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Hurricane Sandy revealed a lot about insurance coverage

Hurricane Sandy caused an estimated $63 billion in damages across the East Coast. Restaurants contributed their share to the bill. And as operators cleaned up and surveyed the destruction, many learned some hard lessons about their insurance coverage. Lessons that can benefit anybody, not just those hit by a 100-year storm. Hurricane Sandy

Restaurant: Gargiulo’s
Location: Coney Island, NY
Lesson: Evaluate the possible economic advantage of carrying catastrophic coverage while self-insuring against other/smaller claims.

A family-owned destination restaurant for over a century, Gargiulo’s sustained a basement submerged in water. “And everything that runs the restaurant was in the basement: electrical, freezers, refrigerators, walk-in boxes, glasses, dishes, computer system, phone system, meat, cheese, rolling bar, wine, liquor,” says co-owner Nino Russo. “We’ve had water come up the block before but never anything we couldn’t maintain.” With a 400-seat catering hall popular for weddings, the restaurant sits near the famed Coney Island boardwalk, which itself, after the flooding finally subsided, remained partially buried in sand.

“We had a flood policy but that only covered the first floor. If wind or fire had caused the [basement damage] we would have been covered, but not water.” Russo has relocated what he can, including a new generator, from the basement to the roof or the first floor. “Business interruption [coverage] was void for floods. We took our own resources [to reopen quickly] because we had so many clients booked for December,” he says, still waiting for a claim settlement. “We’ve been paying for insurance since 1965, with a 3 percent loss ratio. Now I’m thinking about taking catastrophic coverage and becoming a self-insurer for everything else.”

Restaurants: Cucharamama and Zafra
Location: Hoboken, NJ
Lesson: Make thorough before, during and after visual records, backed up with written notes.

For chef Maricel Presilla, who with Clara Chaumont co-owns Cucharamama and Zafra plus a specialty food shop, keeping good records comes naturally. A trained academic and author, Presilla had made notes, videos and other visuals of everything in inventory—from equipment to pottery, posters, her father’s paintings and other rotating décor items in storage. “We didn’t have flood insurance but everything is never covered. And we don’t know yet what might be covered by our landlord. Still, it’s important to have a visual record of everything,” she says. Immediately after the storm it took some maneuvering to get past a police barricade and reach her businesses. “Mold sets in within 24 hours so we had to get that out fast. We had to stay ahead of mold and spoiled food.” She went armed with Clorox, disinfectant—plus cameras and a notebook. She documented all the damage—down to the cash register, printer cables, cookbooks—and all phases of the cleanup, taking notes as she went and later matching it all with receipts. “Insurance won’t pay beyond our cap, but the adjustor arrived the day we reopened. And we had an itemized journal ready.”

Restaurant: Edward’s Steakhouse
Location: Jersey City, NJ
Lesson: Hire an independent insurance adjustor.

In 2011 Daniel de la Vega, owner of Edward’s Steakhouse, had a bitter taste of dealing with equipment repair during the aftermath of Hurricane Irene, which dumped three feet of water into the basement of the 1870s townhouse where his restaurant is located. He learned then that “the b-word”—basement—is taboo with insurance. And business interruption insurance only covers fires, not floods.” This time around, with flooding at seven feet destroying things beyond repair, he knew: “Hiring an independent insurance adjustor is a must. It’s like dealing with the IRS—you want someone who has worked there and knows what it’s like to help you deal with them. You can’t understand the policies,” he says, still puzzling over why insurance might pay for a replacement refrigerator but not a replacement freezer. “And [adjustors sent by insurance companies] are not looking out for your best interest.” So he found an experienced professional who would fight for his best interests. With $100,000 needed for kitchen equipment alone, he has already received a partial advance and plans to move the kitchen to the second floor in time to reopen by Valentine’s Day. “You need to hire a shyster. I may be naïve, but he gets me what I want.”

Restaurant: Uncle Bill’s Pancake House
Location: Cape May to Ocean City, NJ (8 locations, 5 of them damaged)
Lesson: Review your insurance coverage and riders annually.

“This was the first time we used our insurance policies,” says Kelly Anderson who with her brother Patrick O’Hara owns three Uncle Bill’s Pancake House locations (extended family members have ownership of the others), two of which had damage. “We had eighteen inches of water in one location and thirty inches in the other.” Both buildings, which they own, were structurally sound. However, water had set the contents—pieces of furniture, tableware, food—afloat. “We found out that flood insurance does not cover contents. Loss of business insurance does not include damaged food costs. Rising water does not apply to food spoilage. In the fine print of the hurricane coverage rider, rising water is not covered.” A few definitions and terms to know: flooding is overflow of inland or tidal water or rapid accumulation of surface water (not rain leaking through the roof); flood insurance does not cover basements; hurricane deductibles, a percentage of the total insured value, usually do not kick in unless wind speeds reach 74 miles per hour, which during Sandy they did not. Review your coverage annually for worst case scenarios and make adjustments you believe you need. And, when it comes to discussing those adjustments with your broker, Anderson says, “Remember that they are sales people.”

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