Pointing fingers at employees, customers and suppliers: last March, a diner claimed she found part of a severed finger in her chili at a Wendy's International Restaurant in San Jose, Calif. The incident is the latest to highlight the risks facing risk executives like Joe Kovalcik

On March 22, a diner at a Wendy's restaurant in San Jose made a claim that Joe Kovalcik, vice president of risk management of Wendy's International, will not soon forget. The customer, Anna Ayala, claims she bit down on a severed finger while eating a bowl of chili.

These kinds of incidents send chills down the spine of people like Kovalcik, as they can easily force a restaurant into bankruptcy. In the case of Wendy's, which has thousands of locations around the country, the chain survived, although the incident was blamed for a 2.8 percent drop in first-quarter earnings compared with the year-earlier period. A number of outlets in northern California also suffered through slower business and layoffs.

"I don't know what Wendy's did," says Dan Knise, executive vice president of Restaurant Insurance Corp. "Surely, though, what you want to do is save as much evidence as possible, ideally in the serving that created the problem. Also, you should preserve any raw materials and other ingredients that would be back on your pantry shelf."

As it turns out, however, Wendy's was hardly to blame as Ayala's claim appeared to be a hoax. Police, who arrested the woman at her Las Vegas home, say she has a history of making claims against large corporations, news reports say. A complaint against her alleges Wendy's restaurants in the San Francisco Bay area lost $2.5 million.

Kovalcik, citing the police investigation and legal issues surrounding the case, declined to comment. But in a conference call in late April with analysts, Jack Schuessler, chairman and CEO, said, "We're starting to climb back."

Kohl's Frozen Custard in Wilmington, N.C., may not find it so easy to bounce back. In May, Clarence Stowers found part of 23-year-old Brandon Fizer's finger in a pint of ice cream. The owner of the store, Craig Thomas, confirmed the incident, saying Fizer lost part of his finger after trying to catch a bucket dropped inadvertently in a custard-dispensing machine. A drive-thru window attendant scooped custard from the bucket into a pint before being alerted to the accident.

And just to show how nasty this fight is about to get, Stowers, according to an Associated Press report in May, had no intention of returning the finger to either a doctor or the shop owner. According to a note on Kohl's Web site, Stowers stormed out of the store claiming he was going to contact local television stations and a lawyer.

Incidents of restaurant patrons biting down on "foreign objects" in their food isn't uncommon, however. In a survey of general liability claims conducted by the Restaurant Insurance Corp., almost 30 percent of the claims were for biting into and/or swallowing a foreign substance, such as a piece of bone or metal.

The average cost of each claim, stemming from subsequent dental work and jaw injuries, was about $1,800.

One way for restaurant industry risk managers to protect their companies against such claims, says Knise, is to preserve the evidence. "For example, if it turns out that the mashed potatoes have a foreign substance in them, many managers throw all of the remainder of the supply out," he says. "They may do this with a half-empty can of tomatoes, too."

Managers should be instructed to keep all remaining supplies of food when foreign substances are found. "This is important evidence, so we can determine whether the problem was caused by the restaurant or the supplier," he says. If it turns out to be the latter, it works in favor of the risk management department and the corporation. But without evidence, there is no way to prove supplier culpability.

THE SUPPLIER ISSUE

Moving beyond a single incident affecting a single chain to the broader concerns of the multibillion-dollar restaurant industry is the worry about food contamination as more and more restaurants buy their food, fresh fruits and vegetables in particular, from around the world based on growing seasons.

"The USDA, which is responsible for food safety, does not inspect food coming in from outside the country as much as it does domestic food sources," says Roy Maize, director of the Restaurant & Hospitality Management program at the University of Alabama. "As a result, food is coming in that is grown under conditions we would not accept domestically, such as with the use of different fertilizers or even raw manure."

Though meat is heavily regulated, produce is not, and that causes three problems for people like Kurt Leisure, vice president of risk services for the Cheesecake Factory in Calabasas, Calif. Because there are so many companies in the loop--the grower, the packer, the shipper and the distributor--it is difficult to trace a problem back to its source.

In addition, standards of food production and distribution are often lower outside of the United States, and while meat is cooked before it is served, "a lot of produce, however, is served raw," says Leisure, who claims his company is "highly selective" when it comes to choosing where food comes from. As a result, Cheesecake Factory is willing to pay more for some food products just to ensure that they've gone through more rigorous quality controls.

David Hanley, president of Largo Vista, Texas-based Professional Liability Insurance Services Inc., which provides crisis management insurance coverage for lost business due to food contamination, recommends that risk executives create a due diligence program to monitor and ensure the safety of the food bought overseas.

"Most risk managers believe that the majority of food contamination problems originate with the suppliers," he says. In fact, suppliers are more than likely not to blame. As much as 90 percent of all food contamination issues are internally generated, says Hanley.

They come from restaurant employees who fail to wash their hands, or who carry microbes like salmonella, listeria, e-coli and hepatitis.

Thus the importance of training staff to wash their hands, use separate cutting boards for meats and vegetables, and take the temperature of cooked foods.

Maize also recommends participation in a program called Hazard Analysis Critical Control Point, which has the support of the nation's top food regulator, the Food and Drug Administration.

DRIVING DOWN LOSS COSTS

Despite an unsavory incident in one isolated Wendy's restaurant earlier this year, Kovalcik says the fast-food chain has made big gains in driving down its loss frequencies.

The company's loss frequencies over the past 10 years have dropped from 4.15 workers' comp and general liability claims per $1 million of sales to 1.3 workers' compensation and general liability claims per $1 million of sales.

Loss costs have shrunk because store managers are held responsible. Those claims costs are charged to a manager's profit and loss statement, and managers are penalized when incidents are not reported by the end of a given shift.

"We have driven losses down incredibly," he says.

The other strategy used at Wendy's is marketing the firm's safety programs. At Wendy's, the program is called "60 Seconds for Safety." "We want everyone to focus on safety at least 60 seconds a day," he says.

The dividends of such a program are well worth the investment. "The two keys to success are keeping the floors clean and demanding that employees wear the appropriate personal protective equipment," he says. "If you do these two things, you will reduce safety problems by 95 percent to 98 percent."

Another way to deal with general liability issues is to prevent them before they reach the point of formal claims. This is an approach that works well for Eagan, Minn.-based Buffets Inc. "We have gotten control of our guest claims, because we focus on guest relations and retention," says Teri Burthay, senior manager of risk services.

In other words, depending on how the company handles the situation from the very beginning, it could turn into a guest-relations opportunity or a claim. When Buffets looked at its data, about two-thirds of its guest claims ended up with a zero payout. These were situations where restaurant managers were able to resolve the issue.

"If a guest is not happy with the way a manager handles an incident, and the guest calls the corporate office, we receive the call in our department," she says. "We decide whether it is something we can handle here or whether it needs to be forwarded to our TPA for a thorough investigation."

The first option is to focus on the concern as a guest-relations issue. If there was an incident with no injury or illness, Buffets takes the time to try to resolve the concern "out of court" so to speak. "The results have been phenomenal," she says.

RELATED ARTICLE: Mundane claims choke.

While finger parts in foods always make the news headlines, it's really the mundane claims that have the industry choking on a menu of general liability suits.

A two-and-a-half-year general liability claim study conducted by the Restaurant Insurance Corp. of full-service, fine-dining and family-style (but not fast food) restaurants involving a total of 2,332 claims by patrons found that 908 of those claims involved slips, trips and falls, and another 765 involved biting into or swallowing foreign objects. The average cost of a claim involving biting into or swallowing a foreign object came to $1,800, according to the study.

The average cost of a claim involving a slip, trip or fall came to $3,550. Slips, trips and falls are "by far the primary cause of liability claims in the industry," says Dan Knise, executive vice president of the Restaurant Insurance Corp.

The reason, says Michael Modlin, product director, commercial insurance, for Fireman's Fund Insurance Co., is because even if spills are cleaned up quickly, they can still lead to accidents as patrons slip on the water between the time the employee has mopped up the spill and located the sign warning them of wet floors.

"We receive numerous claims of this nature, where the accident occurred between the time the spill was cleaned up and the sign was put up," says Modlin.

There are at least three ways for the restaurant industry to easily combat general liability claims stemming from slips, trips and falls.

* Flooring Strategies. While Wendy's International Inc. has spent a lot of time creating a favorable tile specification for its kitchen areas and other places employees work, it has done the same for guest areas. Wood flooring, which is gaining popularity in restaurants, can be tricky and requires special coatings to make them less slippery, says Knise. The trick is to find the proper coatings to increase friction coefficients. "Style and ambience are obviously very important for the public portion of the restaurant," says Joe Kovalcik, vice president of risk management for Wendy's International. Wendy's has been able to identify tiles that have the style and ambience it wants, and asked the manufacturer to increase the tiles' friction coefficient.

* Permanent signage. Slips, trips and falls can be particularly serious problems for the elderly, says Kovalcik. "This is true not only in terms of higher frequencies, but also in terms of severity." Wendy's uses "Watch Your Step" signage, floor mats and railings around steps. It also makes sure there is contrast around steps so they are very visible and that outside curbs are painted.

* Cleanups. "Restaurants should have inclement weather policies," says Knise. Restaurants should have a policy of putting down nonskid mats before patrons begin tracking slush and water into the restaurant. "In many cases, restaurants don't even bother putting down mats until the first person falls," he says.

Ongoing training is also important, according to Fireman's Fund's Modlin. One key to training is if a patron spills a drink, an employee should stand by it to warn people until someone else returns to clean it up and set up the sign.

To prevent outdoor slips, trips and falls, Modlin recommends hiring reputable contractors to handle snow removal as well as pothole and concrete repair. "Make sure they are professionals, and make sure you get a signed 'hold harmless' agreement," he says.

--John Williams

RELATED ARTICLE: Paring back costly situations.

An analysis of almost 1,000 workers' compensation claims conducted by the Arlington, Va.-based Restaurant Insurance Corp. found that 26.7 percent of them had to do with slips, trips and falls, and that another 23.9 percent had to do with cuts and punctures.

The average cost to the employer of a workers' comp claim in the slips, trips and falls category came to $5,386, more than double the $1,800 cost of the average claim filed against a restaurant from a dissatisfied customer. So it's no surprise that most risk managers would rather invest in preventing slips, trips and falls from happening in the first place.

Joe Kovalcik, vice president of risk management, for Dublin, Ohio-based Wendy's International, says having the right flooring material is an important factor in preventing employees from sliding on greasy floors and falling.

"We have a very favorable tile specification that works well for us," he says. "Keeping the floors clean and degreased, as well as keeping food off the floor. are also important strategies.

For its part, the Calabasas, Calif.-based Cheesecake Factory has a slip-resistant shoe program. "One of the core foundations of our risk management program is a slip-resistant shoe program," says Kurt Leisure, vice president of risk services. "We have 98 percent of our employees participating in the program."

And while it's important to provide the right protective equipment and materials, it's just as important to establish the right employee mindset.

Eagen, Minn.-based Buffets Inc. does this by selling its workers' comp program as a benefit to hiring prospects, says Teri Burthay, senior manager of risk services. "We don't want it to be a secret,"

If there is an injury, the company wants to provide the best care possible and get the employee back to work as quickly as possible. As a result, the company's workers' comp claims volume is lower than the industry average, Buffets executives claim.

Buffets plans to train specially designated supervisors and employees in the field to be workers' comp coordinators. Then, when employees have questions, they can call one of their peers for help and advice.

Of course, adjusters, medical consultants and corporate benefits experts can still help them out. "However, we are finding that employees usually feel more comfortable talking with peers," says Burthay.

Buffets is also initiating a workers' comp employee satisfaction survey, which will be given to all employees who have returned to work successfully after having gone through the system.

"We want to find out what was positive and what we need to work on, whether it be with our TPA, the medical facilities, not getting checks on time, difficulty getting prescriptions filled," says Burthay.

--William Atkinson

JOHN WILLIAMS, an Indiana-based freelance writer, is a frequent contributor to the magazine. He can be reached at riskletters@lrp.com.

COPYRIGHT 2005 Axon Group
COPYRIGHT 2005 Gale Group