As restaurants venture into new or extended business models like food trucks and introduce novelties such as pop-up eateries for a single night only, many may fail to consider the unique exposures these innovative concepts create.
Rene Hernandez, who has racked up a clientele comprised of more than 30 restaurants, cites the example of a small Mexican eatery that recently launched a food truck business.
“Since the vehicle is not in a controlled environment—it’s in motion—he needed to purchase separate inland marine, commercial auto, workers compensation and general liability insurance policies and/or endorsements,” explains Hernandez, a producer at Cole, Paine & Carlin Insurance Agency in Oklahoma City. “Unfortunately, he didn’t realize this until I told him.”
Restaurants that now deliver their menu items to homes and offices confront another risk: “If the driver delivers the food in a company-owned car insured by the restaurant’s commercial auto insurance policy, that’s not a problem,” explains John Brittain IV, vice president of Hospitality General Insurance Services in Covina, California.
What’s the problem? “When the driver for some reason takes their own car to make the delivery,” Brittain says. “If they get into a devastating accident along the way, the restaurant owner is not covered for the loss, unless they have purchased a non-owned and hired automobile insurance policy.”
Scott Isbell, client executive at Barney & Barney in San Diego, cites another underappreciated exposure confronting the industry: data breaches. “Lots of restaurants think because they just collect the credit card information from diners and a third party handles the processing, they’re not responsible if a data breach occurs,” he says.
Not the case. “The law puts the onus on the business that collected the data,” Isbell explains. “I just read an article where Verizon says restaurants are the single most-targeted business when it comes to cyber breaches. All these new consumer-facing technologies and ordering your meal on a tablet merely exacerbate these risks.”
Other atypical threats include sexual harassment lawsuits, food spoilage, liquor liability and foodborne illnesses—each requiring a different insurance form populated with nuanced terms and conditions. Brittain cites the example of different carriers’ rules governing when coverage kicks in after a power outage causes food spoilage.
“Sometimes the outage has to last 48 hours before you can collect for loss of income or property damage related to the food that is spoiled,” Brittain points out. “I try to get my clients [back up and running in] 24 hours or less, knowing every second a restaurant is down is a dollar lost.”
Foodborne illnesses are a major threat to restaurants, with more than 7,000 outbreaks traced to restaurants since 1998, according to the Center for Disease Control. While product liability insurance will pick up third-party injury and illness claims, Isbell recommends that his clients also purchase trade name restoration insurance—a professional liability policy that is technically a form of property insurance.
“The insurance is designed to respond to the possibility that the Department of Health will trace a foodborne illness back to your establishment and shut you down,” Isbell explains. “Traditional property coverages won’t respond to the loss of business income in such cases, as there was no physical damage and thus nothing to trigger the policy. Trade name restoration would pick up these losses.”
The unique nature of these and other risks makes restaurants “very interesting from an insurance perspective,” says Lynn LaGram, assistant vice president of small commercial product at The Hartford. “It also underscores the need for these small business owners to talk directly with a knowledgeable independent agent, as they are likely to need insurance solutions customized to their unique risk profiles.”
Restaurant insurers typically package together the various types of insurance policies that different types of eating and drinking establishments need. But each carrier has its particular market appetites: Some focus on smaller mom-and-pop restaurants, and others on higher-end eateries; some insure food trucks and liquor liabilities while others won’t, although the excess and surplus lines market is a viable alternative in such cases.
Carrier appetites will likely continue to wax and wane depending on market fluxes. Currently, the restaurant insurance market is generally stable or experiencing a slight uptick, with pricing in some lines like workers compensation insurance rising fast.
“We’re seeing tightening of pricing and underwriting,” says Denny Christner, vice president at BayRisk Insurance Brokers, Inc. in Alameda, California. “Because restaurants are booming, carriers experience more losses from the increased exposures. Many restaurants also are going ‘all inclusive,’ which means no tipping. That drives up payroll as does the push to raise the minimum wage, which have an effect on workers compensation.”