Common Insurance Terms

Description of operations: Restaurants offer a full menu of food items and may or may not offer alcoholic beverages. A restaurant may specialize in a specific type of cuisine or may serve a general menu. Some entertain customers with music, comedy, various promotions, and special events. Some may have small dance floors.

Property exposures are substantial from cooking, electrical wiring, and refrigeration units. The more grease laden vapor that is produced, the greater the exposure to fire. All grills and deep fat fryers must have automatic fire extinguishing protection, hoods and filters. There should be fuel shut offs and adequate hand-held fire extinguishers. The kitchen must be kept clean and grease free to prevent the spread of fire. Ammonia used in refrigeration units can explode. Spoilage exposure is very high. A small fire or a power outage of even moderate duration can cause all fresh and frozen goods to be condemned as unfit for consumption or sale. Business income with extended time period coverage should be purchased by any restaurant. Losses can be minimized if there is an alternative location to continue operations and not lose customers. Returning to normal operations after a loss is difficult due to the lag time between reopening and returning to full income as regular customers may have moved to a new “favorite” restaurant.

Equipment breakdown exposures can be high as operations are dependent on refrigeration and cooking equipment.

Crime exposures are from employee dishonesty and money and securities. Criminal background checks should be conducted on any employee handling money. If the restaurant uses expensive cuts of meat or serves alcohol, theft of stock could be a problem. If the cash receipts are high, employee dishonesty and holdup are concerns. There must be consistent rules on cash drawer management and job assignments. Money should be regularly stripped from the cash drawer and irregular drops made to the bank during the day to prevent a substantial accumulation of cash.

Inland marine exposures include accounts receivables if the restaurant offers credit to customers, computers for tracking inventories and payrolls, and valuable papers and records for supplier and employee information. Duplicates of all records should be kept off-site. Cash registers, cooking equipment and office equipment may have computer applications. Some establishments will have paintings, statues, or other fine arts on premises. Some may have a bailees exposure from offering coat check services to customers or from storing entertainers’ property.

Premises liability exposures are high due to public access to the premises. Servers move throughout the premises with trays of food and beverages, generating spills that can result in slips and falls. Vigilance in cleaning up spills is the only way to prevent falls. Temperatures of hot beverages must be limited to reduce injuries due to scalding. Steps and uneven floor surfaces should be prominently marked. There should be lighted emergency exits available in the case of emergency. Lists of ingredients should be posted to prevent allergic reactions. All employees must be instructed in proper customer handling, including how to deal with disgruntled or overly enthusiastic customers. Parking lots and sidewalks need to be in good repair, with snow and ice removed, and generally level and free of exposure to slips and falls. Outdoor security and lighting must be consistent with the area.

Products liability exposure is due to food poisoning and allergic reactions. Monitoring the quality of food received, posting lists of ingredients, and maintaining proper storage temperature can reduce this exposure.

Liquor liability exposure depends on the amount and type of alcohol served. If liquor is served, any failure to comply with state and federal regulations can result in the loss of a liquor permit. There must be a set procedure to check ages of anyone attempting to purchase alcohol, as well as monitoring so customers purchasing alcoholic beverages do not then give them to patrons who are underage or intoxicated. Employees who serve alcohol should complete training courses in recognizing intoxication problems and dealing with customers. A procedure should be in place to deny serving intoxicated patrons. Programs that encourage designated drivers or offer free taxi service can be useful.

Automobile exposure may be limited to hired or nonownership liability exposures from employees running errands. If the restaurant offers valet parking, garagekeepers coverage should be purchased to cover damage to customers’ vehicles. MVRs and driving records should be obtained for any employee driving or parking customers’ vehicles. If valet parking services are contracted to another firm, the insured restaurant should be named as additional insured on the contractor’s policy.

Workers compensation exposures come from slips, falls, cuts, burns and heavy and awkward lifting, along with interactions with customers. Employees must be trained on the carrying of heavy dishes between the kitchen and the serving areas. As with all retail businesses, hold-ups are possible so employees should be trained to respond in a prescribed manner. The employees in many restaurants tend to be minimum wage and turnover may be high. Well-trained employees with an incentive to do their best and who have clear direction will have the fewest injuries. Company incentives to encourage long-term employment are positive signs of management control.

Minimum recommended coverage

Business Personal Property, Business Income and Extra Expense, Spoilage, Equipment Breakdown, Employee Dishonesty, Money and Securities, Computers, Valuable Papers and Records, General Liability, Employee Benefits, Umbrella, Hired and Nonownership Auto, Workers Compensation

Other coverages to consider

Building, Accounts Receivables, Bailees Customers, Computers, Fine Arts, Cyberliability, Employment-related Practices, Environmental Impairment, Liquor Liability, Garagekeepers, Stop Gap Liability

Reprinted with permission from the Rough Note’s Company copyrighted content.