Restaurant Insurance: A Guide For Small Business Owners
Running a restaurant is challenging. Not only do you have to worry about personnel, service, food quality, and the customer experience, you also have to run the back office.
As you can imagine, things like taxes, insurance, customer safety, profitability, and regulations can take up a substantial amount of your time and energy.
That’s why we wrote this page. Think of it as an easy-to-follow, five-minute guide to what restaurant insurance you need, who the top insurance carriers are, and the best ways to lower your insurance costs.
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What kinds of insurance do restaurants need?
Commercial General Liability
Commercial general liability (or restaurant liability insurance) is one of the core coverages that every restaurant should purchase. It protects you against property damage or bodily injury that you cause to customers.
We’ve collected a few examples to show you what we mean.
Slip and Falls: The most common claim we see filed on restaurant insurance policies is the slip and fall claim. This is usually when water (or something else on the floor) causes a customer to slip and injure themselves when they hit the ground.
Most of the time this is a "medical payments" claim: a small limit on the policy that pays for small medical bills of up to about $5,000, regardless of fault. However, these claims can sometimes cost more or escalate into a lawsuit. This event is almost always covered under the general liability insurance policy.
Food Poisoning: When you own a restaurant, allegations of food poisoning come with the territory. Some of these claims may be groundless, but others might not be. A restaurant insurance policy can cover these types of claims if consuming your food causes someone bodily injury.
Customer Burns: Whether you spill hot liquid on someone or a customer touches a scalding hot plate, the general liability policy will cover bodily injury that you cause to a customer.
Although the commercial general liability policy probably sees the highest frequency of claims, the restaurant property insurance policy will usually see the highest dollar claims. This insurance policy can cover the building, the kitchen equipment, freezers, dining tables, and any other property along those lines.
For more information on commercial property insurance, what it covers, and how to get the most out of your policy, check out our article, “Commercial Property Insurance: The Ultimate Guide.”
Most of the time, we see claims on restaurant property insurance ranging from theft to building fires. Since restaurants are highly visible to the public and their operations involve ovens and open flames, property insurance is a must-have coverage.
Workers compensation insurance is an insurance policy usually required by your state government. It pays for medical bills arising from employee injuries incurred on the job.
This is really important for restaurants because your employees are always up and about –often carrying things, climbing on chairs, reaching overhead, and touching hot surfaces.
Liquor Liability (If You Serve Alcohol)
If you serve any kind of alcohol, chances are your state will require you to hold this coverage to maintain your liquor license. This coverage protects your business from the legal liability arising out of overserving an individual. It also covers you if an accident occurs as a result of you serving an individual.
Generally speaking, we see the majority of these claims arise from an overserved customer that has been in a drunk driving accident.
In some states, you could be held liable for that; in others, you might get listed on the lawsuit and have to fight your way out. Liquor liability is a policy (sometimes included in the general liability policy) that will pay for these types of accidents and also pay your legal bills in the process.
Garagekeepers Liability (If You Have A Valet Service)
If you have a valet service and a customer's vehicle is damaged while in your care, do you have coverage for that? General liability insurance does not cover auto accidents, so we have to look at a different policy to pay for this type of accident. Enter the garagekeepers policy, which covers customer vehicles in your care, custody, and control.
If your restaurant offers a valet service, it’s a good bet some of the vehicles parked by your staff are pretty expensive. So this coverage is necessary for restaurants with valet operations.
How much is business insurance for a restaurant?
Insurance costs for restaurants vary dramatically and often come down to the operations. A small submarine shop might be able to get all the relevant coverages (they probably wouldn't need liquor liability or garagekeepers) for $1500 per year, whereas a large restaurant that owns a building and has cooking operations might be $6000 per year.
If you are interested in finding out a closer estimate, you can get an instant quote by clicking here.
How can I save on restaurant insurance?
Although insurance companies do have certain premiums they need to collect, some discounts are available to customers who are lower in risk than their peers. Here are several ways to get additional discounts on your restaurant insurance policies:
Fire Suppression Systems
While underwriting restaurants for property insurance, the insurance companies will always ask, "What fire suppression systems are in place?"
The answers range from the building being sprinklered to ANSUL systems being installed in the kitchen. The more fire protections that you have, the better your property rates are going to be, since fire is the largest concern for restaurant insurance underwriters.
LandesBlosch Recommendation: Monitor your policy for "protective safeguards." Be careful. If you state that you have certain fire protection in place, but then remove that equipment or don’t keep it in working order, your insurance company can exclude the fire claim. This is called a protective safeguard endorsement. Having this endorsement is fine if you are 100% committed to keeping the system and maintaining it, but if you are not, we suggest taking it off to avoid a situation down the road.
Mitigate Slip And Fall Risks
We have seen some restaurants that average a couple of slip and fall claims per year. Insurance companies generally want to avoid these claims. You can often get a discount if you have procedures to mark wet floors or communicate that you have a system to do so.
Keep Alcohol Sales Below 50% Of All Sales (If Possible)
Unless you are running a fine dining restaurant, keeping your alcohol sales below 50% of revenue will keep you in a lower cost classification. If your liquor or alcohol sales surpassing 50%, insurance companies will start to see you as an alcohol establishment that also serves food. There are exceptions for this in certain types of restaurants, such as fine dining (with expensive liquor), breweries, distilleries, and wineries.
In-House Food Delivery Increases Insurance Costs
Although most restaurants do not offer a delivery service, we had to include this since it could be such a large factor. If your employees are regularly delivering food in their personal vehicles, you will need to purchase coverage that will pay for any liability arising out of a car accident during delivery. This coverage is called hired and non-owned auto liability.
When you start offering delivery services with personal autos, the price of this coverage can start at roughly $1500 per year on the lower end.
Restaurant insurance is an important ingredient to any successful establishment. It allows you to pay a monthly premium so you don't have to prepare for an accident to harm your business. This insurance will also help you deal with these problems as they arise so that you can continue to spend your time running your business.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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