Cinco de Mayo and Business Interruption Insurance

My wife and I were meeting friends at a Mexican restaurant for a Cinco de Mayo dinner when we got a call from the first arrivers informing us that the restaurant was closed.  There was a sign on the door that read, “Restaurant Closed Due to Issue with Sewer”.   When we got together at our fallback location the conversation centered around the misfortune of the restaurant.  Everyone agreed that they would have put up a less specific sign. And then the conversation turned to the money that restaurant lost because it was closed on Cinco de Mayo.

Of course when everyone else moved onto to other topics I sat there wondering if the restaurant was going to be able to recoup any of their lost income.  Now, it was impossible for me to answer this question with what I knew while I was eating dinner, but that didn’t stop me from pondering the question.  Here is what I pondered.

First of all does the restaurant have Business Interruption insurance?   One of the things that Business Interruption insurance does is reimburse a business for its lost net income.  In this case the restaurant would have suffered a large amount of lost sales.  Subtracting the usual cost of goods sold would result in lost net income.

Assuming the restaurant did have Business Interruption would that coverage respond to this claim?  I do not what the specific issue was here but typically when I think of sewer issues I assume it is sewerage back-up.   Many Business Owners Policies (BOP) exclude sewerage back-up.   Business Interruption will only respond where the cause of the loss is a covered peril.  If there is no coverage for sewer back-up then the Interruption coverage would not respond either.    Most BOPs allow sewer back-up coverage to be added back on to the policy by endorsement.    In that case, you need to read the endorsement to see if adding sewer back-up to the policy triggers Business Interruption.

Finally,  we need to consider the waiting period for Interruption coverage to kick in.  Think of the waiting period as a deductible.  If this restaurant’s waiting period was 24 hours then Business Interruption coverage would not begin until 24 hours after the loss.  If the staff left Sunday night at midnight and all was well and returned on Monday at 10:00am to find the sewer issues then we know the 24 hour waiting period began sometime after midnight and would run through the entire business cycle on Monday.  In this case the restaurant’s deductible would be one of its busiest days of the year.  Hopefully, they have a waiting period of 0 hours.

So by the time I had finished my dinner I had reached the following conclusion.   The restaurant could recover its lost net income if they had purchased Business Interruption coverage.  And, the cause of the lost business, in this case something to do with sewer issues, is a triggering event for the interruption coverage and that the loss falls after the waiting period.

Like I said at the beginning I have no idea how that restaurant’s policy will respond, but the first thing I am doing today is to review my restaurant client’s policies to see how they will respond in the same situation.

If you own a restaurant or any other business call Columbia Insurance Agency at 800-559-5553 to see how we can help protect your livelihood.

I hope you had a Happy Cinco de Mayo!