How to Properly Insure Your Quick-Service Restaurant

    Understanding each option is important to assess your business needs.

    Business man in the office fill out insurance policy. To prevent future incidents.
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    So far, many courts have not been granting restaurants their business interruption claims.

    From the Great Resignation to inflation to shifting dining patterns, quick-service restaurants today could easily let insurance slip to the back burner.

    But with risks ranging from fires, to food safety, to slip and falls, and even robberies, properly insuring your quick-service restaurant might be the difference between a successful year and a disaster.

    Types of policies

    Just like any business, quick-service restaurants have many options to manage their business risk: business owner’s policies, workers’ compensation, general liability, commercial auto, cyber, and many more.

    Understanding each is important to assess your business needs, and to see if you are over-insured for that matter.

    A business owner’s policy and general liability policy are both there to protect the business from things that can go wrong, and subsequently, cost the business money through a loss or a lawsuit.

    These protect the business owner from claims for bodily injury suffered by someone on site (excluding employees.) They cover damage to the business premises. They protect against theft. They cover you if you are sued for defamation or advertising injury. They protect you if your products are found deficient. And they cover you for business interruption—mostly.

    More on business interruption in a second.

    READ MOREWhy Restaurants Are Losing the Battle over COVID-Related Insurance

    If the injury is suffered by an employee, that is where worker’s compensation comes in, which will cover any direct injury or illness suffered by an employee while working.

    Commercial auto insurance covers damage to company-owned vehicles, whether that is from an accident, vandalism, or just the weather. It also covers injuries suffered by the employees, or victims of an accident.

    Commercial auto also often covers your employees and anything they may damage if they were using a personal vehicle while doing work, such as making a delivery, though it is essential that business owners discuss this situation with an agent to ensure everyone is properly covered.

    Cyber insurance helps cover data breaches where a hacker gets ahold of your customer’s data that is stored on your servers. It also covers the cost of notifying them about the breach, and often pays for their fraud monitoring after a hack. They might also help defend against a ransomware attack.

    And that’s not the only insurance businesses need to consider. There are other specialized lines to protect business, depending on their exposure, such as water contamination or liquor liability, for example.

    Prices for commercial insurance vary by a number of factors. One of the biggest factors is the experience of the business – the longer and safer your track record, the better your rates will tend to be.

    Location also plays in—some places are seen as riskier to insure than others, as do the number of location and employees.

    Business interruption

    During the pandemic, quick-service restaurants, along with many other businesses, filed business interruption claims against their insurance. Those seemed like logical claims; their businesses were interrupted after all.

    But these businesses quickly learned that since business interruption is part of the property damage portion of their policy, claims against it typically require physical damage to the premises before it kicks in.

    Business interruption was originally imagined to cover losses due to things like electrical fires, not pandemics.

    Many owners sued, arguing that the airborne virus physically damaged the air of the dining room, and so the coverage should apply.

    But so far, many courts have not been buying that.

    These suits have been facing headwinds across the country, and restaurants are losing many of their suits. There have been a few restaurant wins, but many of the wins have subsequently been overturned on appeal. A few others have stood.  

    Most of the suits are still making their way through the system, so there is no final word yet on how that will ultimately shake out.

    Best practices

    As quick-service restaurants look at their policies, there are a few things that might save them on premiums moving forward, many of which come down to risk management.

    One big suggestion is to look for automated solutions that might yield less risk and thus lower premiums. These are things like automated oil exchangers that prevent employees from handling the spent fry oil.

    There are also fire suppression systems and cleaning systems that eliminate grease buildup in places throughout the kitchen, such as the vent hood that could end up causing a fire.

    Owners should also double check that their insurance is covering all their current business practices. This is essential now because so many businesses pivoted during the pandemic.

    Did you add delivery during the lockdowns? If so, do you have the proper auto insurance? And do you have a risk management policy that includes motor vehicle records searches for your drivers?

    If your employees are driving their own vehicles, do both of you have the proper coverage for that? (Hint, their personal auto policy may not be covering them while they are on the clock.)

    And if you contracted with a third-party delivery service, are you carrying the insurance your new agreement requires?

    And considering those deliveries, does your liability policy cover off-site food?

    Takeout isn’t the only place to watch. Did you add outdoor seating? Or special events? Are those properly covered and accounted for in your policies?

    Or, maybe now that business is shifting back to the dining room, did you drop some of those other offerings and can now scale back on coverages?

    Conclusion

    Now is a great time to ask your agent if various areas of coverage can or should be modified.

    Take a close look at your coverage and ask a lot of questions to your agent to make sure the coverage you have matches the risk you are taking in your everyday business.

    And remember, it is in both of you and your insurer’s best interest to avoid a claim. In that spirit, many insurers have some best practices guides and resources for several areas of your business, so ask what they have to offer, and together you can make your business safer.

    Michael Giusti, MBA, is senior writer and analyst for InsuranceQuotes.com.