Embroker Team February 20, 2024 7 min read

Why Restaurant Insurance is Important for Your Small Business

Man serving customers in cafe with restaurant insurance

Hospitality businesses have a unique risk profile, and the potential for property damage and liability lawsuits resulting from everyday operations is high.

Restaurants deal with open flames or red-hot surfaces on a day-to-day basis, and an untimely fire could damage expensive equipment, forcing a shutdown until the situation is resolved.

With nearly 8,000 reported fires in the US each year, this is a very real risk every restaurant faces.

Additionally, both customers and employees are at risk for serious injuries in the restaurant setting. The right restaurant insurance policy can cover the injury to your employees or third parties and could even lessen the likelihood of a major lawsuit by swiftly covering the injured third party’s medical bills as well.

While most restaurants follow stringent health code requirements and do everything in their power to prevent foodborne illness, mistakes happen, and customers can often file a frivolous lawsuits for damages after claiming that a certain restaurant made them sick.

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Finally, if your business sells, serves, or allows any alcoholic beverages to be consumed on your premises, your restaurant could be sued for damages that are often related to intoxication.

Whatever the reason behind them, lawsuits filed against you by employees or guests can be financially crippling to a restaurant.

However, it’s not just restaurants that are at risk. All businesses serving customers food and drinks should consider purchasing adequate restaurant insurance. This includes:

  • Cafés/Coffee shops,
  • Taverns,
  • Bakeries,
  • Diners,
  • Ice-cream shops,
  • Food trucks,
  • Fast-food franchises,
  • Breweries
  • Any other similar business

Managing the risk involved in your business operations and transferring that risk to your insurers is an important step in safeguarding your hospitality business’s future.

Get started by telling us more about your business and get your restaurant insurance quote in just a few minutes.

What Insurance Policies Do Hospitality Businesses Need?

Woman with head in hands worrying about what type of restaurant insurance or policies are applicable for her small business

While every business has a specific set of restaurant insurance needs, there are typically core insurance policies that most restaurants and bars should obtain in order to mitigate and transfer risk:

Workers Compensation Insurance:

A policy that provides benefits to your employees for injuries and illnesses related to their employment at your restaurant. Workers compensation is typically compulsory in most states, with the exception of Texas.

Business Owners Policy (BOP):

This policy includes three basic insurance coverages — commercial liability, commercial property, and business interruption policies.

A BOP protects a business much in the same way a homeowner’s insurance policy protects a home and personal possessions.

Third-party slips and falls and injuries on-premises are also covered under the BOP. As your restaurant grows, so will the need to broaden your coverage to include additional policies that will extend the limits of your coverage, such as:

Commercial General Liability Insurance:

Once your restaurant has outgrown the BOP policy, you’ll need a more tailored solution to protect you against liability.

General liability insurance protects against third-party claims such as property damage, bodily injury, or personal injury.

Commercial Property Insurance:

This policy will protect your property, including the buildings your restaurant(s) are based in, contents, equipment, and personal property used in the business from perils of fire, theft, and natural disasters.

Additionally, commercial property insurance often provides coverage for losses of income caused by these perils, particularly in cases in which the restaurant must shut down for a period of time in order to recover from these damages.

Liquor Liability Insurance:

If your restaurant manufactures, distributes, sells, or serves alcoholic beverages, you will be protected from any liability in the case of a patron you served injuring someone or causing property damage.

Water Contamination Insurance:

Serving alcohol can get you in trouble, but so can water – if it gets polluted. If your business has to temporarily close because its water supply is contaminated this insurance policy will cover the loss of income and all extra expenses associated with the case.

Commercial Auto Insurance:

If you use a vehicle for your business operations, it may not be covered under your personal automobile insurance. Commercial auto insurance acts much like a personal auto policy but also includes coverages specific to business operations.

Employment Practices Liability Insurance (EPLI):

EPLI provides protection against employee claims related to issues such as wrongful termination, harassment, and discrimination.

With the recent rise in employment-related litigation, it’s wise to have employment practice liability coverage.

Crime Insurance:

Hospitality businesses often have to deal with crime-related losses to their property and bottom line.

Crime insurance will cover losses caused by criminal activities, whether committed by employees or people from outside the business.

Cyber Insurance:

A cyber insurance policy enables restaurants to transfer the costs involved with recovery from cyber-related attacks.

Cybersecurity is a growing issue for restaurant owners, and the right cyber insurance policy can protect from expensive data and security breaches that could compromise the data of your partners, customers, and employees.

What Does Restaurant Insurance Cost?

Woman with head in hand severely disappointed, piggy bank emptying out to the side to symbolize the cost of restaurant insurance

As is the case with any industry, there are many different factors that need to be considered before determining how much your hospitality insurance is going to cost.

Cost drivers other than the policies you choose and their limits will always be different based on several factors:

The revenue of your business

The more money you turn over, the more you’ll have to pay for restaurant insurance. Insurers will see your revenue as a potential liability, as any claims against your business will be higher.

Additionally, revenue is a good indication that you’re doing a lot of business – and that means an increased likelihood of something going wrong.

The unique risks your restaurant faces

Not every hospitality business has the same risk. Maybe you Insurers will take a close look at your risk profile and price the policies appropriately.

The value of your equipment

If your expensive equipment breaks down or is stolen, insurers will have to cover it. This means that they’ll price your insurance accordingly and consider the total value of your property.

The size of your establishment and the number of employees

This is another straightforward correlation – the more employees you need to insure, the more you can expect to pay for insurance.

Your turnover rate

If you have employees come and go frequently, you’re more likely to have an employment claim brought against you.

Dissatisfied former employees and a consistent history of firings or resignations are ominous signs for the insurer.

Claims history

Insurers view past claims as an indicator of future performance.

This means that they’ll give you a discount if you have a squeaky clean history and will ask for a lot more to insure you if you have a terrible record with insurance claims.

The average restaurant insurance cost for a comprehensive risk management plan would be around $4500 annually. However, this figure can vary significantly based on the factors we outlined above.

If you want to learn more about how much you’ll have to pay to be adequately insured, you can check out our guide on the cost of restaurant insurance.

Working with the right partner will ensure they are not only negotiating the right coverage but the best possible pricing options for your restaurant as well.

Embroker believes in giving our clients better choices using data and transparency.

We benchmark your policies against similar businesses in your vertical then procure quotes from multiple insurance carriers for coverage you may not carry and might want to consider purchasing.

We also cross-reference your costs with restaurants of comparable size, policy limits, claims history, and risk tolerance so we know your premiums are as competitive as possible.

Things to Consider Before Binding Coverage

When it comes to your insurance coverage, don’t assume that your policies have “standardized” coverage terms — they don’t. The devil is in the details.

For example, your broker should help you consider important details and ask the right questions, such as:

  • How do I want my business interruption coverage written?
  • Is it on an “actual loss sustained” or “stated” limit?
  • Which one is better for me?
  • Should I buy earthquake or flood coverage?
  • What’s the difference between earthquake sprinkler leakage coverage and EQ coverage?
  • How does my policy provide funds to rebuild to current codes?
  • Is my general liability policy premium based on square footage or sales? Is one more advisable than the other?
  • Does my general liability policy respond to off-site catering claims?
  • Does my employment practices liability policy respond to wage and hour allegations?

Report All Staff Claims to Your Workers Compensation Carrier

Are you inclined to pay for small, medical-only claims so they don’t affect your workers compensation premium? If so, you’ve made a wrong assumption.

In some states, it’s illegal to not report a work-related claim (such as an injury) then pay the medical bill out of pocket. 

Minor medical-only claims could be reduced by 70% on the worksheet and have little impact on your rate.

This, by the way, is a common practice that business owners use to avoid higher car insurance premiums.

Also, you can request free space inspections from insurance carriers. Many carriers offer site reviews and provide feedback on safety issues as a free service.

This usually leads to better lower premiums and safer working spaces.


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