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Business Interruption, General Liability, & Property Insurance: Oh, My

21. April 2015 08:02

gas line warning

Disaster struck the East Village in New York on Thursday, March 26, 2015. According to The New York Times, an explosion obliterated three buildings, killed two people, and injured more than 19 people. Sushi Park, a restaurant on the ground floor of the building where the explosion happened, was completely destroyed in the process.

The Times reports that the explosion was caused by gas being siphoned from the restaurant's line to the apartments above Sushi Park and to the building next door. Maria Hryenko owns both buildings and oversaw the siphoning, and Mr. Dilber Kukic, the general contractor, adjusted the pipes in the buildings.

The owner of Sushi Park Hyeonil Kim, the landlord, and the general contractor have a number of problems on their hands. The victims' families may sue everyone: the restaurant, the landlord, the contractor, Consolidated Edison (the utility company), and the city.

Let's explore some possible liabilities for the three main parties involved in the explosion.

The Restaurant: Damages that Outpace Typical Coverage

Imagine being the owner of a small restaurant that's just been completely destroyed. All your equipment, furnishings, and inventory: gone. Just a pile of smoldering rubble and broken glass remain.

The owner of Sushi Park probably has insurance to help him pick up the pieces of his business and start over (the landlord may have required proof of insurance before he could sign the commercial lease). A disaster of this caliber may require the following four types of coverage:

  1. Property Insurance. This may offer coverage for the replacement of the restaurant’s equipment, like stoves and refrigerators.
  2. Business Interruption Insurance. This may cover the restaurant's ongoing expenses (e.g., payroll, taxes, and loan payments) during the time it takes to rebuild to an equivalent operation.
  3. Extra Expense Insurance. This can be added to a Business Interruption policy and may cover costs incurred by things that help the restaurant get up and running faster. Learn more about this coverage in the post "New England Snow and Business Interruption."
  4. General Liability Insurance. This may cover the restaurant if the families of the victims sue it. However, a common GL limit for small restaurants is $1 million to $2 million, which may not be enough for a wrongful death lawsuit.

Worth noting: basic limits that small restaurants carry may be too low for the amount of property damage and liability. Plus, the lease most likely required the restaurant owner (tenant) to indemnify the building owner for all third-party injuries that happen on the property (i.e., the restaurant owner would be liable rather than the building owner).

Considering that two people died and over 19 people were injured because of the explosion, the restaurant owner may end up owing a considerable amount in medical bills and wrongful death settlements.

The Landlord: Liabilities Galore

As the owner of the building and the person who allegedly oversaw the gas siphoning, the landlord may end up facing several lawsuits and criminal charges over the explosion. For example:

That said, the landlord may be able to sue the restaurant owner for negligence. After all, the manager smelled gas but didn’t shut everything off (though the landlord assured him that the smell was being taken care of). The restaurant probably had some open flame in it, which could have ignited the gas.

The General Contractor: Criminal Liability

The general contractor may have done the work of redirecting the pipes that allowed the illegal siphoning to happen. That means…

Lessons Learned: Tragedy Is Expensive

Your business could learn a few lessons from this sprawling and complicated catastrophe. Namely…

  1. Insurance typically won't cover claims arising from criminal activity.
  2. When tragedy strikes, everyone becomes a target for a lawsuit.
  3. Wrongful death lawsuits often cost more than typical liability insurance limits can account for.
  4. Unexpected disasters can keep your business shut down for a long, long time.

To make sure your business is adequately insured for out-of-the-park claims, talk to your insurance agent. For pointers on creating a plan to raft your business through a drawn-out disaster, read "What's Your Business Interruption Plan?"

Tags:

General Liability Insurance | Insurance Terms Explained | Lawyers | Property Insurance | Real Estate Professionals | Restaurants | Small Business Risk Management | Tips for All Small Businesses

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