How to Best Avoid Restaurant Insurance Pitfalls

    Restaurant owners need to protect themselves.

    Wooden table with two cups of coffee on it.
    Unsplash/Luke Chester
    Every restaurant owner or franchisee must update insurance coverage.

    Media focus right now is on restaurants closing and re-opening during another surge of the COVID-19 pandemic. Already we've seen what this volatility can do to a restaurant’s business. With so many unknowns, one thing is for certain, restaurant owners, whether independent or franchisees, are going to have to be flexible and communicate well with employees to keep everyone as safe as possible.

    Top priority for every restaurant owner right now should be ensuring their business is complying with Occupational Safety and Health Administration (OSHA) health and safety checks related to the pandemic as well as local and state regulations. It is also just as important to be mindful of your restaurant's insurance coverage to protect your business, personal finances, and your employees. Workers' compensation insurance protects you from employee claims related to physical injuries and illnesses.

    Employment Practices Liability Insurance (EPLI) is a type of liability insurance that covers wrongful acts arising from the employment process. The most frequent types of claims covered under such policies include wrongful termination, discrimination, sexual harassment and retaliation. Restaurant owners should protect themselves with EPLI for these types of claims and possible litigation. Along with insurance coverage, be sure you are:

    • Implementing effective hiring and screening programs to avoid discrimination in hiring.
    • Posting corporate policies throughout the workplace and placing them in employee handbooks so policies are clear to everyone.
    • Showing employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor … making sure supervisors know where the company stands on what behaviors and those that are not permissible.
    • Documenting everything that occurs and the steps your business is taking to prevent and solve employee disputes.    
    • Recording the ways your company is complying with COVID-19 safety practices and potentially ‘going the extra’ mile for customer wellbeing.

     

    If your restaurant is going to have a change in employee counts during and after the pandemic, make sure your insurance coverage fits your footprint and that it has been reviewed by your attorney. Additionally, secure a close relationship with a reputable HR company, many EPLI carriers offer resources in this area included with the policy. If you normally purchase Errors and Omissions (E&O) and Directors and Officers Liability (D&O) insurance, be prepared to answer quite a few more underwriting questions in the future. Rates will likely rise because of claims, and there could be a smaller number of suppliers for these lines of critical business insurance.

    Specific to franchises, the Franchise Disclosure Document (FDD) requires franchisees to have insurance coverage, but not all franchisees are up to date after COVID-19 business disruptions. This can leave franchisors particularly vulnerable if there's not a person, department or service to monitor compliance and help protect the brand. Make sure you are working with an insurance representative that best understands the ebbs and flows of your restaurant business.

    A quick review of EPLI-type claims: 

    Gender discrimination. A national restaurant chain paid to settle a gender discrimination lawsuit brought by men alleging they were denied more lucrative server positions because of their gender.

    Retaliation. A server is given a “last chance” warning about coming to work late. The disgruntled employee immediately makes a complaint to the health department about alleged unsanitary food-handling practices. Upon being terminated for coming in late again, the server alleges the firing is in retaliation for making the complaint.

    Sexual harassment. A restaurant franchise was forced to settle a sexual harassment claim by several teenage workers who alleged the manager behaved inappropriately.

    Fair Labor Standards Act. Several salaried assistant managers in a mid-sized restaurant chain filed a class action lawsuit alleging that being required to perform occasional "non-managerial tasks”—such as bussing tables, running the cash register or serving customers — qualified them as hourly employees and therefore entitled them to overtime pay. The court granted class action status to the group of former that cost the chain more than $1.3 million to resolve.

    Third-party ADA claim. A customer threatens to file a class action lawsuit alleging a restaurant is not Americans with Disability Act (ADA) compliant. The customer and their attorney often settle for a “bargain” of $15,000 to $20,000 knowing defense costs for a restaurant could reach six figures.

    These examples are not exhaustive, just a quick overview of some of the cases making headlines prior to COVID. It is important to note COVID claims are also making headlines, particularly hiring and firing activity for any restaurant that may come under scrutiny in following safety guidelines. Every restaurant owner or franchisee needs to update insurance coverage and take the time to review policy coverage to avoid pitfalls that could impact your restaurant, especially during a pandemic.

    Doug Groves is a principal at Program Insurance Group. Doug has over 30 years of experience in the insurance industry