The restaurant was just filling up with a brunch crowd when the fire was discovered. It was a pleasant Sunday morning in May in Mar Vista, California, a small community adjoining Santa Monica. The Rustic Kitchen, a 50-seat, 1800-square-foot restaurant had only been open about a year and a half and business was growing every week. Amid the bustle, diners suddenly smelled smoke. They looked up and saw it curling out of the ceiling.
The restaurant is at the end of a row of six attached stores. Soon after the diners spilled out onto the sidewalk, the smoke began pouring out of the pizzeria, the flooring store, the tutoring center, the martial arts school, the pool supplies place, the dry cleaner. The whole line of attached businesses shared a common attic that ran the length of the building. Before it was over, 10 fire trucks had arrived, and 100 firemen were chopping through ceilings and walls, dousing the flames with water and foam.
A firewall in the attic blocked most of the fire from enveloping the Rustic Kitchen’s kitchen. All the businesses except the restaurant likely will be closed for at least year as money and permits and contractors are assembled. But the Rustic Kitchen reopened in September. Staffing wasn’t a problem. The same 22 employees are serving and working in the kitchen because they’d been receiving a paycheck every two weeks throughout the down time.
“A nice summer vacation for them,” says John Fanaris, who owns and operates the Rustic Kitchen with his wife, Noelle. She handles the kitchen and the service, he runs the business end and oversees an extensive wine bar as the sommelier. He credits the softened financial blow and speedy recovery to having the right insurance policies that he never expected to use — even as he paid the $750 premium every month.
In Case of Disaster
John and his wife are serial entrepreneurs. They’ve been in real estate and entertainment production, and most recently supplied a frozen mac-and-cheese dish to chains like Whole Foods. But they never ran a sit-down restaurant before, and the business insurance coverage was new to them when they bought it. What they got is called a “BOP,” a Business Owner’s Policy, all written by the same carrier. There are several parts to a BOP that cover different areas of risk and payment.
“Right now the most important part to me covers Business Interruption,” says Fanaris. “That’s the one that covers the payroll, the overhead expenses, and lost income.” (He confessed he didn’t even know the policy covered all that until he needed it).
The second thing the BOP covers is Personal Property. In the restaurant’s case, that’s the food, the dishes and cutlery, the stoves, refrigeration, and a substantial inventory of wine and craft beer.
The third part covers Tenant Improvements. That’s the construction work he did before he opened that had to be rebuilt post-fire.
And what about the landlord? Didn’t he have to pay for any of that?
“No,” Fanaris says. “He pays for repairing the building, puts on the new roof, and the exterior construction, and clean up. Inside is my worry.”
What’s the biggest lesson Fanaris takes away from all this? That answer comes in a minute, but the biggest surprise on the day of the fire came when “public adjusters” appeared out of nowhere.
“I think they have scanners in their cars,” he says. “Even while the flames were still burning, these guys were coming around with their cards. They said they could get me more money from the insurance companies.”
It’s like hiring a personal injury lawyer to go up against the insurance company. How much did they want?
“Ten percent of the whole insurance pay-off: maybe 30, 40 grand out of my pocket.”
Fanaris asked his insurance agent if he should consider it. “My agent said, ‘Why don’t you see how we treat you first? If you don’t like it you can always get one of those guys at any time.’”
So far, he’s satisfied with the insurance carrier. “I’m glad I didn’t do it,” Fanaris says now.
Luck and Lessons
“Get big enough insurance limits,” Fanaris says. “I was lucky. I could have been screwed. That firewall in the attic saved me.”
Otherwise, he says, he didn’t really have enough insurance to cover his actual inventory because he had never counted it up until afterward. He says if his stoves and refrigerators and the rest of the equipment had been totally destroyed, he would not have gotten enough insurance money to start over. Without the Business Interruption coverage he certainly would not have been able to keep his staff on paid standby, let alone cover his expenses and lost income for the four months he was closed.
“Figure out what you really have invested and get 20 percent more,” Fanaris advises. “It’s only 50 or a hundred bucks a month more. I should have done that. As I said, I would have been screwed if everything got wiped out.”