Restaurant Insurance: Liability, Programs, Costs & More
November 2, 2020
- Last edition
November 2, 2020
What is Restaurant Insurance?
It's wise for agents serving restaurant insurance programs to seek hospitality risk management specialists whose skills are like top chefs. That's because both have exacting audiences with unique requirements. While many standard elements go into an insurance proposal or a recipe, it is the ingredients' quality and the thoughtfulness in selecting them, and the thoroughness and expertise in using them to create the most desirable results.
We present the following guide to restaurant insurance programs to help agents serve demanding restaurant clients' insurance needs. Restauranteurs run complex businesses fraught with peril. The insurance coverages they require to stay protected include a mix of standard insurance policies sprinkled with those unique to the foodservice business.
What Types of Coverage do Restaurants Need?
Please keep reading to learn about the menu of coverages served as part of blue-ribbon restaurant insurance programs. Here are the primary types of insurance restaurants need.
Sometimes called a CGL for Commercial General Liability, this is coverage to protect restaurants from accidents, mishaps such as food-borne illness, customer slips and falls that create financial liabilities and trigger lawsuits. Lenders and commercial leases require most restaurant operations to have general liability.
General liability insurance covers common small business risks like customer injury, customer property damage, and advertising injury. It protects your business during lawsuits and helps you qualify for leases and contracts. Additionally, policy owners have liability protection against claims for advertising injuries, such as slander, libel, and copyright infringement.
As the name implies, commercial property covers losses related to various damage to a restaurant's physical structure, equipment, furniture, signage, and related property vital to your business. Due to the nature of the business, restaurants incur more fire damage than most small businesses. The National Fire Protection Agency's "Structure Fires in Eating and Drinking Establishment" report offers these insights:
● During 2010-2014, an estimated average of 7,410 structure fires in eating and drinking establishments were reported to U.S. fire departments per year.
● These fires caused annual losses of three civilian deaths, 110 civilian injuries, and $165 million in direct property damage.
Cooking equipment is the leading cause of these fires (61% of incidents). Electrical distribution and lighting equipment, and heating equipment each accounted for 9% of fires.
Depending on the location and other factors, additional property insurance for restaurants to consider is for earthquakes, wildfires, or landslides. When a restauranteur leases space, it's critical to ensure the property owner has property damage. The restaurant owner must have property insurance that protects the building's contents, including equipment, furniture, and inventory. An additional and advisable property insurance coverage is for losses from refrigerated spoiled goods.
Workers' Compensation, also known as Workers' Comp insurance, is a mandated coverage requirement in most states. It will replace wages and provide medical benefits to employees who suffer an injury regardless of fault on the job. The trade-off for employees receiving required coverage is they give up their rights to sue their employer for negligence.
A recent Program Business blog post on Workers Comp offers these insights:
Before the Covid-19 pandemic, Business Insurance reported that uncertainties on rising medical and indemnity costs, along with the continuing opioid crisis, were top concerns of workers compensation experts going into 2020. It mentioned how rising wages, increasing medical facility fees, and new and expensive changes in medical care and pharmaceuticals were causing concerns about how such costs will comp in the coming years. Another area of concern is facility costs as Fee schedules may not always account for facilities, which can drive prices up significantly.
Business Owners Policy (BOP)
A BOP protects businesses by bundling general liability insurance and commercial property insurance. The bundle has the effect of lowering the costs compared to purchasing separate policies for both coverages. A BOP is suitable for most food and beverage businesses. Food spoilage can be included in the coverage with a range of policy limits from $10,000 to $100,000.
Restaurant equipment, including freezers, refrigerators, ovens, stoves, fryers, ice makers, or any other apparatus, is vital to the business operation. Equipment breakdown insurance pays to either repair or replace malfunctioning equipment and can cover some of the costs of safety and hygiene inspections often required in the food and beverage industry. It will help restauranteurs to recover while their equipment is out of working order. The policy can be extended to protect for losses due to spoilage should food go bad because of refrigeration failure.
Liquor liability insurance protects against claims arising from an intoxicated person who causes property damages or injuries to others. Any restaurant that manufactures, distributes, sells, or serves alcoholic beverages is liable if a patron becomes intoxicated on the premises and then causes an accident that injures people or causes property damage. A typical situation is a restaurant patron consumes alcohol served by the restaurant and then operates a vehicle and causes an accident.
Products & Completed Operation Liability
It is essential to understand that a hospitality business has risks from patrons who have left the premises. Products & Completed Operations Insurance pays for some bodily injury and property damage claims after customers use or consume a restaurant’s food offerings. Food poisoning, such as E. Coli, is an example. Should a customer purchase food to take home and later becomes ill due to consuming the food, this coverage offers protection against their claims.
Business Interruption (BI)
BI is written to replace the loss of income when business operations halt due to fire or natural disasters resulting in direct physical losses and damage. It covers operating expenses, moving costs when a temporary facility is necessary, payroll, taxes, and loan payments. Depending on policy language, it can pay for losses when a civil authority shuts a business down due to physical damage to a nearby location. Standard business interruption insurance most likely will not cover a company that closes due to a pandemic. Typically, BI is added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider instead of being sold as standalone coverage.
Indeed, newly written policies, including some all-risk insurance plans, single out losses due to viruses or bacteria-specific exclusions. The National Law Review reports as of late October 2020 that it is aware of fewer than 40 rulings by courts addressing business interruption claims for COVID-related losses. Although early decisions have favored insurance companies, there have been some wins for policyholders. The situation is fluid and will likely take a considerable time for the courts to make ultimate determinations.
Assault & Battery
While dining or enjoying a night out is a pleasant activity, there are dangers for patrons and hospitality businesses relating to threats to assault and battery occurrences to a person's safety and injuries resulting from a physical conflict between two or more people patronizing the establishment. When someone is injured in an altercation in the establishment or on its property, they can sue the establishment owner for injuries and financial losses suffered because of the conflict. Assault & battery insurance, in such instances, helps to protect a restaurant from such risks.
Commercial auto will help pay legal bills, medical expenses, and property damage should a business vehicle be involved in an accident. It typically will only cover a person or persons who sustain injuries and property damage in an accident caused by the insured. Additional auto coverages such as comprehensive, collision, physical damage, lease or loan gap, and electronic equipment are available or commercial vehicles. Commercial auto is necessary for mobile food trucks, food delivery provided by a restaurant, transporting equipment or prepared foods to event venues, and errands by employees during work hours using the company vehicle.
An umbrella policy provides a layer of additional financial protection. It offers extra coverage for restaurant owners should an insurable claim on a general liability, or commercial auto policy exceeds the policy limits. As its name applies, it is an umbrella over other specified coverages and is purchased for random, highly unexpected "rainy day" occurrences.
Restaurant Insurance Costs
While each situation is unique, some median costs are helpful to know. The median price for a restaurant BOP is about $2,000 per year, with a $1 million per occurrence limit and a $1,000 deductible. The median for a restaurant workers' compensation policy is roughly $1,480 per year. But rates vary widely by state and nature of the business operations. Liquor liability on the median is $550 annually. And a CGL is about $800 annually. Deductibles and policy limits vary per business, region, and other factors.
Best Restaurant Insurance Programs
Agents seeking the best restaurant insurance program should consider RMS Hospitality Group. For decades, RMS has provided outstanding insurance services, business consulting, insurance underwriting, legal resources, and claims management solutions to the hospitality and restaurant industries. It writes business for a wide range of clientele, from large bars and sports bars to small taverns. Its "in-house" legal counsel offers exceptional knowledge of liquor law liability issues/venues nationwide. No insurance branch office or wholesale channel conflicts as its restaurant insurance program is exclusively through RMS Hospitality Group. RMS has the "pen" with the insurance carriers allowing RMS HG to rate, quote, and issue policies for the insurance carriers with authority