Understanding Fine Dining Insurance
Restaurants require a significant investment along with regular supervision. When claims (arising from food contamination, food spoilage, etc.) are raised, a restaurant’s reputation could be at stake, and it will have to deal with the financial perils that accompany lawsuits. To protect the investment and the ongoing effort that goes into maintaining the establishment, restaurant owners must understand the fundamentals of liability insurance. For instance, not carrying general liability insurance may lead to claims that may cost hundreds of thousands of dollars. Other types of insurance relevant to restaurants are liquor liability, workers’ compensation, and property insurance. There are different types of insurance that address the risks restaurants are exposed to.
US restaurant sales, in total, will reach US$898 billion in 2022. The insurance industry helps restaurants operate unimpeded by payment of liability claims and damage to their assets, thus ensuring the sector's growth.
Business Risks
Fine dining operations are exposed to certain risks and require insurance coverage, for example, an old client slipping and falling on a freshly mopped floor.
Some of the risks restaurants are exposed to include:- Example 1: Food spoilage or contamination – Contaminated water is unknowingly used to wash fruits meant to be used for a fruit salad. Several clients become ill and make a claim against the restaurant.
- Example 2: Equipment breakdown – The refrigeration system at a restaurant breaks down. Spoilage of food ensues, leading to the temporary shutdown of the restaurant while the system is repaired.
- Example 3: Data breach – Executing online orders exposes a café to data breaches of customers’ private information.
- Example 4: Copyright infringement – A sports café mistakenly puts up a billboard using a creative image trademarked by a sporting goods store and gets sued.
- Example 5: Property claims – A wind-blown tree branch falls on the restaurant's roof, causing damage and it starts leaking badly during a downpour. This results in a damaged roof and contents and a huge embarrassment for the management.
Recommended Policies
Fine dining establishments deal with multiple exposures. However, some policies can mitigate their risks while the business owners focus on running the business. Insurance policies with particular relevance to fine dining restaurants are:
- General liability insurance
- Liquor Liability
- Commercial Property Coverage
- Auto Insurance
- Workers’ Compensation
- Cyber Insurance
- Employment Practices Liability
General Liability Insurance
This is one of the primary policies that fine dining restaurants purchase. A client slips on a freshly mopped floor and hurts himself – general liability would cover medical costs and other claims arising from the event. Many people visit a café, making the safety of its visitors of the café an essential prerogative for the business owner. Bodily injury and advertising injury are some of the claims that could be raised. The general liability insurance also picks up the legal defense costs associated with the covered claims.
Example 1: Bodily injury – A customer falls backwards, tripping on a misplaced barstool, and injures themself.
Example 2: Advertising injury – A restaurant mistakenly uses a tour operator’s billboard creative image for the restaurant’s advertisement campaign.
Example 3: Property damage liability - A waiter pouring wine accidentally spills it all over a guest’s Gucci® suit, resulting in stains that cannot be removed.
Liquor Liability Insurance
Liquor liability is necessary for a restaurant serving alcohol. Without this protection, a restaurant could become responsible for intoxicated guests’ actions, even after leaving the premises.
Example: A drunken brawl ensues after a weekend night of revelry at the restaurant. This results in the injured customers incurring medical bills, who blame the restaurant for overserving alcohol.
Product Liability Insurance
Food is the restaurant’s product, and it is responsible for serving healthy, safe food. However, food poisoning is a nightmare. Since it may be impossible to root out every cause contributing to food poisoning, product liability insurance protects the owner from lawsuits and medical expenses that may arise when customers get ill after eating at the establishment. This may require a special endorsement of the general liability policy. Check with your agent to make sure you have this covered.
Example: An undetected malfunction in the refrigeration system occurs, and a batch of chicken partially spoils, which is cooked and served, causing food poisoning.
Commercial Property Insurance
Commercial property insurance protects the physical structure of the restaurant, its equipment, and inventory against a covered disaster, a theft, or an act of vandalism that destroys the shop, whether the property is owned or leased.
Example: During riots in the city, a group of rioters break open the door to the kitchen, disable the alarm, and destroy the freezer and the oven. They leave with crates of expensive liquor.
Commercial Auto Insurance
If a restaurant transports food and beverages from its premises to customer locations, commercial auto insurance is required.
Example: While driving a van for business deliveries, the weather turns inclement, and visibility drops. The employee driver runs a stop sign and hits another vehicle. A commercial auto insurance policy takes care of bodily injury and property damages for the other vehicle and its occupants. If you carry comprehensive and collision on the business owned vehicle your vehicle will be repaired less the deductible chosen. Typically injuries to your driver would first be covered by workers compensation as the primary coverage.
Workers’ Compensation Insurance
Employees' medical expenses are covered, as is a portion of their lost income if they suffer some injury while working at the restaurant and cannot return to work. Workers’ compensation also provides financial benefits for an employee’s dependents if they lose their life performing their duties.
Example: An employee suffers a burn injury in the kitchen while assisting the chef. The store’s workers’ compensation insurance would compensate her for her medical bills and a percentage of lost wages till she returns to work.
Additional Coverages
Business Owner’s Policy or BOP
This is a combination of general liability, property, business interruption, and extra expense coverage. Smaller restaurants, in particular, prefer this cost-effective policy.
Cyber Insurance
Cybercrimes are rampant. The risk is particularly high if the café sells its products online or simply takes credit or debit card transactions.
Example 1: A restaurant accepts online orders. A data breach occurs, and customer payment information is leaked. Thus, the customer sues the restaurant.
Commercial Auto Insurance
If a restaurant transports food and beverages from its premises to customer locations, commercial auto insurance is required.
Example: While driving a van for business deliveries, the weather turns inclement, and visibility drops. The employee driver runs a stop sign and hits another vehicle. A commercial auto insurance policy takes care of bodily injury and property damages for the other vehicle and its occupants. If you carry comprehensive and collision on the business owned vehicle your vehicle will be repaired less the deductible chosen. Typically injuries to your driver would first be covered by workers compensation as the primary coverage.
Comprehensive Insurance Costs
To decide on the right set of policies to insure a fine dining restaurant or cafe and what it would cost, a look at a mix of the following parameters is recommended:
- Annual revenue and food vs. alcohol split
- Annual payroll
- Type of clientele
- Its location, property values insured
- The sizes and number of outlets it has
- Claim history
Who Benefits?
A safely functioning fine dining hall, insured against its exposures, benefits all its stakeholders:
- The public
- The business establishment
- The employees running the restaurant
- The customers who visit the place