The damage caused by the devastating wildfires raging throughout the Los Angeles area is still in the early stages of evaluation (and certainly could continue to grow in the coming weeks), but restaurants affected by this natural disaster likely find themselves wondering how to begin their recoveries. What’s the best way to file insurance claims and get timely payouts? What should your legal team look like as you navigate this process? How can restaurant owners ensure the safety and security of their staff?
First of all, David A. Thomas, partner at Blank Rome LLP in the Insurance Recovery Group, urges you to “be careful about all of the misinformation out there. Instead, make sure that you thoroughly understand your rights and the insurance company’s obligations under any insurance policies that might cover your losses. That will help you set expectations of the timing and amounts of any insurance proceeds and determine what you need to do to maximize your recoveries as quickly as possible.”
For more advice from attorneys and insurance reps about how to proceed with your insurance claim filings and other restoration procedures, read on.
Start by making sure that you’ve fully documented your damage and reimbursement needs.
When you’re able to re-enter your restaurant space, the first order of business involves assessing the damage and providing as much documentation as possible. Andreas Study, a first-party insurance claims attorney at Farah & Farah in Orlando, Florida, tells us that this level of diligence can help push insurance claims along during a time when they’re receiving a high volume of claims.
“Especially during a natural disaster where the insurance company is facing a large number of claims, they will be looking for any ways to diminish the value of the claim, delay paying, or deny the claim outright," he says. "So you need to make sure that you have documented the proof of the damage and its causes. Your insurance policy is a contract. It clearly states what's covered and what's not. So, gathering clear evidence (pictures, videos, etc) that establishes causation is paramount.”
But what “evidence” do the insurance companies want to see?
Rob Hoover, vice president of Business Development at Risk Strategies (a national specialty insurance brokerage and risk management firm), broke it down for us in great detail, "[First,] take pictures– visual evidence is invaluable. Also, maintain thorough records of everything, including damages, operational shutdowns, and expenses.”
Hoover also recommends setting down a thorough timeline of how the fire-related damage affected the business. “When did you stop operations? Record the date and the reason (e.g., evacuation orders, smoke damage). Record any and all evidence of forced closure or disruptions,” he says.
Next, get a copy of your insurance policy to begin the claim process.
As you’re collecting the photos and documents that reflect your restaurant’s damage, reach out to your insurance company. “Restaurant owners should start the claim process by notifying their property insurer that they have suffered losses and asking the insurer for a copy of the policy, which they are entitled to receive,” says David A. Thomas, partner at Blank Rome LLP in the Insurance Recovery Group.
After reviewing your insurance policy with an attorney (more on that in a minute), “provide critical details including dates of loss/closure, best means of communication for updates, proof of damages (photos, receipts, business records). [Also, show them your] tracking of financial losses such as lost income, cancelled reservations, payroll expenses for idle staff, and temporary relocation costs,” Hoover advises.
Study tells us that, during these conversations, it’s important to “keep it black and white and never admit to any perceived wrongdoing. They may try and use any admission of fault, e.g. you didn't take proper steps to secure the property, your maintenance was lacking, etc, to lessen their liability.”
Hire attorneys who specialize in insurance law and, in certain cases, employment law.
A skilled legal team can help you wade through the insurance paperwork, keep the filing process streamlined, and provide counsel from the filing date until you receive your payout.
According to Thomas, “You should consider retaining an insurance coverage attorney, preferably one who represents only policyholders and does not represent insurance companies. Attorneys who represent policyholders are very accustomed to developing and pursuing the strongest arguments for the fullest extent of coverage afforded by a policy. Also, policyholder-side attorneys can take more aggressive positions with the insurers than can attorneys who may not be able to take positions contrary to the interests of their insurance company clients. Of course, the goal is to maximize insurance recovery without initiating coverage litigation, but if the insurance company does not comply with its policy obligations, filing a lawsuit may be the only way to bring it to the table to resolve the claim.”
Study adds that policyholder-representing attorneys (also known as first-party insurance attorneys) are “highly specialized in the nuances of insurance contract law. We may use damage assessment experts, appraisers, engineers, contractors, and other property experts to help establish clear causation of the loss, as well as document the value of replacement. A major plus to hiring a property damage attorney is that they take over working with your insurance adjuster to seek the full compensation a policyholder is due under the terms of their policy. When the insurance company refuses to provide that fair offer, they know they'll see us in court.”
But insurance attorneys may not be the only experts you’ll want in your corner during this trying time. “The next person to engage is a real estate/leasing expert to review the lease and negotiate with the landlord (who has suffered losses as well). [Also], an expert with FEMA or similar disaster relief agencies would be highly recommended. The key will be to try and make up for lost revenues and assets, while minimizing expenditures, as soon as practicable,” says Marco D. Costales, a Los Angeles-based attorney with Nossaman LLP specializing in beverage & alcohol law.
When it comes to the timeline of insurance payouts, manage your expectations.
A quick payout from your insurance company would obviously be an ideal scenario, but our legal sources caution you to remember that, in the face of a widespread disaster like the LA wildfires, speed may not be in the cards.
“The timing of any insurance payouts depends on the policy’s coverage terms, the nature and extent of the losses, and the efforts of both the policyholder and the insurance adjusters to reach an agreement on coverage and the amounts. For example, suppose the policy provides for a payout of the actual cash value (the depreciated value) of the property and only pays for the full replacement cost upon actual repair, rebuilding, or replacement of the property. In that case, the question of when the policyholder will receive payments of the actual cash value and then the full replacement cost may depend on how quickly the insurance adjusters can value the relevant amounts and how quickly the policyholder can supply information to the adjusters, and then undertake to repair, rebuild, or replace the property,” Thomas tells us.
The same goes for losses related to business closures. “Payment of business interruption losses may similarly depend on how quickly the policyholder can supply the adjuster with adequate information about lost earnings and answer any questions, but this process usually takes longer. To expedite the process, the best steps are more practical than strictly 'legal:' Gather all relevant information and documentation concerning your damaged or destroyed property and your revenue and expenses; consult with any accountants, contractors, or other experts regarding valuation and financial losses; be proactive in reaching out to and responding to the insurance adjuster and supplying the adjuster with any relevant information; review your policy carefully and seek assistance from a coverage lawyer if you are unclear; and document everything, including by sending emails confirming the substance of phone calls you have with the adjuster,” Thomas says.
From your insurance attorney’s perspective, “one of our jobs is to help manage expectations. We have to factor in the extent of the damage, the carrier, the adjuster, the policy limits, and other variables to help give a general sense, but it can still depend on whether we need to litigate or the insurance company is willing to settle to provide the fair compensation the policyholder is due,” Study explains.
In short, be as thorough and organized as possible when filing your claim and listen to your attorneys when they advise you about next steps and anticipated timelines.
Don’t sleep on grants and other types of financial aid.
Insurance reimbursement may seem like the most logical way to regain capital after a disaster, but it’s not the only option. “Keep an eye out for grants and financial aid opportunities to support your recovery efforts. Local organizations and government programs often provide additional resources for businesses affected by natural disasters,” suggests Hoover.
Be sure to maintain clear communication with your staff and with your customer base.
Restaurants may be businesses, but they also exist to serve their communities, so keeping lines of communication open with employees and the public is essential during uncertain times. When determining your plans for reopening, “prioritize safety. The safety of employees, customers, and yourself is the top priority,” Hoover reminds us, advising also to “[follow] safety protocols issued by authorities.”
If the wildfires forced you to close and your employees to miss out on collecting any paychecks, consider that “there are still legal responsibilities you hold even after your restaurant burns down. For example, the FLSA has laws about paying workers up until the disaster, and state/local laws will inform you of when employees must be paid. Because the legal requirements regarding payments can vary a bit depending on where you live, you may want to hire an employment or even a general business attorney,” advises Ben Michael, a Dallas-based attorney with Michael & Associates.
Finally, Hoover tells us that “some of the best recovery stories stem from proactive actions taken during the loss. If your circumstances allow, consider reopening in any capacity—even if just to provide warm meals to emergency workers or the community. Being part of the recovery effort brings goodwill and can help reestablish your business’s presence. Focus on creative solutions to engage with the community while repairs and claims are in progress.”
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