Restaurant Insurance: What Do You Need and How Much Will It Cost?
With so many moving parts and different processes that go into successfully running a restaurant, it’s hard to anticipate, prepare for, and prevent all of the potential things that can go wrong for you on a day-to-day basis.
What if your employees don’t dry the floor off well enough and a patron suffers a slip and fall accident in your restaurant?
What if the food you serve is somehow contaminated and causes a group of patrons to come down with food poisoning?
What if one of your employees has an accident in the kitchen and needs to be treated for severe burns?
What if a grease fire in the kitchen can’t be controlled and ends up significantly damaging your restaurant or even burning it completely to the ground?
In all of the examples, insurance would be able to help you deal with financial setbacks that these types of issues would entail. That’s why having the right insurance program is absolutely essential for anyone who works in hospitality.
But in the same respect, there are certain types of insurance that your restaurant doesn’t necessarily need. That’s why it’s important to understand what coverage your restaurant needs based on the most common risks that your restaurant is exposed to regularly.
Let’s take a look at some of the types of insurance that just about every restaurant should look to acquire.
Business Owner’s Policy (BOP)
Buying a business owner’s policy (BOP) is a great way to save some money when purchasing coverage because it allows you to buy three types of insurance bundled as one product.
In a BOP, you will receive general liability, commercial property liability, and business interruption insurance bundled together. However, most brokers will tell you that it’s important to not seek to bundle these coverages at all costs and if you do decide on buying a BOP, make sure that the coverage included takes into consideration your most important exposures.
When putting together an insurance program, having an expert broker by your side, who has experience insuring restaurants, is absolutely vital. An experienced broker will be able to help you decide whether a BOP will provide you with the coverage you need and if not, they will recommend that you buy these coverages separately in order to avoid gaps and unwanted exposures.
That being said, let’s take a look at what all three coverages included in a BOP traditionally cover.
General Liability Insurance
This is the policy that would kick in if a customer slip, falls, and injures themselves on your property. If a customer crashes their car because your businesses didn’t clean the parking lot well enough after a snowstorm, general liability would help pay such damages as well if the customer files a claim against you.
Commercial general liability insurance can also cover damages to your reputation and lawsuits related to copyright infringement. Costs related to foodborne illnesses can also be covered by general liability.
Commercial Property Insurance
Commercial property insurance might be the single most important insurance policy for your restaurant since the success of a restaurant is very intrinsically tied to the physical property on which your food is being prepared, purchased, and consumed.
A standard commercial property insurance policy would cover your actual restaurant space, as well as your equipment, furniture, signage, and any other property that’s vital to your business.
You should also tailor your coverage to specific risks that your restaurant might encounter. For example, if you are located in a region where earthquakes, wildfires, or landslides are a regular occurrence, you should make sure that you commercial property insurance will protect you in such circumstances.
If you are leasing your property, the owner of the building will usually already have property insurance, but you will still need to take out a policy that’s going to protect your contents, such as equipment, furniture, and inventory.
Here are some other property coverages that you should be considering when putting together the right commercial property policy for your restaurant:
- Utility Interruption Coverage: Your restaurant cannot operate if your utilities are not working. This coverage will protect your business of restaurant can’t serve customers because there’s a problem with the water, gas, telephone services, or electricity.
- Equipment Breakdown Coverage: Your equipment is also incredibly vital to the work of your restaurant. If your freezers, ovens, fryers, ice makers, or any other equipment breaks down, you’re going to need coverage to help you recover while your equipment is out of working order. You can also extend this coverage to cover spoilage if your food goes bad because your refrigeration isn’t working properly.
- Electronic Data Processing Coverage: If your restaurant uses electronic table ordering systems, this is another coverage that you should be looking into if you can’t cover these systems with equipment-related coverage. If you’re taking orders online and saving customer credit cards and personal information, then you should seriously look into cyber liability insurance as well.
Business Interruption Insurance
The third coverage in a BOP is business interruption insurance, sometimes called business income or loss of income coverage. This coverage will kick in to help pay operating expenses, loss of wages, and loss of income if you have to close down your restaurant for an extended period of time for whatever reason.
If you want to continue operating while your location is closed down, you can look into adding extra expense coverage to your BOP as well, which will provide you with financial support if you need to rent out equipment and a temporary location to continue working while your main location is being repaired or renovated.
If your restaurant serves alcohol then you are going to need liquor liability insurance as well. As anyone working in hospitality knows, excessive alcohol consumption can lead to a plethora of problems; problems that your business could be liable for if the intoxicated persons responsible for the problems were drinking at your restaurant.
Liquor liability insurance will protect your business if a customer that became intoxicated at your restaurant injures someone, damages your property or the property of others, or commits any other type of crime while under the influence.
Workers Compensation Insurance
Employee injuries are very common in the restaurant industry, which is why workers compensation insurance is absolutely essentially coverage and, most often, mandated by the state.
According to a report by the Bureau of Labor Statistics, workers in the special food services industry experienced occupational injuries and illnesses requiring days away from work at a rate of 107.6 per 10,000 full-time employees in 2017. Most injuries occur in the kitchen, where floor surfaces are often slippery and open fires are often present. The most common injuries reported in the restaurant industry are sprains, strains, tears (cuts, lacerations, punctures), and thermal burns. This is why the cost of workers compensation insurance is often higher for restaurants than most other service-based businesses.
Workers compensation insurance will cover all costs related to employee injuries, including medical bills, loss of income, rehabilitation costs, and even disability and death benefits in worst-case scenarios. Also, being able to offer your restaurant employees proper workers comp benefits means that there is a smaller chance that they will decline the benefits and file a workers compensation claim against you.
Commercial Auto Insurance
Does your restaurant offer deliveries or catering services? Then you should have commercial auto coverage as well. Even if you are a small business or catering service and you’re using your personal vehicle to bring your customers food, you should purchase this coverage, because your personal auto insurance is not going to cover medical, legal, or repair costs that result from a car accident that occurred while you were using the vehicle for business purposes.
Employment Practices Liability Insurance
One of the biggest business-related lawsuits last year was a $500 million sexual harassment lawsuit filed by employees against McDonald’s. The number of employee-related claims is on the rise and the cost of these claims is increasing as well from year to year. This is why you need EPLI insurance. Employee practice liability insurance will protect your business and pay your legal fees and potential settlements and damages related to employee claims of harassment, discrimination, failure to promote, wrongful termination, and a slew of other possible grievances.
The more employees you hire, the greater your need for putting together a proper management liability program becomes, and EPLI is an integral coverage when it comes to protecting your restaurant’s senior management and owners from often incredibly costly lawsuits.
How Restaurant Insurance Cost Is Determined
The amount your restaurant is going to have to pay for insurance obviously depends a lot on what type of restaurant you own and what your risk profile looks like. Obviously, a food truck and a bar & grill that seats 200 are not going to pay the same amount for business insurance.
So what are the factors that insurers take into consideration when determining your premiums?
Before getting a quote, you’re going to have to present the following information (and potentially more) to your broker:
- Square footage of your location
- Building characteristics (age, floor, etc.)
- Type of fire and security system
- Activities and entertainment
- Hours of operations
- Whether you sell alcohol
- Projected sales
- Projected number of customers
- Value of inventory
- Value of equipment and technology
- Number of employees
- Lease details
When putting together the right restaurant insurance program, it’s important to have a broker on your side who understands the risks that restaurants face and what coverage is needed to protect your business properly.
If you’d like to discuss your restaurant’s insurance needs with a restaurant insurance expert, reach out to one of our dedicated brokers at any time.