Given the presence of cooking equipment and flammable products, it’s no surprise that restaurants sustain more than their share of fire damage. According to the Federal Emergency Management Agency, some 5,900 restaurant building fires are reported to fire departments each year and cause about $172 million in property loss.
But fires are but one business threat for restaurant owners. Christie Lucas, v.p. and commercial product manager at Erie, PA-based Erie Insurance, outlined some other common occurrences covered by commercial insurance policies, along with proactive measures to manage them.
1. Power or mechanical failure. Restaurants rely heavily on refrigeration equipment, so when the power or mechanical systems fail, often ingredients are spoiled and often the restaurant must close. Power outages are outside a restaurant owner’s control, but they can reduce the risk of a mechanical failure by regular servicing. “We give our clients a discount if they have a maintenance agreement in place,” Lucas says.
2. Food contamination. Whether food is tainted before it’s delivered, improperly handled on the premises or compromised by a sick employee, a chink in the food safety armor can cause a lot of headaches for a restaurant. To avoid these scenarios, Lucas recommends knowing vendors well, checking references before doing business with them, and conducting food handling training food handling for employees.
3. Data breaches. Target, Home Depot, T.J. Maxx and other retailers have been targets, but restaurants, where credit card use is common, are just as vulnerable, if not more so. A breach can be very costly, both from an economic and reputation perspective. Lucas advises training employees in data protection practices and making sure they swipe cards in the customer’s presence—or at least in the open, where their actions can be seen by other staff members. She also recommends background checks on prospective hires.
4. Intoxicated guests. Who is to blame when a tipsy customer gets into a car and causes an accident? Liability depends on the location. Some states hold the server to be negligent, while others blame the restaurant. Either way, “it’s normally very expensive to go to court,” Lucas says. To qualify for liquor liability coverage, Lucas explains, most carriers require restaurant and bar employees to undergo training to identify intoxicated customers, when to turn them away and when to order them a taxi home. She advises restaurants to refresh training at least annually.
5. Delivery vehicle accidents. Accidents happen, but establishing standards for employees before they get behind the wheel can help reduce the likelihood. A commonly accepted practice is to search bureau of motor vehicle reports before allowing a staff member to drive. Disqualify any staffers with more than one speeding ticket or accident on their record. And be sure to update those reports twice a year, Lucas recommends.
6. Discrimination. An employment practices liability insurance policy can cover situations from wrongful dismissal to harassment, discrimination, failure to promote, wrongful discipline and other scenarios. Efforts to educate management and employees, including formal training and a comprehensive employee handbook that clearly spells out policies, can help reduce this category of claims.
7. Fires. Kitchen fires are hard to avoid and they can flare up at any time. Key prevention methods include periodic electrical inspections and equipment maintenance. Also, because grease is such a key risk factor in fires, Lucas says, most insurance carriers require grease removal at least semiannually. Keeping areas as grease free as possible has another benefit: reducing slips and falls, which are common reasons for workers’ compensation claims.
Despite all these threats to their business, many restaurants remain underinsured, Lucas says. Forced closures or loss of customers because of a fire or foodborne illness can wreak havoc on a restaurant’s bottom line. “The amount of income you could lose after a loss is significant,” she explains, “and from a liability standpoint, there is always the potential for liquor liability or a catastrophic auto accident loss.”