Case Study Details


Can your business run smoothly without appropriate insurance cover?
Overview

Katherine Luke has operated a small restaurant for more than three years, specialising in healthy and contemporary style food. The restaurant is located in central Melbourne, trading as “Yum! Yum!”.

Yum! Yum! has a moderately sized menu, offering a range of low fat, low cholesterol, nutritious foods made with natural ingredients. It is open for lunch and dinner six days per week (Monday to Saturday, from 11am to 10pm). All the food is prepared on the premises where customer’s receive full table service. The restaurant also offers a take-away service.

Alongside generating income, Kath always considers the effect of her foods have on the health and well-being of her customers. She always ensures that vegetables, meat and dairy products used to make dishes are fresh and of high quality. Similarly, the premises, particularly the kitchen, are always kept clean and Kath maintains a high standard of hygiene. This has helped Yum! Yum! to distinguish itself from the competition.

Tony, Kath’s business partner, also plays a key part in managing their restaurant business. He is responsible for quality and hygiene control. Beside Kath and Tony, the business employs two chefs, two waiters and three waitresses. However, the staff have never been involved in carrying out any tasks outside of their regular responsibilities.

Last weekend, it was the first time Kath was away from the restaurant for more than one day. On Friday morning, she left for the Gold Coast to celebrate her wedding anniversary with her spouse, and planned to come back the following Tuesday.

Issue

On Saturday morning, Tony suddenly became very sick and could not come to work. So for the first time ever, both Kath and Tony were not there.

About 3pm that afternoon, a customer slipped on a wet floor in the restaurant and seriously injured his right arm. After informing Tony about the incident, one of the waiters sent the customer to hospital. It was a busy Saturday afternoon, so each staff member tried to do their best considering the circumstances. At the end of the day, they were all very exhausted. They managed to close up at 11.30pm, but unfortunately no one had realised that the refrigerator had not been working for the past few hours.

Kath always came in on Sunday morning to make sure that everything was working properly and in order. However, that Sunday she was still at the beach in Queensland. Tony was still sick and unable to get out of bed.

After being informed about the injured customer, Kath cut her holiday short and flew back to Melbourne on Monday morning. Tony was also feeling better and returned to work. Unfortunately upon entering the restaurant, they discovered that the refrigerator had broken down over the two nights. It would need to be replaced, as would the food that was stored inside.

Solution

At about 1pm on that day, Kath and Tony were told that the customer had broken his arm as a result of the slippery floor in the restaurant on Saturday, and therefore he would not be able to work for at least 6 weeks. The customer made a claim of $8,000 for the incident, which included hospital fees and the loss of his income for the time he was unable to work.

Very fortunately, the business had “public liability and personal injury” insurance policies. This meant that the insurance company would cover the cost of the customers compensation claims. Similarly, the business had also been insured against both “machinery breakdown” and “loss of refrigerated stock” as a result of the breakdown. So the business was able to pass all the replacement costs to its insurance company.

It was crucial for Kath and Tony that the two major disasters had been covered. However, it was obvious that they would not be able to run the business for a further two days. So to reduce any further losses, Kath and Tony made a plan to get things back in order and return to normal business by Wednesday.

Results

Although there were a few disasters at Yum!Yum!, the business managed to keep its losses at a minimal level by having appropriate insurance policies in place. This saved them a large amount of money.

Further, the restaurant was also able to maintain a good relationship with its customers by paying the appropriate amount of the claim that arose as a result of the unexpected incident. More importantly, this precaution prevented the business from incurring any damage to its reputation through drawn-out litigation.

Lesson Learnt
  • As a business owner, it’s important to realise that there are several unforseen risks and incidents that could affect and hold back your operation. You will need to be able to manage those risks appropriately to run your operation smoothly.
  • Although taking precautions is crucial in preventing problems from arising in the first place, unexpected incidents can still occur. For example, in the restaurant case, although the business paid particular attention to their hygiene standards, a number of different factors and unfortunate events resulted in them running into trouble. Taking precautions may not always be adequate, so there is a need to have insurance policies in place to cover you from loss.
  • Insurance has become a crucial part of run any business. By taking out the right insurance policies, your business will be protected in terms of its financial and litigation risks.
  • However, different types of business require different types of insurance cover, so it is very important that you do your research and choose the right cover to suit your particular business and circumstances. For example, as a restaurant owner, you may want to consider the following cover options:
    - Machinery breakdown and loss of refrigerated stock
    - Liability for personal injury and property damage
    - Fire, storm and other defined events
    - Burglary
    - Property in transit
    - Money
    - Personal accident and illness
  • Talk to a number of different insurance companies for further details on the cover, additional benefits and exclusions for each cover option.

This case study is based on a real business, however, some details have been changed to protect the privacy of those involved.