Restaurants face a number of exposures, including those that all businesses face and others that are specific to the industry and their operation. Restaurant insurance claims stem from property, liability, cyber, crime, and employment practices-related exposures. The key is in ensuring the right insurance program and protocols are in place to transfer and mitigate these risks.
PROPERTY RESTAURANT INSURANCE EXPOSURES
The source of large fire exposures for restaurants generally originates from the kitchen and the utilization of cooking appliances. The extent of the fire exposure depends on the type of restaurant as well. For example, a restaurant that uses deep fat fryers and stir-fry woks generates higher amounts of flammable grease and will therefore have a greater exposure to fire than those that don’t.
It’s important to ensure appliances are modern and updated to meet UL 300 certification. UL 300 certification requires fire-extinguishing nozzles in the hood, ducts, and above each cooking appliance; automatic fuel shut-off capabilities for both gas and electric power sources, and a manual fuel shut-off switch for all power sources. It also requires that a wet-chemical fire extinguisher (K-type) always be in a commercial kitchen. These extinguishers use extinguishing agents that separate the fuel from the oxygen and help to absorb the heat elements of the fire triangle (fuel, heat, oxygen + chemical reaction).
NFPA 96, the National Fire Protection Association’s fire code, also specifies minimum fire safety guidelines for cooking equipment, exhaust hoods, grease removal devices, exhaust ductwork, and all other components involved in the capture, containment, and control of grease-laden cooking residue.
Another fire hazard that exists in a restaurant is its grease-soiled linen, rags, etc. If these are not properly stored in a metal container, they can combust. Proper laundry and containers to hold dirty linen and contain the grease are critical for the operation’s safety.
Just as with any building, water damage can occur, particularly in the winter months due to frozen pipes. It can also occur in a remodeled restaurant if the insulation is not properly done. Water damage can lead to a significant loss for a restaurant as it will be forced to temporarily close. It’s important to survey all visible plumbing for drips and leaks and schedule an annual plumbing inspection to avoid problems. A restaurant can also experience a business interruption as a result of a sewer or drain backup.
Equipment breakdown exposures can easily temporarily halt a restaurant’s operation. From the restaurant’s POS to its refrigeration and HVAC system, all type of equipment is subject to hazards such as power surges, short circuits, centrifugal force, boiler overheating or cracking, and mechanical breakdown. If, for example, there is food spoilage as a result of refrigeration malfunction or a power surge, not only will the restaurant lose its supplies it will also suffer a business interruption loss while repairs are made or a replacement is delivered.
GENERAL LIABILITY RESTAURANT INSURANCE EXPOSURES
The most frequent restaurant premises liability claims are trips and falls. You have patrons constantly coming and going and moving around with the potential to trip over something. If a restaurant has stairs or different levels, there is an even greater exposure for trips and falls. They must be well-marked and well-lit with handrails for staircases.
Patrons can slip on a piece of food or a drink that a server or customer dropped. It’s important that the restaurant’s manager circulate throughout his or her shift to look for potential hazards and ensure that they are immediately taken care of. Employees should be working as a team to ensure the appropriate procedures are followed to help prevent injuries.
Wet floors in restroom trips and falls also bring an added exposure. Restaurant staff should inspect the restrooms regularly throughout the day and evening.
Another consideration to help prevent potential trips and falls is to actively think about risk mitigation during the design phase of a restaurant. Install non-skid, non-slippery flooring and ensure appropriate lighting at crucial spots where increased exposures exist. Restaurant owners can maintain the establishment’s aesthetic while also doing what they can to reduce liability exposures.
Salmonella, E. coli and other food-borne illnesses are a big concern for restaurants. Food safety is critical to prevent losses. This means having proper refrigeration and food storage policies. It involves employee training on food preparation and management oversight. Also important is for restaurants to contract quality suppliers to help avert having foreign objects in the food.
Liquor liability has by far the greatest potential for loss severity, depending on the type of restaurant. Overserving and underage serving can result in a catastrophic loss where a patron under the influence is involved in a car accident or in some type of fight or assault. It’s imperative that employees are trained in proper controls. A bartender or server should be able to tell when customers have had too much alcohol and when to stop serving them, when to get the manager involved, and when to offer to call a cab or Uber.
CYBER LIABILITY EXPOSURES
An environment in which cyberattacks are more commonplace, combined with a business model that increasingly depends on digital orders and payments, has made cyber liability an exposure every restaurant should consider. The threat of cyberattacks and data breaches for restaurants has grown significantly as businesses become increasingly more dependent on new technologies. Restaurants are a potential goldmine for cyber criminals because of the large number of online credit card transactions and customer information stored.
EMPLOYMENT PRACTICES LIABILITY EXPOSURES
In any work environment, employment practices are an exposure. Restaurants have the added factor of having employees interacting with the public. Workers are at risk for harassment or discrimination claims from a patron or supplier in addition to management.
With wait staff handling customer credit cards and even cash, there is an added layer of exposure for employee dishonesty. In addition, bookkeepers who have access to the restaurant’s accounts and banking information present an exposure for theft and fraud.
To address these and other exposures, it’s critical to put together a comprehensive restaurant insurance program for clients. Restaurant insurance policies should include Property along with Business Interruption and Equipment Breakdown coverage, General Liability, Liquor Liability, Cyber Liability, Employment Practices Liability, Crime, and Commercial Umbrella insurance. An Umbrella policy will step in to provide additional limits to the underlying primary policies which today are simply not sufficient to fully protect a restaurant.