Safeguarding your shared kitchen is about more than just running a well-functioning kitchen—it’s about creating a secure, resilient space that can weather any challenges. Whether you’re just opening your kitchen doors or have been managing a bustling facility for years, this chapter is designed to give you the tools and knowledge needed to ensure your kitchen remains safe, efficient, and sustainable. We’ll walk you through the essential pillars of protection: contracts, risk management, and insurance, all tailored specifically to the unique needs of shared kitchens.
First, we’ll dive into the importance of clear, comprehensive contractual agreements. These aren’t just formalities—they set the tone for every interaction, defining expectations and responsibilities for everyone who uses your kitchen. From rental agreements that outline space usage to service contracts that specify the resources provided, each contract is a crucial safeguard against misunderstandings and potential conflicts, protecting both your business and your kitchen members.
But contracts alone aren’t enough. Effective risk management is just as vital, helping you anticipate and address issues before they escalate. Whether it’s food safety, equipment maintenance, or member disputes, being proactive can save you time, money, and stress. In this chapter, you’ll learn how to identify common risks, conduct thorough assessments, and implement practical strategies to minimize disruptions.
Finally, insurance serves as your safety net. With the right coverage—whether it’s general liability, property insurance, or workers’ compensation—you’ll be able to protect your kitchen from the financial risks that come with unforeseen events. This chapter will guide you through the types of insurance you may need and how to work with providers to secure coverage that fits your kitchen’s specific needs, ensuring you’re always prepared for whatever comes your way.
Types of Contracts
Establishing clear and comprehensive contractual agreements is essential for managing a shared kitchen. These contracts help define the terms of space usage, set expectations for kitchen members, and outline the services provided. Here’s a detailed look at the most common types of contracts and the key elements they should include.
Member Contracts
Member contracts can take a couple of different forms depending on your business model and rental terms, such as whether you rent dedicated kitchens or pods and how long the rental commitment will be. State contract laws may also impact what form of contract you need to use. Sometimes, a kitchen may have multiple contracts or agreements with members, or they may combine them into one contract. Whenever you are developing contracts, be sure to seek the advice of a lawyer experienced in commercial real estate and business contracts for assistance in drafting your agreements.
Rental Agreements
Rental agreements are crucial for defining the terms of space usage in your shared kitchen, particularly for dedicated kitchens or pods. These agreements should specify the rental duration, payment terms, and member responsibilities. Clearly outlining the duration ensures both parties understand the rental period’s length, whether on a month-to-month basis or a longer-term lease. Payment terms should include the rental amount, due dates, late fees, deposits, and acceptable payment methods. Requirements for member insurance and naming the kitchen as an additional insured should also be included (discussed further below).
Additionally, member or renter responsibilities should include maintaining cleanliness, adhering to safety protocols, and properly using kitchen equipment. Renewal and termination terms, with notice periods, should also be included. This helps prevent misunderstandings and ensures a smooth operation.
Member Agreements
Member agreements set expectations and responsibilities for all kitchen members. These agreements should detail the standards for cleanliness, outlining how members are expected to clean and sanitize their workstations and shared spaces after use. Safety protocols are also essential, covering procedures for food handling, equipment operation, and emergencies. Moreover, member agreements should include guidelines for equipment use, specifying how to use and maintain kitchen tools and appliances properly. Consequences for noncompliance, such as penalty fees for failure to clean, should also be outlined. By clearly defining these expectations and consequences, you can maintain high operating standards and minimize member conflicts.
Service Contracts
Service contracts outline the services the shared kitchen provides, along with payment terms and conditions for termination. These contracts should specify the services offered, such as access to specific kitchen areas, equipment rental, and additional support services like business consulting or marketing assistance. Payment terms should detail the cost of services, payment schedules, and any applicable fees. Conditions for termination are also critical, outlining the circumstances under which either party can end the contract and the notice period required. This ensures transparency and protects both the kitchen operator and the members.
Key Elements of Effective Contracts
Terms of Use
The terms of use section should clearly state the rules and regulations for using the kitchen space. This includes guidelines on how to book kitchen time, the process for checking in and out, and any restrictions on the types of activities allowed in the kitchen. For example, some shared kitchens may have specific hours of operation or rules against certain types of food processing. Clearly outlining these rules helps ensure all members are aware of and adhere to the operational standards, reducing the risk of disputes and maintaining a safe and efficient environment.
Payment Terms
Detailing the payment terms is crucial for avoiding misunderstandings and ensuring timely payments. This section should include the rental or service fees, the schedule for payments (e.g., monthly, bi-weekly), and the acceptable payment methods (e.g., check, credit card, bank transfer). Additionally, it’s important to outline the consequences of late payments, such as late fees or potential termination of the rental or member agreement. Providing clear payment terms helps establish financial expectations and encourages members to adhere to their financial obligations.
Liability Clauses
Liability clauses define the responsibilities and liabilities of both the kitchen operator and the members. These clauses should include indemnification provisions, where members agree to hold the kitchen operator harmless from any claims or damages arising from their use of the kitchen. It’s also essential to specify the insurance requirements for members, such as general liability insurance and workers’ compensation if they have employees. These clauses help protect the kitchen operator from potential legal issues and ensure that members are adequately covered in case of accidents or damages. Insurance is discussed in more detail later in this chapter.
By developing comprehensive contractual agreements with these key elements, you can create a clear and structured environment for your shared kitchen. This helps protect your business and fosters a professional and organized atmosphere for all kitchen members.
While clear and comprehensive contracts form the foundation of shared kitchen operations, they are only one piece of the larger puzzle. Effective risk management strategies are equally important for protecting your kitchen from unforeseen issues that a contract alone cannot prevent. By anticipating risks and implementing preventative measures, you can create a safer, more reliable environment for you and your members.
Risk Management Strategies
Effective risk management is about anticipating potential issues and having robust plans to address them. While insurance is crucial, it’s just one part of a broader strategy. Insurance helps transfer risk, particularly pure risk (chance of loss), to the insurer in exchange for payment. However, businesses also face speculative risks, which involve the chance of gain or loss, like investing in new equipment or marketing programs. In this section, we’ll focus on managing pure risks through preventive action and insurance. Remember that comprehensive risk management should address all potential threats to your business’s success. By proactively identifying risks, implementing preventative measures, and preparing for crises, you can safeguard your shared kitchen and reduce risks and disruptions.
Identifying Common Risks
The first and most important step in risk management is identifying the risks your commercial kitchen faces. Without identifying these risks, you can’t take steps to control, avoid, reduce, or transfer them.
- Food safety issues: Contamination, cross-contact, and spoilage are significant concerns. These can occur at various stages, from food preparation to storage, and can have severe health implications if not managed properly.
- Equipment failure: The breakdown of critical kitchen appliances and infrastructure can halt operations and lead to significant financial losses. Regular use of high-demand equipment like ovens, refrigerators, and mixers makes them prone to wear and tear.
- Tenant or member disputes: Conflicts between kitchen members over space, equipment, or scheduling can disrupt the workflow and create a hostile working environment. These disputes need to be managed promptly to maintain harmony and productivity in the kitchen.
Assessing Risks
Conducting regular risk assessments is essential to identify and mitigate potential problems. This process involves evaluating kitchen operations, member practices, and facility conditions. Regularly scheduled assessments help you spot issues early, allowing for timely interventions. During these assessments, look for signs of equipment wear, check compliance with safety protocols, and solicit feedback from kitchen members to understand their concerns and observations. Ensure you create communication channels where members can report signs of problems, such as equipment malfunctions or safety violations, immediately so you can address them. Responding promptly and professionally will help build a culture of responsibility in the kitchen.
Mitigating Risks
Implementing effective mitigation strategies is essential for reducing the likelihood of risks and minimizing their impact in a shared kitchen environment. Regular inspections and maintenance schedules are key preventative measures. Kitchen management should schedule routine inspections of all equipment, facilities, and safety protocols to ensure everything is in working order and compliant with health and safety standards. Early identification of issues during inspections can prevent more significant problems later. As outlined in the Facility Management chapter, kitchen management should develop and adhere to a strict maintenance schedule for all kitchen equipment. Regular maintenance not only prevents unexpected breakdowns but also extends the lifespan of your appliances. Document and track maintenance tasks and equipment servicing to maintain accountability and efficiency.
As discussed in the Facility Management chapter, establishing clear and detailed safety protocols for food handling, equipment use, and emergency procedures is also crucial. These protocols should be easily accessible and prominently posted in the kitchen to remind members of the standards they must adhere to. Comprehensive training programs for all kitchen members are necessary to ensure everyone is aware of and adheres to these protocols. Training should cover food safety, proper equipment operation, and emergency response procedures. Regular refresher courses and updates on new safety practices keep everyone informed and vigilant. By implementing these mitigation strategies, you can create a safer and more efficient working environment for all shared kitchen members.
Crisis Management
When developing your crisis management plan, consider specific scenarios, such as power outages, equipment failures, or natural disasters, that could disrupt kitchen operations. Create clear step-by-step procedures for addressing these crises, including roles and responsibilities for staff, evacuation protocols, and communication channels. Furthermore, a robust business continuity plan is essential for minimizing downtime after a disaster. Identify critical functions such as food production, storage, and cleaning, and determine how they can be maintained if parts of your facility become unusable. Establish relationships with nearby kitchens or temporary facilities that can be used in an emergency to ensure your business remains operational. The following section addresses various emergency situations and provides guidance for developing your own emergency plan. This is covered in more detail in the Facility Management chapter.
Emergency Contacts
Maintain an updated list of essential contacts. This list should include local emergency services, utility companies, and key personnel. For example, always ensure that phone numbers for emergency services (911), local fire and police departments, and utility companies (gas, electricity, and water) are posted and easily accessible to your staff and members. Additionally, post contact information for key kitchen personnel, such as managers and maintenance staff, on-site and in member communication channels to ensure quick notification and coordination during emergencies.
Evacuation Procedures
Clear evacuation procedures are necessary to ensure everyone can exit the premises safely during an emergency. Identify and clearly mark all emergency exits and post-evacuation maps in prominent locations throughout the facility. Ensure all exit doors required as a means of egress are not blocked and meet requirements for being readily openable with a key or special knowledge. Make sure you review evacuation procedures when onboarding new members. Regular evacuation drills are essential so that all staff and kitchen members are familiar with the procedures. Designate a safe assembly area outside the building where everyone should gather after evacuating and create a procedure for ensuring all personnel, members, and guests are accounted for at this assembly area.
Cybersecurity
Cyberattacks are becoming more common. Like all small businesses, shared kitchens must be prepared for possible threats. According to a Symantec survey, a typical cyberattack on a small business costs $200,000 on average. Attacks can come directly in the form of phishing and other scams, as well as ransom attacks and data breaches. Larger attacks on companies that provide digital services can also disable key management systems. For example, a ransomware attack could prevent access to kitchen scheduling systems or halt member communication, leading to canceled bookings and lost revenue. Additionally, if customer payment information is compromised, the reputational damage could lead to a decline in member trust and future business. Implementing strong password policies, multi-factor authentication, and regularly updating security protocols can significantly reduce the risk of such cyberattacks.
It’s important to assess vulnerabilities in your systems and practices and prepare for scenarios that may arise. The Small Business Administration has a Strengthen Your Cybersecurity website with guidance and links to free cybersecurity training and planning and auditing tools. The Federal Communication Commission has a Cyperplanner tool that simplifies the process of creating a customized cybersecurity plan. Some key steps you can take include:
- Train your staff on potential threats and best practices for cybersecurity.
- Follow common sense practices, such as installing firewalls and antivirus software, securing your wifi network, setting up a virtual private network (VPN) for offsite network access, using strong passwords, installing all updates promptly, and ensuring physical security for records and devices.
- Use secure payment processing and consider isolating payment and financial systems from less secure programs by using a dedicated computer.
- Make sure any personal or financial data you store is secured in a compliant manner.
- Regularly audit those who have access to sensitive information and cloud accounts.
- Know your responsibilities in case of a data breach. The Federal Trade Commission Data Breach Response: A Guide for Business outlines the steps you need to take and guidance on communicating about the breach.
- Be sure to create continuity plans and backups, as mentioned below, to ensure you can operate if systems are down.
- Ask your insurance agent about Cyber Insurance and assess whether it would be valuable.
Business Continuity
Develop a robust business continuity plan to ensure that your business can continue or quickly resume operations after a crisis. This includes creating a communication plan to keep staff and kitchen members informed about the kitchen’s status and any operational changes. Identify critical business functions and establish backup plans to maintain these functions during and after a crisis. Be sure to back up critical business records off-site and offline in case of extended outages, cybersecurity attacks, or data loss. Keep an up-to-date inventory of equipment and supplies and maintain contact information for suppliers to replace damaged items quickly. Establish relationships with alternative kitchen facilities to use if your kitchen becomes unusable.
Fire
Ensure all fire code requirements are met and maintained, such as fire alarms, suppression systems, fire extinguishers, and ADA-compliant exit signs and alerts. Ensure all staff and members are trained on the use of fire extinguishers and the locations of emergency exits. In the event of a fire, immediately follow the evacuation plan and contact emergency services. Once it is safe, assess the damage, determine the impact on kitchen operations, and contact your insurance company. Be sure to communicate with staff and members about the kitchen’s status and any changes to operations as quickly as possible.
Natural Disasters
Kitchens should plan for the most common natural disasters in their area, as discussed in the Facility Management chapter. Make sure you understand your insurance coverage for disasters and have clarified the limits of your coverage for member supplies and products in your member agreement. A backup generator is a prudent investment to avoid food loss during power outages. During onboarding, train members on disaster procedures and closure policies for disaster warnings, such as hurricanes or floods, so they know what to expect. If a natural disaster occurs, secure the facility to protect against further damage and take action to ensure the safety of all staff, members, and visitors who are onsite. Assess the impact on operations and determine the necessary steps to resume business. Maintain clear communication about the kitchen’s status and any operational changes.
Foodborne Illness Outbreaks
If a foodborne illness outbreak occurs, quickly identify the source of contamination and halt operation. Work closely with health authorities to address the issue and contact your insurance company if there are liability concerns. Conduct a thorough cleaning and sanitization of the kitchen and review food safety practices to prevent future incidents. Communicate with staff and members about the steps being taken to ensure their safety and prevent further outbreaks. See the Key Elements of a Food Defense Plan in the Regulatory Compliance chapter and the Food Defense Plan section of the Facility Management chapter for more guidance.
Infectious Disease Outbreaks
COVID-19 demonstrated how disruptive infectious diseases and pandemics can be to business operations. Viruses pose an ongoing risk for shared kitchens because they can mutate to become threats to public health around the world. Operators should prepare by stocking personal protective equipment (PPE), sanitation supplies, and health tools, such as thermometers and tests, to be ready for potential outbreaks. Kitchen managers should stay abreast of viruses of concern from public health authorities and follow guidance on isolation and testing if members become symptomatic.
Focusing on these aspects of risk management helps create a safer and more reliable shared kitchen environment. Proactive risk management protects your business and fosters a sense of security and trust among kitchen members. Regularly review and update your disaster and outbreak response and recovery plans to ensure their effectiveness and relevance over time.
Insurance Essentials
Certified Insurance Counselor Joel Paprocki contributed to this section. He is a Shared Kitchen Operator and Founder and President of InsureMyFood.com, a division of Whorton Insurance Services.
Before opening your facility, you will need to research and purchase all the necessary insurance coverage for your facility and operations. It’s also important to review your coverage regularly when operating to make sure you are covered for all your activities. The more diverse your kitchen uses and activities, the more comprehensive your insurance coverage needs. Different kitchens may require varying numbers of policies depending on their specific equipment, food products, and intended use. This may seem overwhelming, but the goal of insurance is to protect your business assets, your employees, and those working on your property. While no one wants to have to use their insurance, it can be life-saving when you need it.
The core coverage that every kitchen will likely need is:
- General Liability Coverage
- Property Insurance
- Workers Compensation
- Member Liability Insurance Coverage
The types of risks that these policies cover are outlined in the chart below.
For any decision involving the use of your space, we strongly suggest consulting your insurance provider to ensure you are adequately covered. Gaining clarity around coverage, risks, and exposures with an insurance professional regarding your current and future business operations is essential. Not everything can be insured, so make sure to develop a game plan to address any insurance coverage exposures that may (or have the potential to) be present. Not all insurance providers are familiar with shared kitchens and how they operate, so you may have to speak to multiple providers to secure quotes with adequate coverage. Learn more about insurance providers in the References chapter.
General Liability Insurance
General liability insurance covers claims that your kitchen or organization caused damage or harm to third parties (other people or businesses). It does not cover first-party damages, such as damage to property you own. If you are sued, it protects your business assets and covers many of the legal costs. It also protects you from many unforeseen expenses like property damage to others or a visitor to your kitchen slipping and injuring themselves.
It is important to understand what general liability policies protect and what they exclude since a general liability policy will not fully protect you. General liability policies have an exclusion for “Damage to Property” in regards to:
- Property you own, rent, or occupy
- Property loaned to you
- Personal property in your care, custody, or control.
Your general liability policy will not cover any property listed above, and your members’ general liability coverage is also limited as to what kitchen property is covered. Make sure you understand the limits of coverage in your liability policy so you can consider additional property coverage.
Joel Paprocki, Independent Insurance Agent
As a shared kitchen, you are a landlord to many tenants working in a cooking environment. As with any landlord business, you owe a duty of care to offer a safe environment for your tenants. Accidents can happen that cause bodily injury or property damage to others. This is a risk inherent to running a shared kitchen. General liability insurance can help protect you from these accidents by providing coverage for accidents you are responsible for.
General liability is designed to protect you if your customer or a third party sues you for bodily injury or property damage. The coverage will pay your legal fees to defend, in addition to any awarded damages up to your policy limits. It’s important to note that “to others” means it does not cover your employees for injury, nor does it cover your own injury; those coverages fall under Workers Comp. In addition, property damage is also “to others.” General liability will not protect your own property or property in your care, custody, or control from damage; this will fall under property coverages discussed further below.
Every shared kitchen should have general liability with limits of at least $1 million per occurrence (per claim), and $2 million aggregate (total per year for all claims). It is often also required by your lease if you are renting your kitchen space.
Member’s General Liability Coverage
In addition to your own general liability coverage, shared kitchens should require all members to have general liability insurance that names the kitchen as an additional insured. This ensures protection if a member causes injury to others or is involved in a lawsuit due to someone getting sick. However, the member’s general liability coverage provides limited protection for the kitchen’s property, mainly covering injuries or accidents caused by the member. There may also be time periods when full coverage is unavailable, depending on how long the member’s occupancy has been, so make sure you understand the limitations of their coverage for “Damage to Premises Rented to You.”
The Food Liability Insurance Program, or FLIP, is a general liability insurance provider that provides liability insurance to chefs, caterers, farmers’ market vendors, food carts and trucks, and other food businesses. Insuremyfood.com also offers general liability policies to a variety of food service and food manufacturing businesses.
Joel Paprocki, Independent Insurance Agent
If a renter causes an accident on your property, or the food they cook on your property causes injury to others, your kitchen most often will be named in the suit. An attorney, by default, is going to sue all involved parties regardless of the percentage of fault. Your general liability can protect you, but two issues arise. First, if the tenant does not have insurance, you will become the sole focus for liability, and two, these claims end up on your policy, causing your insurance rates to increase or your policy to be canceled.
The solution, and typically a requirement from your general liability insurance company, is that every tenant has general liability insurance and lists you as an additional insured on their policy. By being an additional Insured, you are protected alongside the tenant on their policy if you are brought into a claim as a result of their actions. By being listed as an additional insured on your members’ general liability policy, you have transferred some of the risks your tenant brings to you.
Additional insured: An additional insured is a standard policy endorsement with your kitchen’s legal name and mailing address listed. At your tenant’s request, their insurance agent will provide a certificate of insurance form called an ACORD certificate of liability, also known as an Acord 25. This form will show the coverage limits, effective dates of coverage, and your kitchen as an additional insured.
Important Note: Most additional insured endorsements are on a blanket form. The blanket form means that a third party, such as your kitchen, is automatically an additional insured when required by a written contract or agreement. For the coverage to be valid, regardless of receiving a certificate, you need to have in your agreement with the insured that it is required to list you as an additional insured.
Coverage for Member Damages
Shared kitchen operators often ask, “What if a renter damages my kitchen property?” There is limited coverage here for a fire the member causes and is negligent for, up to the sub-limit for damage to rented premises, which is usually $100K-$300K on most policies. However, general liability insurance is not designed to cover rented buildings for a broad range of losses. These losses are protected under property coverages designed for property you own or which is in your care, custody, or control.
At first glance, this may come as a shock. You may be thinking, “What if a member damages my expensive mixer or other equipment? Can’t I hold them liable?” The answer is “maybe,” but it’s not going to be covered by their general liability insurance. This is why landlords often take deposits to offset some of this risk. There are solutions for property coverage, such as equipment breakdown, but this becomes an issue on the property policy because insurance was not designed to cover many different, ever-changing renters in a building. With a shared kitchen, it is not practical, nor realistic to have every member cover all the equipment in your kitchen on a property policy. This is for two reasons. First, can you really determine the member that solely caused the issue? More often, damage occurs over time, and several different members may have contributed to equipment failure. Secondly, the expense to have yourself and every member insure the same property would be cost-prohibitive. All is not lost, though, as we will cover solutions for shared kitchens under the property section.
Property Insurance
You won’t be fully protected against damages by singularly obtaining general liability insurance or commercial property insurance. As a shared kitchen owner, you should have both. Commercial property insurance can provide coverage where general liability insurance cannot. It protects your physical assets, including property and equipment, from perils such as theft, fire, and natural disasters. If you don’t own your building, you will want to discuss property insurance coverage with your landlord.
Commercial property insurance can be purchased as a stand-alone policy or combined with other coverage as part of a business owner’s policy or commercial package policy.
When looking for property policies, ask about the coverage for:
- Building. Coverage for your leased or owned building.
- Equipment breakdown. Electrical or mechanical failure of equipment.
- Business interruption. Coverage to replace or repair equipment or systems after failure.
- Accounts receivable. Coverage for lost income or costs when records are destroyed by a covered peril, and you are unable to collect payments.
- Inland marine. Coverage for items in transit or at off-premises locations.
Be sure to read the fine print and ask questions about exclusions. These are circumstances where losses
are specifically not covered by the policy. They may include theft, food spoilage, earthquakes, floods,
equipment breakdowns, power failures, neglect, intentional acts, and war.
How Insurance Companies Define Property
Joel Paprocki, Independent Insurance Agent
You have likely invested a lot into your building, building improvements, and/or property and equipment. It is best to review how insurance companies define different types of property to identify and classify different types of property coverages.
- Building – Building coverage is designed to cover buildings you own at a specific address. If you lease your building, typically, the landlord will insure the building and pass the cost onto you via triple net (NNN) fees in your lease. Note that just because you are reimbursing your landlord for their insurance cost to insure the building, you have no insurable interest in that policy, and it will not protect your business.
- Tenant Improvements – These are improvements you make to a leased building and things you cannot take with you at the end of the lease as they become the property of the landlord per most leases. These items include building walls, plumbing, and any built-in equipment.
- Business personal property – This is comprised of the contents you put in the space, such as equipment, tables, refrigerators, etc. These items are typically removed at the end of a lease.
There are different types of coverage forms and a few areas of optional property coverage that some policies will leave off. The broadest form is called the “special form,” which covers all physical damage unless excluded. This means the burden of proof is on the insurance company to prove that a loss is excluded and therefore not covered. Common exclusions are food spoilage, earthquakes, floods, equipment breakdowns, power failures, neglect, intentional acts, and war.
The two other insurance forms are “basic” and “broad,” which provide a list of coverages. If it is not on the list, no coverage is provided. This puts the burden on the insured to prove there is wording to have coverage. It is best to avoid these forms unless no insurance company will offer you a special form.
Property Coverage and Exclusions to Ask About
- Theft exclusions - Even with a special form, pay careful attention to any added exclusions. The most common is a theft exclusion. Due to the nature of being a shared space, there is an increased risk of theft. Some insurance companies will add a theft exclusion to make the risk acceptable.
- Equipment breakdown – Equipment breakdown coverage pays for electrical or mechanical failure of equipment, such as walk-in coolers. It is a key coverage that all shared kitchens should seek and is not included without a specific endorsement.
- Business income – Business income is designed to pay your loss of profit and continuing expenses after you suffer a property loss. While often overlooked, this coverage is vital for a business to recover after a loss. It may enable you to stay afloat while your property is repaired and until you can reopen your kitchen. Typically, this coverage is listed as “Actual Loss Sustained – 12 months” or a specific limit with coinsurance (see coinsurance definition further below). There is a time element deductible that applies to these losses, typically 24 -72 hours after a loss, and then the coverage kicks in. This works like a deductible, but a time period must pass instead of a dollar amount for the coverage to start.
- Replacement cost vs. actual cash value – The insurance company will pay out claims differently depending on how your property policy is set up. The difference can be large. You either have a replacement value of the damaged property or equipment, which reimburses you for replacing the damaged property with new equipment. The policy may provide actual cash value, where depreciation is considered before paying the claim. For example, if you have a kitchen fire and your hood and grill are damaged, with replacement cost, the insurance company will pay for brand-new equipment to replace the equipment. With actual cash value, if the hood and grill are ten years old at the time of the fire, the insurance company would only be required to pay the depreciated value of the equipment based on age and condition. Because it’s unlikely or difficult to replace old equipment with used equipment, this means you are likely paying the difference for depreciation for new equipment plus your deductible to get back up and running.
Damages to Member Property
Make sure you also understand the limits of your coverage for loss of member property under different circumstances, such as if a pipe bursts or you accidentally unplug a refrigerator and spoil their food. Your property coverage will generally not extend to member property, such as member supplies, inventory, and food. The exception would be if you are directly liable, in which case your general liability policy may cover it. Otherwise, each member is responsible for insuring their own property, including for spoilage. It’s best to clarify this in the lease (or member) agreement.
Coinsurance
It’s also important to understand the coinsurance requirements for the policies you are considering. Coinsurance requires that you insure the property for at least a certain percentage of its replacement cost (such as 70%, 80%, or 90%) in order to have full coverage for a loss.
Joel Paprocki, Independent Insurance Agent
If your requirement is 80% coinsurance, and you have $100K in business personal property but only insure it for $50K, you are insuring 50% of the value of the business personal property. Because you are below the 80% or higher requirement, the insurance company is only obligated to pay you 50% of your claim.
If you insured $80K or higher, in this same example, you met the requirement, and your claim would not be penalized. Keep in mind that in a total loss, they are still only going to pay up to the limit insured.
Workers’ Compensation
If your kitchen has employees, workers’ compensation is essential for protecting against workplace injuries and is mandatory in many states. This coverage differs from general liability as it specifically addresses employee injuries and provides medical, wage, and financial benefits as per state requirements. Most workers’ compensation policies also include employer liability coverage, protecting the business if it is sued for being negligent in the injury. Remember, treating an employee as a 1099 independent contractor does not exempt you from responsibility for their injuries if they meet the Internal Revenue Service criteria for employees. Additionally, ensure that members with employees have workers’ compensation coverage to prevent liability issues if an employee is injured on your premises.
Obtaining Coverage
As your kitchen expands or your services diversify, it’s essential to regularly review and update your insurance policies. Adding new equipment, increasing staff, or offering co-packing services can introduce new risks that may not be covered under your existing policies. Meet regularly with your insurance provider to ensure your coverage stays aligned with your evolving business needs and operations.
Remember that there are two insurance markets: admitted and surplus insurance. An admitted company’s forms and rates are state-approved, and the state backstops the insurer if it becomes insolvent. Surplus insurers take on higher risks that admitted insurers won’t cover. They are not regulated, can customize coverage forms and exclusions, and generally cost more.
Many shared kitchens fall into surplus lines, also known as excess and surplus lines (E&S) insurance, a type of insurance that covers unusual or high risks that traditional insurance companies won’t or can’t insure. These surplus line insurers base their policies on the Insurance Service Office (ISO) forms but customize them to fit their specific needs. ISO is the organization that standardizes insurance policy language, and most insurance company policies are based on their forms and information. This means that while they may use similar terminology, the actual coverage can differ greatly. Surplus lines insurance is generally more expensive than regular insurance because the risks are higher.
Insurance language can be confusing. As you research policies and coverage terms, you might find an insurance glossary, such as the online consumer glossary provided by the National Association of Insurance Commissioners, to be a helpful reference.
Integrating Risk Management and Insurance
Protecting your shared kitchen involves establishing clear contractual agreements and comprehensive risk management strategies. Rental agreements should define space usage terms, payment details, and member responsibilities to prevent misunderstandings and ensure smooth operations. Member agreements should set cleanliness standards, safety protocols, and equipment use guidelines to maintain high operational standards and minimize conflicts. Service contracts should outline the provided services, payment terms, and termination conditions for transparency and protection.
Effective risk management includes identifying common risks like food safety issues, equipment failure, and member disputes. As discussed in the Facility Management chapter, you will want to conduct regular risk assessments to identify issues early and implement mitigation strategies like routine inspections, strict maintenance schedules, and comprehensive safety protocols. Crisis management plans, including emergency contacts, evacuation procedures, and business continuity steps, are crucial for maintaining operations during emergencies. Consult the Facility Management chapter for additional guidance on preparing for
emergencies.
Adequate insurance coverage is important for transferring some of this risk to other parties. Finally, as discussed in Member Recruitment and Management, developing strong member policies and management practices is important for addressing member issues and ensuring members’ safe and respectful kitchen use.
Final Thoughts
As you’ve seen, safeguarding your shared kitchen is essential for its long-term success. By implementing clear and comprehensive contracts, you set the foundation for effective management and protect both your business and kitchen users. Contracts establish expectations, minimize misunderstandings, and help everyone stay aligned on their responsibilities. Equally important is a strong risk management strategy, which ensures you’re prepared to handle any potential issues, from equipment failures to member disputes. Proactively identifying risks and creating mitigation plans allow you to keep your kitchen running smoothly and safely.
Insurance is your final layer of protection. The right coverage can help you recover from unforeseen events like accidents or natural disasters, ensuring financial risks don’t undermine your hard work. While this chapter provides a comprehensive overview of these topics, remember that your situation might be unique. It’s always a good idea to consult with legal and insurance professionals who understand the latest regulations and nuances of the shared kitchen industry. Expert advice will ensure that your contracts, risk management strategies, and insurance coverage are tailored to your specific needs, keeping your kitchen protected as it grows.
Now that your kitchen is well-protected, it’s time to focus on how you present it to the world. In the next chapter on Branding and Marketing, we’ll dive into how to craft a brand that reflects your kitchen’s values and mission and how to communicate that effectively to attract the right members. You’ll learn strategies for building a strong brand identity, developing a compelling marketing plan, and promoting your kitchen in ways that drive interest and membership. Let’s explore how great branding can not only grow your kitchen but also build a lasting community of food entrepreneurs.
