandy arrived in October 2012, Ian MacGregor, CEO of The Lobster Place, knew business wouldn’t be good. “We expected it to be disruptive, but no one expected that level of devastation,” says the owner of the supply company. The Lobster Place has the largest seafood market in the Northeast at its New York storefront at Chelsea Market, as well as a warehouse 12 miles away that supplies seafood to hundreds of metropolitan area restaurants, hotels and caterers.
Though the hurricane and flooding did not hit either business directly, it caused up to five days’ worth of power outages that resulted in the loss of $100,000 of perishable inventory and another $150,000 in lost business.
At the time he assumed most of those losses would be covered by the business-interruption insurance policy he’d taken out with Guard Insurance Group. “If you have a business-interruption insurance policy and your businesses are not in a flood zone, you assume your insurance will cover it,” he says.
MacGregor had a standard property casualty liability insurance policy with provisions for food storage and property loss. His landlord had not required him to carry flood insurance, “but you’d assume if your lights go off due to flooding anywhere, you’d be covered by your insurance,” he says. “That wasn’t the case — we weren’t covered at all.”
The insurance policy’s conditions for what would be covered in a power outage precluded an outage caused by a flood at an electricity station 5 miles away.
As he fought for reimbursement, MacGregor reflected on the concept of a standard insurance package. “An insurance broker will sell you a standard package that insures against fire, theft or a patron slipping on your property, and you assume that because those are the standard policies being sold, those are the incidents with the highest risks,” he says.
“However in the 11 years I’ve been operating we’ve never had a fire, a slippage or a significant theft. What we have had are two major business interruptions due to power operations: the blackout of 2003 and Hurricane Sandy. I believe there’s a disconnect between the contingencies those policies insure against and the contingencies most likely to happen.”
Bob Cooper, president of Chefs International, had more than 4 feet of water in one of the company’s restaurants, Jack Baker’s Lobster Shanty and the adjoining Sunset Ballroom in Point Pleasant Beach, N.J. None of its seven restaurants along New Jersey’s coastline were left unscathed during Hurricane Sandy. In addition, a flooded storage facility cost up to $400,000 in lost seafood product.
“We generally take in large amounts of product to protect ourselves from fluctuations in the market,” he says. “We store it ourselves and then distribute it to our seven stores.” Cooper’s company, covered by insurance, was one of the lucky ones.
“We had flood and wind insurance with Lexington Insurance Co., and we needed both,” he says. “It took about a year to get things sorted out with the insurance, but we were back and running pretty quick after the hurricane.”
In hindsight, Cooper realized how vulnerable his businesses were to flooding. “We’ve been doing business for over 60 years in the same locations, and we never came close to what we saw during Sandy,” he says. “I’d advise any seafood business that’s in an area where there’s even a remote chance of a flood to get flood insurance, because the cost of insurance compared to what could happen is minimal. Stay on top of your insurances and ensure you have business-interruption insurance,” he says.
Ultimately, Guard Insurance Group awarded The Lobster Place $60,000 in damages, “a number they arbitrarily picked out of the sky, mostly because we made a lot of noise,” MacGregor says. Financially, he was fortunate that losing $250,000 was not the end of the company his father started in 1974. But part of that was just a matter of timing.
“We had a major renovation of our Chelsea operation in the works when Sandy hit, with construction slated to begin Jan. 1, 2013,” he says. “As much as a catastrophe as Sandy was, it didn’t derail those plans.”
MacGregor’s experience in the aftermath of Hurricane Sandy taught him never to assume his insurance policy to be a panacea for a big disaster.
“Today, we have additional insurance with more expansive coverage against business interruption and associated losses from utility failures. In it, we specifically addressed off-premise power outage as a covered cause of loss, so I feel more secure about mitigating that risk. Still, insurance companies are businesses that seek to limit their exposure to expense the same way we do.”
His advice to businesses in the seafood industry is to closely review their covered causes of loss. “There’s typically a section in the policy that gets pretty explicit about that,” MacGregor says. “Naturally it tends to be arcane, but that’s what reading the fine print is all about.”Contributing Editor Lauren Kramer lives in Richmond, British Columbia