An often-overlooked aspect of a restaurant’s business is insurance coverage. Margins are slim in the restaurant industry and one uninsured claim could financially ruin an otherwise profitable business.
“Restaurants have more exposure to liability than most businesses,” said Eric Weiner, of Madison Avenue Brokerage Corp. Making sure that your restaurant has the right coverage for can keep your business afloat after an incident.
AllDay Industry recommends finding an insurance broker who has experience in hospitality as he or she will be more intimately aware of the common exposures as well as the specific policies for your business. “Every business will have its own set of risks so your broker can determine the right mix of coverage” said Eric. “You should have a positive relationship between you, your broker, and your [insurance] carrier to keep your exposures and premiums down.”
The best time to engage a broker is during the stage of your buildout. Even though your general contractor should have liability insurance to cover any accident or other construction related claims, you should make sure you have broad coverage to protect your assets. From there, you can work with your broker to get the appropriate coverage as your business needs change.
A few of the most common types of exposures to be aware of are:
Food Borne Illness Claims
A food borne illness claim is rather straightforward and can occur when a patron believes that he or she became sick after consuming food from an establishment. In the past, food borne illness claims were some of the most common but as society has become more litigious, other claims are moving up in the rankings.
Employment disputes are some of the costliest exposures for a restaurant and can occur even if a restaurant has the best interest of its employees at heart. Eric suggests working with your attorney to draft an employee manual to put into writing your employment policies. Just by having a handbook, you can avoid possible claims. Eric suggests that when terminating a relationship with an employee, always “round up” final wages as underpayment can leave a restaurant exposed.
Tipping pools also create exposure. In most states, tipping and tipping pools are highly regulated and any violation can become a large suit. A few large restaurateurs, like Mario Batali, have been successfully sued for wage related issues. Other employment issues such as sexual harassment claims and wrongful termination suits can also fall into this category.
Liquor liability claims are increasing nationwide as courts are finding restaurants liable for overserving patrons. If a guest gets into his or her car after drinking at your establishment and winds up in an accident, your business may be on the hook.
Even if your restaurant is not found at fault for a claim, it is very costly to defend a claim in court. If a potential claim is covered by one of your policies, your carrier will defend your business in court.
AllDay suggests working with your broker and carrier to develop a risk management strategy.
The three main strategies of risk management are risk avoidance, risk mitigation, and risk transference.
Risk avoidance is straightforward, where a business doesn’t engage in a risk activity. In the case of liquor liability claims, a restaurant can choose not to serve alcohol. Since this is not economically feasible due to the high margins of alcohol sales, mitigating (or minimizing) this risk is the next most advisable solution. By training your bar staff to be TIPS certified and monitor consumption, you are mitigating the risk of a drunk driving incident, Finally, even though your well-trained staff tried to call a taxi for a patron, one may still decide to drive home and get into a collusion. This is why you have insurance to protect yourself from the financial repercussions of a claim and to transfer the majority of risk to an insurer.
Eric suggests investing in the following coverages:
Commercial/General Liability and Property Insurance
Most leases require that a restaurant have commercial liability/general liability and property insurance. Property insurance will generally cover your building and its contents from a loss due to fire, a water pipe burst, etc. General liability policies protect your business when your employees, products, or services cause harm to other people or their property; for example, a customer tripping and failing on a wet floor. This also covers food borne illness claims.
Liquor Liability Insurance
Some states require that businesses that serve alcohol have liquor liability insurance. Regardless, it is advisable that any business that involves alcohol have this type of coverage. Eric also recommends that your policy covers assault and battery as intoxicated patrons may cause a fight with clients or your staff.
Employment Practices Liability (EPL)
EPL covers employers against claims made by employees alleging wrongful termination, wage issues, discrimination, harassment and other employment-related issues.
Workers’ Compensation is a state required insurance that covers workplace injuries to employees.
AllDay Industry has the experience and the network to help you develop your concept from any stage of development. From finding the perfect space, hiring the right executive chef, or choosing the right insurance, our team will act as your primary consultant to connect you to some of the best talent in the hospitality industry. Contact us at 212.346.0606 or firstname.lastname@example.org.
To contact Eric and learn more about Madison Avenue Brokerage Corp., email email@example.com