CH 15

Chapter 15
Managing
Insurance
© 2017 Stephen C. Barth P.C., Diana S. Barber, JD and John Wiley & Sons, Inc.
All Rights Reserved Images used under license from Shutterstock.com
Managing Insurance
 Introduction To Insurance
 Types of Coverage
 Selecting an Insurance Carrier
 Selecting the Insurance Policy
 Policy Analysis
All Rights Reserved
In This Chapter, You Will Learn:
1. To understand the value of insurance in
protecting a business from financial loss.
2. To become familiar with the different types of
insurance required of hospitality operations.
3. To understand the role of workers’ compensation
and the requirements of an employer.
4. To critically evaluate the financial rating of an
insurance company and other information to help
you select an insurance carrier.
All Rights Reserved
In This Chapter, You Will Learn:
5. To distinguish between the terms
“primary” and “umbrella” insurance
coverage and determine appropriate
amounts of coverage.
6. To analyze an insurance policy and
determine what types of claims will be
covered and what types of claims will
not be covered.
All Rights Reserved
Introduction to Insurance
 Legalese:
Insure (Insurance) - To protect from risk.
All Rights Reserved
Insurance involves the
spreading of risk from one
person or business to a
larger group.
Makes good financial
sense
May be required by law
or by lenders
All Rights Reserved
Four Fundamental Principals
1.Type of hazard must be faced by a large number of

individuals or businesses
2.Monetary value must be calculable against an
accepted standard
3.Premiums must be affordable
4.Infrequent risk at any given time
All Rights Reserved
 Legalese:
Actuary - A mathematician or statistician
who computes insurance risks and
establishes premium rates.
All Rights Reserved
 Legalese:
Insurer - The entity that provides

insurance.
Insured - The individual or business that

purchases insurance against a risk.
All Rights Reserved
 Legalese:
Premium – The amount paid for insurance
coverage; can be paid in one lump
sum or over time, such as monthly.
All Rights Reserved
 Legalese:
Policy (Insurance) - The contract for

insurance agreed upon by an insurer
and an insured.
All Rights Reserved
 Legalese:
Annuity - Fixed payments, made on a

regular basis, for an agreed-upon period
of time or until the death of the
recipient.
All Rights Reserved
 Legalese:
Indemnification - To insure against
possible liability and loss and/or to
compensate financially for losses
incurred.
All Rights Reserved
 Legalese:
Claim - Demand for money, property, or
repairs to property.
All Rights Reserved
Purchasing Insurance
3-Step Process
Reach out to an independent insurance industry expert.
1.Determine the type of coverage you need.

2.Determine the amount of coverage you need.
3.Select a financially sound insurance company.
All Rights Reserved
Analyze the Situation 15.1
Samuel Renko, president of the Senframe
Hotel Management Company, authorized the
purchase of a $2 million fidelity insurance policy, the
purpose of which was to protect the company in the
event of employee theft or fraud. In discussing the
purchase with the insurance agent, Jana Foster, Mr.
Renko assured Ms. Foster that all hotel controllers
were subject to a thorough background check
before they were hired. As a specific condition of
the insurance policy, background checks on
controller candidates were required prior to
employment.
All Rights Reserved
The insurance policy was purchased and
went into effect on January 1, 2011. On June
1, 2011, the Senframe Hotel Management
Company took over the management and
operation of the Roosevelt Hotel, a 300-room
property in a resort area. As part of the
operating agreement, with the Roosevelt
Hotel's owners, the hotel's controller and its
director of sales were retained by Senframe.
All Rights Reserved
On December 20, 2011, Senframe
management discovered that the Roosevelt
Hotel's controller had been creating and
submitting false invoices. The invoice payments
were deposited in a bank account he had
established for himself five years earlier. Total
losses for the five-year period that the
falsification occurred were over $500,000.
All Rights Reserved
The controller resigned, but the hotel
owners sued Senframe for the portion of
misappropriated funds ($70,000) taken
during the period the hotel was under
Senframe's management. Ms. Foster
maintained that her insurance company was
not liable to indemnify Senframe, because
the controller had not been subjected to a
background check, as Mr. Renko had
promised.
All Rights Reserved
Mr. Renko countered that the

controller, although not
background checked, had no
criminal record of any kind,
and thus a background check
would not have prevented the
hotel from hiring the controller.
All Rights Reserved
1. Must Ms. Foster's company defend Senframe in
the litigation brought by the hotel's ownership?
2. If you were on a jury, would you hold
Senframe responsible for the employee theft?
3. Regardless of the outcome of this situation,
what changes in operational procedure should
be implemented by Mr. Renko and the
Senframe Hotel Management Company?
All Rights Reserved
Types of Coverage
 Property-Casualty/Business Interruption
 Liability
 Employee Liability or EPLI (employment
Practices liability insurance)
 Dram Shop
 Health/Dental/Vision
 Workers’Compensation
 Data Breach
All Rights Reserved
Types of Coverage
 Legalese:
Course and Scope - The sum total of all

common, job-related employee
activities dictated or allowed by the
employer.
All Rights Reserved
Christina Fleischer was 16 years old
when she was hired to work as a busser for a
private country club. On Sundays, the club
operated a popular brunch that served 500-
1,000 people between the hours of 9:00 A.M.
and 3:00 P.M. On Ms. Fleischer's first day of
work, her supervisor quickly detailed the job
requirements.
All Rights Reserved
As part of her job, Ms. Fleischer was to
remove the guests' used dishes from the table,
take the dishes to a bussing station, and
scrape any leftover food from the dishes into a
garbage receptacle lined with a plastic trash
bag. Periodically, she was to bring the dishes
to the kitchen to be washed, and take the
garbage receptacle to a designated area
where she would then remove the plastic trash
bag and replace it with an empty one.
All Rights Reserved
The filled bags were left in the
designated area until they could be taken out
to a dumpster by a member of the dish room
staff. The garbage receptacles would often
get very heavy, and all bussers were
instructed to replace the plastic bags in them
when they were half full. Ms. Fleischer’s
supervisor made it a point of mentioning that
during their 15-minute training session.
All Rights Reserved
The club was very busy with Sunday
morning brunch patrons on Ms. Fleischer’s first
day of work. Halfway through her shift, she
forgot to replace one of the garbage bags until
it was nearly full. She placed the garbage bag
with the others in the designated location. Later
that afternoon, a dish room attendant, while
taking out the 20 plastic garbage bags filled
from the brunch, attempted to lift the bag that
Ms. Fleischer had accidentally overfilled. The
dish room attendant seriously injured his back.
All Rights Reserved
The injury was deemed within the scope of
his work, so the dish room attendant was
awarded a monetary settlement by the workers'
compensation board in his state. However, he
then threatened to sue the country club, claiming
negligence in Ms. Fleischer’s training, and stated
that this negligence was the direct cause of his
accident. He also stated that management had
provided workers with garbage receptacles that
were too large and thus directly contributed to
the accident.
All Rights Reserved
1. Was management negligent?
2. Does the dish room attendant have a
viable claim against the club?
3. Do you feel the workers' compensation
premiums for the club should be
increased because of this incident?
4. What steps might the country club take
to avoid paying higher premiums?
All Rights Reserved
Data Breach/Cyber Risk
 Network Security and Privacy (Cyber)
 Need protection from data breaches
 Own system; and
 Client’s system
All Rights Reserved
Selecting An Insurance Carrier
 Legalese:
Underwrite - To assume agreed upon

maximum levels of liability in the event of
a loss or damages.
All Rights Reserved
Search the Web 15.1
Log on to www.insure.com.
1. Click on: Additional Resources.
2. Select: Financial Strength Ratings.
3. Click: “What do the ratings mean?” and read the
definitions of AAA through B insurance ratings at the
bottom of the column of Financial Strength Ratings.
4. Select: Access Ratings Lookup Tool at the bottom of the
page.
5. Type: The name of your own automobile or life
insurance company into the search box, and click OK to
find the rating of your own automobile or life insurance
company.
6. Find: Your insurance company’s rating.
7. Find: Your insurance company’s rank among the
insurance companies in your state.
All Rights Reserved
Selecting the Insurance Policy
 Primary coverage
 Umbrella (or excess)
 Deductible
All Rights Reserved
Selecting The Insurance Policy
 Legalese:
Primary Policy – The main insurance policy

that provides basic coverage.
All Rights Reserved
 Legalese:
Per Occurrence - The maximum amount

that can or will be paid by an insurer
in the event of a single claim.
All Rights Reserved
 Legalese:
Aggregate - The maximum amount that

can or will be paid by an insurer for all
claims during a policy period.
All Rights Reserved
 Legalese:
Umbrella - Insurance coverage purchased
to supplement primary coverage.
Sometimes referred to as “excess
insurance.”
All Rights Reserved
 Legalese:
Deductible – The amount of money the

insured has to pay before the insurance
coverage will begin to pay. Accordingly,
the higher the deductible, the less risk
to the insurance company, which
should equal lower premiums.
All Rights Reserved
Policy Analysis
 Legalese:
Face Sheet - A one-page document briefly

describing the type and amount of
insurance coverage contained in an
insurance policy. Sometimes referred to
as a “declaration page.”
All Rights Reserved
Policy Analysis
 Legalese:
Exclusions - Liability claims

that are not covered in an
insurance policy.
All Rights Reserved
Policy Analysis
 Legalese:
Exceptions - Insurance coverage that is

normally included in the insurance policy,
but that will be excluded if the
insured fails to comply with
performance terms specifically
mentioned in the policy.
All Rights Reserved
What Would You Do?
Assume you are an insurance agent
with the Arizona Business Insurance
Company (ABIC) which specializes in the
hospitality industry. You sell ABIC products
exclusively. Your company, which is rated
AA, offers insurance coverage against a
variety of risks, including
workers’compensation.
All Rights Reserved
What Would You Do?
You are approached by Ted
Betz, the operational vice
president of J-Town Smokies, a
chain of pit barbeque restaurants.
Mr. Betz would like to purchase
workers’compensation insurance
from your company because he
will be opening five stores in the
Southwest in the coming year.
All Rights Reserved
What Would You Do?
A review of his application and claim
history indicates that J-Town Smokies has
experienced a rather large number of worker
injuries in its four years of existence. In fact, the
rate of worker injury per employee-hour worked
is nearly twice that of the restaurant industry
average. Further investigation indicates that
most of these injuries resulted from cutting meat
prior to or after the barbeque process.
All Rights Reserved
What Would You Do?
A review of the U. S. Department of Labor statistics
reveals the following highest injury rate industries for this
year and last. Accident Rate
Employees per Thousand
(in thousands) This Year Last Year
Meat-packing plants 147.2 36.6 30.3
Ship-building and repairing 102.5 32.7 27.4
Steel foundries 26.6 26.4 26.4
Mobile homes 68.0 24.3 26.2
Automotive stamping 117.7 23.8 23.2
Restaurants 250.0 16.1 16.6
All Rights Reserved
What Would You Do?
1. What type of information would you want to see
from Mr. Betz before you offer to sell him a
workers’compensation policy from your
company?
2. Do you believe Mr. Betz’s restaurants should pay
the same amount for workers’compensation
coverage as other restaurants, or should he be
charged rates consistent with those in the meat-
packing industry?
All Rights Reserved
Rapid Review
1. Describe the importance of mathematics
and statistics to the insurance industry.
2. Identify at least five types of insurance that
would be needed by a nightclub or bar
owner, and discuss the importance of each.
3. Assess the pros and cons of self-insurance
in the area of workers’compensation.
All Rights Reserved
Rapid Review
4. Use the Internet to find a company that will likely
provide liability coverage for your new hotel.
Assume the hotel is to be built in Berlin, Germany
and your company requires a minimum of an AA
Standard and Poor’s financial strength rating.
5. Assess the legal climate today, and determine the
amount of umbrella coverage your hospitality
company would need to defend itself against a
wrongful death suit brought about by dram shop
legislation. Assume you have $1 million in primary
coverage. Be prepared to discuss the factors that
influenced your decision.
All Rights Reserved
Rapid Review
6. Describe the function and limitations of a face
sheet or declaration page.
7. Develop a checklist for purchasing insurance,
beginning with the recognition of the need for
insurance to the evaluation of the face sheet and
the actual policy.
8. Describe, in detail, an example of both an
exclusion and an exception that might be in effect
with a workers’compensation policy at a hospitality
operation where you have worked.
All Rights Reserved
Think about this
on your way out...
One of your guests at your resort hotel claimed that while

she was in the small restroom facility located by the
swimming pool, someone stole her purse and she claims
she had $3,000 in cash in her purse. The guest’s empty
wallet was found in a hotel trash receptacle. Will you have
insurance to cover this claim? How do you make this guest
happy?
All Rights Reserved

CH 15

Uploaded by

Copyright:

Available Formats

CH 15

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH 15

Uploaded by

Copyright:

Available Formats

Chapter 15

Four Fundamental Principals

1.Type of hazard must be faced by a large number of

4.Infrequent risk at any given time

Insurer - The entity that provides

Insured - The individual or business that

Policy (Insurance) - The contract for

Annuity - Fixed payments, made on a

1.Determine the type of coverage you need.

3.Select a financially sound insurance company.

Mr. Renko countered that the

Course and Scope - The sum total of all

Underwrite - To assume agreed upon

Primary Policy – The main insurance policy

Per Occurrence - The maximum amount

Aggregate - The maximum amount that

Deductible – The amount of money the

Face Sheet - A one-page document briefly

Exclusions - Liability claims

Exceptions - Insurance coverage that is

One of your guests at your resort hotel claimed that while

You might also like