How an equipment breakdown can burden a restaurant

With 97,000 locations throughout Canada, the restaurant industry is a key contributor to every local community.

Why are restaurants so vulnerable?
Restaurants operate with very low margins: 4.3 percent1, vs 9.8 percent average for all industries2. A sudden and accidental equipment breakdown, if it includes property damage, business interruption and spoilage, can heavily burden a restaurant’s finances.
What can go wrong?
Perils and accidents which are the subjects of equipment breakdown insurance include: Mechanical Breakdown, Explosion of Boilers and Pressure Vessels, Electrical Arcing and Electronic Circuitry Impairment. Let’s look at examples of each

1. Mechanical breakdown

For food preparation, restaurants may rely heavily on mechanical equipment containing motors and gearboxes. Moving parts in these components can seize up or burn out due to metal fatigue, lack of maintenance, operator error or misalignment.

Loss example

Pasta machine breakdown
An Italian restaurant’s pasta sheeting machine broke down due to a damaged gear wheel. Because of the lack of local technical support, repairs would have required transporting the unit to Italy and back. Instead, the unit was replaced.

Direct Damage Extra Expense Business Interruption Total Loss
$22,600 $16,990 $6,200 $41,790

2. Explosion of Boilers and Pressure Vessels

The word ‘explosion’ sounds extreme, but pressure vessels such as boilers and steam cookers operate under very high internal pressure. In refrigeration systems, the vessels, coils and piping can rupture, collapse or crack. With a refrigeration system, spoilage can make up the bulk of a loss.

Loss example

A refrigeration pressure vessel breakdown
A restaurant owner discovered a compressor had stopped and the temperature in the freezer had risen to about 10 degrees Celsius. As a result, all the meat had thawed and spoiled.

Upon investigation it was discovered that a rupture in the copper piping from the condensing unit caused refrigerant to escape. The pipe was repaired and the unit was recharged and returned to service.

Direct Damage Spoilage Total Loss
$1,300 $22,300 $23,600

3. Electrical Arcing

Electrical arcing is light and heat produced as part of an arc fault, a type of electrical explosion or discharge. An arc can heat the air to temperatures as high as 20,000°C (almost 4x the surface temperature of the sun!), and vaporize metal in equipment.

Loss example

Arcing damage in electrical panel shuts down restaurant
A restaurant was closed for 10 days after loose connections caused severe arcing that damaged its main electrical panel.

Direct Damage Business Interruption Spoilage Total Loss
$37,800 $14,300 $10,000 $62,100

4. Electronic Circuitry Impairment

Technology keeps getting smaller and more fragile, making it hyper-sensitive to dust, shock, vibration and heat. When microcircuits get damaged, equipment may simply stop working, without showing any sign of visible damage.

Loss example

Circuit board failure causes freezer breakdown and spoilage
A restaurant discovered spoiled frozen food in its walk-in freezer. Although there was no detectable physical damage to the circuit board, when it was replaced, the freezer was returned to service.

Direct Damage Spoilage Total Loss
$1,800 $22,000 $23,800
Have you visited HSB’s Knowledge Centre? Resources include the Equipment Breakdown Guide e-book, mini-webinars, loss examples, and risk management bulletins.
Statistics Canada. Table 21-10-0171-01 Food services and drinking places, summary statistics
2Statistics Canada. Table 33-10-0007-01 Quarterly balance sheet and income statement, by industry (x 1,000,000)
  This article is for informational purposes only and is not intended to convey or constitute legal advice. HSB makes no warranties or representations as to the accuracy or completeness of the content herein. Under no circumstances shall HSB or any party involved in creating or delivering this article be liable to you for any loss or damage that results from the use of the information contained herein. Except as otherwise expressly permitted by HSB in writing, no portion of this article may be reproduced, copied, or distributed in any way. This article does not modify or invalidate any of the provisions, exclusions, terms or conditions of the applicable policy and endorsements. For specific terms and conditions, please refer to the applicable insurance form.   Posted on July 16, 2019