It’s a difficult business climate out there, and running a restaurant is among the riskiest ventures, believe it or not.
45-50% of new start ups are out of business by year five in the United States. In CA, the failure rate is even greater: 49-54% of Quick Service Restaurants are out of business by year five. As insurance people, we want to help you – the Quick Service Restaurant owner – properly protect yourself from unforeseen accidents and lawsuits disrupting or prematurely ending your business. While disasters like lawsuits and fires are not the primary cause of restaurants failures, they are often the final death blow.
We believe that having the right insurance can truly make the difference between success and failure. That’s why I wrote this article. In it, I’m going to highlight the top 10 insurance coverages that a Quick Service Restaurant should have. By having the right insurance, you can stress less, smoothly operate your business, improve your bottom line, and ultimately, provide the best experiences for your customers so they keep coming back.
So here we go, Top 10 coverages – let’s get into It.
ONE – General Liability
What Is It?
This is a coverage that primarily pays for claims made against you for bodily injury or property damage that you owe to others.
Example
Someone slips and falls at your restaurant, inside or in the parking lot, and sues you for their torn ACL and their broken cell phone. Your policy pays for damages if you are actually liable, and the legal costs to defend you once you are alleged to be liable.
The definition of bodily injury also includes illness. So imagine an entire party of 15 gets food poisoning and decides to sue you. They want you to pay their medical bills plus some punitive damages. General Liability coverage applies here too.
Why is it Important?
Accidents happen and slip-and-falls are incredibly common, in fact, the most common lawsuit from a customer you’re likely to face is a slip-and-fall. General Liability is often a contractual requirement. This is the coverage that landlords need and vendors require. You often can’t open your restaurant until you have secured General Liability.
General Liability is a baseline coverage. If you were to call an insurance agency without knowing anything, and said you wanted a quote, this is one of the two coverages they’d quote you. The other coverage is next.
TWO – Property
What Is It?
Property insurance is the policy that covers physical damage to your buildings, tenants’ improvements, and business personal property at your restaurant.
Example
Your building burns down, destroying your walk-in, your cash registers, your food stock and other inventory, your dining room furniture – everything! Your property policy pays to replace your building and all these items.
Why is it Important?
It’s pretty obvious, but the physical property is what makes your restaurant. Without it, you have no restaurant! Also, property insurance is often a contractually mandatory coverage. If you have a mortgage or any loans on any property, your lenders will all require property insurance. Oftentimes, landlords require it too because it protect their interests. They like having stable long term tenants, and property insurance helps that happen.
Like General Liability, this is the other of the two baseline coverages. If you were to call a random insurance agent and ask for a quote for your new restaurant, you’ll most likely get a quoted on a Commercial Package or a Business Owners Policy (aka a BOP) that includes both General Liability and Property coverages.
Note that even the best property policy has EXCLUSIONS that leave your property vulnerable to losses in ways that you may not be aware of, which is why many of the upcoming coverages on this list are necessary.
THREE – Employment Practices Liability Insurance (EPLI)
What Is It?
EPLI is a policy that primarily pays for claims made against you by your employees for wrongful acts such as discrimination, harassment, and wrongful termination. If often pays for claims of similar types made against you by 3rd parties such as your customers.
Example
An employee you recently let go sues you for wrongful termination alleging age discrimination. Your policy pays to defend against accusations and for damages if you’re found liable.
An example of 3rd party coverage would be if a customer sues you alleging their attendant at the register made a crude comment based on their age, race, or sex, or all three! The EPLI policy would pay to defend you against those allegations and ultimately pay for the damages if you’re found liable.
Why is it Important?
In today’s climate, your number one, two, and three chance at a lawsuit is an employment practices suit from your employees.
Because of the high risk, getting a good EPLI policy is critically important but also a little more challenging than some of the other coverages out there. Insurers want to make sure that you have risk mitigating factors in place, like hiring and termination guidelines, an employee handbook, and harassment and discrimination policies in place.
Sidenote: employee lawsuits often include alleged wage and hour violations, which is typically EXCLUDED from most EPLI policies. Wage and Hour defense coverage – depending on the market conditions – can be made available for an additional cost. But it’s important to remember that it is not an automatically appearing coverage.
FOUR – Non-Owned Auto Liability
What Is It?
This is a coverage that pays for claims made against you for body injury and property damage resulting from an accident in a vehicle that you do not own.
Example
Your employee is making a food delivery or picking up supplies for you in his own vehicle and gets in an at-fault accident, damaging the other guy’s vehicle and injuring the driver. Because it occurred on company time and in the course of your operations, you are sued for the damages. Non-Owned Auto Liability is the coverage that pays to defend you and pays for the damages if you are held liable.
Why is it Important?
Because employees driving on your behalf creates liability for you. But don’t employees have their own insurance that will defend you, you ask? Well, they should, but employees often have low limits, or sometimes, believe it or not, no insurance at all. So Non-Owned Auto Liability insurance is a necessary backup to their insurance.
FIVE – Employee Dishonesty
What Is It?
This is a coverage that primarily pays for losses to covered property resulting from dishonest criminal acts by your employees.
Example
Your employee takes cash out of the register, transfers money from your account to themselves, steals food products from your kitchen, and yanks the copper wiring out of your air conditioning units. This coverage pays to replace these items.
Why is it Important?
Because it is excluded from that property policy (item #2 described above) which excludes theft and other losses when an insider causes that loss.
SIX – Spoilage
What Is It?
This is a coverage that pays for spoilage damage to your perishable food products as a result of certain types of mechanical breakdowns and power outages.
Example
Your utility service provider severs a line off-site and it shuts the power off at your premise causing your perishable business personal property to spoil. This coverage pays to replace the spoiled business personal property.
Why is it Important?
Because spoilage resulting from those described perils are excluded on your standard property insurance. Yes, you have coverage for damaged food products, but not if the utility service simply shuts off power! And not if your walk-in simply wears out and stops working!
SEVEN – Food Contamination
What Is It?
This is a coverage that primarily pays to cover the costs if your restaurant is shut down by the government due to food contamination – actual or suspected – occurring at your restaurant. The costs could be clean up, sanitization, repurchase of food products, medical tests, and even post-contamination advertising.
Example
Remember the hypothetical incident back in the General Liability coverage example where 15 people got sick and sued you? Continuing the story, once they got sick, the local government authority shut you down and did an investigation. In that time, you had to throw away all the food products that may have contributed to the accident, and repurchase. The Food Contamination coverage paid for these costs including the loss of business income during the shut down.
Why is it Important?
It’s important because there are many contingent expenses that can follow a covered loss that they themselves may not be covered. It’s a negative surprise to find out you had to pay an additional $10,20,30,000 out of pocket – after deductible – on a covered loss.
EIGHT – Trees, Shrubs and Plants and Other Structures
What Is It?
This is a coverage that pays for those other permanently attached structures, outbuildings, and landscaping items at your restaurant. These are all those extra items that not only make your restaurant function, like signs, curbs, the walls surrounding your dumpster, but also makes your restaurant beautiful, an attractive place that people want to be at. This coverage is usually an extension of coverage added to your property policy.
Example
A fire sweeps through the area and destroys everything. But not only do you have coverage for your building and your business personal property inside, you now also have coverage for your trees shrubs, plants, and other structures.
Why is it Important?
Because these are excluded from a standard property policy. Often times, when figuring out your insurance needs, these items are secondary in importance and get overlooked, especially when it comes to the bottom line, that is the pricing on the policy. But after a covered loss, the costs add up if you have to pay for them out of pocket because they weren’t insured.
NINE – Cyber Liability
What Is It?
There are a lot of coverages and varieties of cyber coverage, but the main one that I’ll discuss here is the type that pays for losses arising out of a cyber attack, that is when you get hacked. The policy will pay to replace the hacked data, it pays the costs imposed by law to notify your clients whose data was hacked, and will pay for the lawsuits and the damages incurred once your affected customer’s sue you.
Example
Someone hacks into your computer database and steals your customers’ data and releases it to the public. Your policy pays to replace the data, notify your customers, and for the defense & financial damages if they sue you.
Why is it Important?
Cyber is important because we’re in a digital age and barring an apocalyptic world war that puts us back into the High Middle Ages, we’re probably not going to go back manual transactions and paper record keeping. Also, this coverage is necessary because both Commercial Property and General Liability policies exclude coverage for these described non-tangible incidents.
TEN – Liquor Liability
What Is It?
This coverage pays for bodily injury and/or property damage claims made by third parties arising out of your sales, serving, or furnishing of alcohol.
Example
You serve beer and wine at your restaurant and a customer buys some, consumes it, and leaves, goes to the next place. On the way, they hit someone in their car while driving intoxicated, that person dies, and their car is totaled. The family of the deceased sues you among others. Your Liquor Liability pays for the damages to the extent you are negligent.
Why is it Important?
If you sell alcohol, you absolutely need this coverage. If you don’t sell alcohol, you don’t need it. Your General Liability policy, as it exists in nature, EXCLUDES bodily injury and property damage arising out of the selling or serving of liquor if you are in the business of selling or serving liquor. Fortunately, this coverage is often easily added to a restaurant package or BOP, but check out your policy because it’s not always automatically included.
BONUS – Business Income & Extra Expense
What Is It?
This is actually a super important coverage. I’m calling it a bonus coverage because most Business Owners Policies AUTOMATICALLY include Business Income and Extra Expense when you insure property. You and your agent may not have discussed it, but often, usually, most likely, it’s there, thankfully. But it may not be there.
To describe these coverages, they are what we call a contingent coverage because you must have a covered property loss first to trigger Business Income and/or Extra Expense.
What Business Income does is pays your bills – even potentially payroll – during the period of restoration. It does have its limits though. Business Income coverage will either pay up to a set amount of time like 12 or 24 months, or a dollar limit, like $100,000 or $1,000,000.
Extra Expense is another option that typically shows up on the policy, and what it does is pays the extra expenses required to keep your business going at full capacity during the period of restoration.
Example
Business Income: After a fire damaged your restaurant, your Commercial Property policy is paying to replace and rebuild it. While the building is under construction, you are unable to continue your normal business operations. Business Income coverage pays your lost income during this time period.
Extra Expense: After a fire damaged a portion of your kitchen, your policy is paying to rebuild it and replaced the destroyed items. While the project is under construction, Extra Expense coverage pays the costs of rental kitchen equipment and generators required to keep your kitchen running at full capacity during this time period.
Why is it Important?
Because when you have a loss, you lose massive amounts of income and you maintain steady – if not increased – amounts of expenses. Cash flow to a business is like oxygen to a person. A shut down in cash flow is like depriving a living human being of air. Without oxygen, you don’t live very long.
Conclusion
There you go. The Top 10 Insurance Coverages for Quick Service Restaurants – plus bonus. So what did you think? Do you have any questions? Did I miss anything?
I hope this helps you out. You – the Quick Service Restaurant owner – you work hard and have a lot at risk. Hopefully this provided some value to you.
If you have any questions, want to work with us, or looking for a quote on any of these coverages, it is super easy:
- Set an appointment. Just click HERE
- Have a conversation. We’ll learn about you and your restaurant in order to determine how we can help – or offer you a quote, if you choose.
- We’ll provide a solution. Once we understand your needs and your situation, and/or we’ve received the best quote that our markets have to offer, we’ll reach out to you to discuss your options.
