*Dhruv Kishore Bole

Restaurant owners, whether small or large, run the risk of causing bodily harm to customers, employees and others, as well as damage to customer’s and other’s property, which may result in a lawsuit. Restaurant operators may not always have the financial resources to defend a lawsuit or pay settlement costs. As a result, restaurant owners must invest in comprehensive insurance coverage to protect their business and limit the financial consequences of a lawsuit, which can have a negative impact on the restaurant’s bottom line. When it comes to defending claims and paying settlement costs, having the right insurance coverage gives restaurant owners and operators peace of mind.

 Let’s take a look at eight insurance policies that every restaurant operator should have.

General Liability Insurance (GLI) 

General Liability Insurance is one of the most important coverage that every restaurant should have. It is also known as Restaurant Liability Insurance. It shields the restaurant from a wide range of claims arising from customers, employees and third-party injuries or damages. Typically, the policy protects against premises liability lawsuits, product liability lawsuits and advertising injury lawsuits. Slip and fall injuries to customers and others are covered under premises liability, allegations of copyright infringement are covered under advertising injury and lawsuits arising from bodily harm to customers, such as food poisoning and burns, are covered under product liability. The policy covers legal fees, settlement costs and other lawsuit-related expenses. Generally, this insurance coverage is bundled into a more comprehensive Business Owner’s Policy. The cost of general liability insurance is determined by a variety of factors, including the location of the business and the industry to which it belongs, the size of the business, previous claims history, coverage desired and payroll costs.

 General liability insurance covers a wide range of risks, but it excludes other liabilities that restaurant owners and operators may face. Let’s look at some additional insurance policies that cover those liabilities.

Commercial  Property Insurance  

Commercial Property Insurance is one of the most important policies that any restaurant owner should have in place. It is also known as Business Hazard Insurance or Business Property Insurance.  It covers damages or losses caused to the restaurant’s assets by unforeseen events such as riots, vandalism, fire, theft, or severe weather. The policy covers not only the cost of repairing or reconstructing the restaurant building, but also items used for food service within the building, such as furniture and fixtures, electronic equipment, food and beverage inventory, utensils and tableware. Restaurant owners can choose to exclude building coverage when purchasing a commercial property insurance policy if the property is rented for restaurant business. Some landlords require restaurant operators to obtain commercial property insurance before beginning food service operations. Some of the factors that insurance companies consider when determining the cost of commercial property insurance are the location of the business, the business model and industry type, the type of equipment used, the value of the building and inventory, the safety measures installed, the type of building construction, the average number of footfalls, and the total number of employees.

 One of the benefits of having commercial property insurance is that it usually includes a Business Interruption Policy (BIP) as an optional add-on (rider). BIP protects restaurants from business interruption losses caused by the closure of a business. The policy reimburses restaurant operators for lost net income and covers expenses such as rental payments, bank loans, and payroll expenses when restaurants are closed for repairs. The policy does not cover business interruption losses caused by disease outbreaks, pandemics, or government-mandated business closures. Another advantage is that most BIP policies include a clause for civil authority coverage. The clause shields restaurants from financial loss as a result of civil authorities closing down a specific area. In the event of an earthquake, the restaurant’s specific area may be closed, resulting in a halt in restaurant operations and, ultimately, a loss of operating revenue. In addition, the Business interruption policy includes two additional riders from which restaurant owners can choose: Contingent Business Interruption (CBI) and Extended Business Interruption (EBI). CBI protects restaurants from revenue loss due to disruptions in raw material supply caused by contracted vendors (domestic or international) temporarily ceasing operations due to operational issues. EBI cover revenue losses from the time a restaurant reopens after repairs until it reaches the pre-loss operating income. The cost of a BIP is influenced by a number of factors. This includes the business’s location (located in a high or low risk area), the industry it is in, the total number of employees, and the amount of coverage. Business Interruption Policies are not typically sold separately.

Workmen’s Compensation Insurance (WCI)

To begin with, Workmen’s Compensation Insurance is required by law. This insurance plan protects both the employer and the employee. If an employee is injured on the job or contracts an occupational disease, the policy reimburses the employer for the employee’s medical expenses. The policy also reimburses employees for lost wages when they are absent from work due to an injury or disease. Furthermore, the policy covers rehabilitation costs and disability benefits for injured employees (permanent or partial disability), as well as death benefits for dependants in the event of an employee’s death while on the job. The policy specifies the conditions under which the employer is obligated to compensate the employee or dependants in the event of permanent or partial disability or death while on the job. Most importantly, workmen’s compensation insurance protects employers from negligence-related lawsuits. Workers’ compensation insurance costs vary according to a number of factors, including the total number of employees and the level of risk involved in the job, as jobs with a higher level of risk are more likely to result in injuries.

Cyber Liability Insurance (CLI)

 The most dangerous aspect of cyber threats is that they are not detectable until they become liabilities. Cyber Liability Insurance covers financial losses incurred as a result of data breach lawsuits filed by customers alleging that their personally identifiable information (PII) such as credit card numbers, bank account numbers, and personal identification details were compromised.  The policy also covers the restaurant business against the loss of business data caused by hacking, malicious software, or virus attacks, as well as online theft of funds caused by unauthorized online transactions using bank accounts, debit cards, or credit cards. Many factors influence the cost of a cyber liability policy, including total number of restaurant locations, the type and quantity of sensitive information held by the business, the industry type it belongs to, the coverage desired, and the total number of employees.

Employment Practices Liability Insurance (EPLI) 

Employment-related lawsuits brought by former, current, or prospective employees are a risk for restaurant businesses. Employees file such a lawsuit when they believe they have been subjected to unfair hiring practices, emotional distress, wrongful termination, sexual harassment, retaliation, breach of contract and variety of other employment related claims. Such lawsuits can put the organization’s finances in jeopardy, harm team morale, and tarnish the brand’s image in the market. Given these risks, restaurant owners and operators should consider purchasing Employment Practices Liability Insurance. The policy covers both defense and claim costs.  Bodily injury claims, fines and penalties imposed, and violations of national employment laws are not covered under the policy. The cost of EPLI insurance is determined by several factors, including the total number of employees, the rate of employee attrition, the availability of standard operating procedures and workplace policies, previous layoffs, the company’s financial health, and prior incidents of employment related lawsuits. EPLI can be purchased as a stand-alone policy or as part of a business owners policy (BOP).

Garage Keepers Liability Insurance 

Garage Keepers Liability Insurance Policy is essential for restaurants that offer valet parking. The policy covers damages to a customer’s vehicle caused by fire, theft, vandalism, or collision while it is in the restaurant’s care, custody, or control.  Damages to a customer’s vehicle are typically not covered by general liability insurance. This policy can be bought as a standalone policy or else can be endorsed with commercial property liability insurance. There are three types of garage keepers liability policy restaurant operators can choose from: Direct Primary, Direct Access and Legal Liability. In direct primary, the policy will cover the cost of repairing the vehicle regardless of who is at fault for the damage to the customer’s vehicle while it is in the restaurant’s care, custody, and control. Direct access coverage covers damage to the customer’s vehicle caused by natural disasters such as a windstorm. Finally, legal liability coverage pays for customer vehicle damages caused by negligent restaurant employee behaviour, such as a vehicle damaged while parking by a valet attendant.Insurance costs are determined by a variety of factors, including the desired coverage, the nature and location of the business, the annual revenue, the type of clientèle served, the type of vehicle handled, and the average number of vehicles attended daily.

Liquor Liability Insurance (LLI) 

Restaurants that serve alcohol are the most vulnerable to alcohol-related lawsuits, and failing to have liquor liability insurance can expose them to the financial ramifications of such lawsuits. Liquor liability insurance protects restaurants if they are held liable for over serving alcohol to a visibly intoxicated person or over serving to a patron who cause death, bodily harm, or property damage to others. The policy provides coverage for legal fees, compensation, medical expenditures and lost wages.  The cost of liquor liability insurance is influenced by a number of factors, including the nature of the business, its net profit, prior history of insurance claims, and the country and area in which the business is located. In several nations, this policy is frequently required in order to obtain a liquor license. Liquor liability insurance can be purchased separately or as an add-on to a commercial general liability insurance policy.

Hired and Non-owned Auto Policy(HNOA)  

Hired And Non-Owned Auto Policy is recommended for restaurant owners who use their employee’s personal vehicles or rented vehicles for food deliveries or other business-related tasks. When a restaurant has this insurance policy in place and one of its employees’ vehicles is involved in an accident while performing restaurant duties, the insurance company will cover medical expenses, legal fees and settlement costs. Similarly, rented vehicles will also be covered by the policy. The policy covers both bodily injuries and damages to the property. The cost of the policy is influenced by the total number and type of vehicles, the number of employees and their location, the number of drivers, the radius and frequency of driving, the desired coverage, and the level of risk.

The policy does not cover damages resulting from accidents that occur when vehicles are used for personal matters.

Aside from purchasing all of these insurance policies separately, restaurant owners can opt for a Business Owners Policy (BOP), which is offered by many insurance companies. Restaurant operators can create a BOP policy by combining any of the aforementioned insurance policies based on their specific needs. Another benefit of having a BOP policy is that it is less expensive than purchasing policies separately and simplifies the processes of paying premiums, submitting claims, and other policy-related communications with the insurance company because there will be only one company to deal with.

It is not uncommon for two countries to have the same policy but under different names. Furthermore, as the insurance industry evolves faster, so do the features of insurance policies. Restaurant owners and operators must invest in an insurance policy that is appropriate for their needs and risk factors.  It is advisable to discuss the policies available with the insurance company. Also, thoroughly research the policy premium, the insurance company’s claim settlement ratio, policy coverage, and exclusions before making a policy decision. Because insurance is a contract of absolute good faith, restaurant operators must disclose all material facts requested by the insurance company when submitting the policy proposal. If any material facts about the policy are withheld, the insurance company has the authority to declare the policy null and void. Most importantly, restaurant operators must develop and implement policies and standard operating procedures, as well as train their employees, to handle food service operations in a way that avoids situations that could lead to lawsuits. Since human interaction- based food service operations cannot be risk-free, it is best to have needs-specific insurance coverage because even minor incidents can result in a lawsuit.

*He is a hospitality and food safety specialist with qualifications in hotel management, six sigma methodologies, food safety and quality management system. He  is currently offering services in the capacity of Faculty, Food & Beverage service at State Institute of Hotel Management, Siddhpur, India