How to keep costs down and protection up in today’s climate

Interested in safeguarding his restaurant and his livelihood, John Panvino doesn’t hesitate to invest in insurance.

The chef and owner of Trattoria Porretta in Chicago, Panvino knows thorough coverage for his business can save his tail should one of his delivery drivers get in an accident or hackers infiltrate his point-of-sale system. Insurance affords Panvino protection and peace of mind.

“You can’t just sign on the dotted line and call it a day,” Panvino says. “In the restaurant business, there are a million things you need insurance for and I want to know I’m covered.”

Indeed, insurance can make or break a restaurant operation, challenging its health, if not its long-term viability.

Contemporary insurance issues

COVID-19 has altered so much of the world and insurance is no different, where the virus stirred up dust that continues swirling.

According to Don Scaramastra, an attorney at Seattle-based Foster Garvey who represents clients in insurance-related litigation, the conventional policy covers direct physical loss of property or damage to the physical building. These days, court battles are brewing coast to coast around the term “physical loss.” Is a virus present in the restaurant a physical loss? What about one’s inability to use the restaurant because of a government order?

While Scaramastra watches the courts taking different approaches, he also sees insurers largely retaining the same “physical loss” language. Many, he says, are “buttoning up” their policies and eliminating any murkiness through exclusions. Prior to COVID-19, for example, Scaramastra estimates that 70-80 percent of policies held a virus exclusion; now, he cannot imagine a policy without a virus exclusion.

“It’s an ultimate fortress for the industry,” Scaramastra says, adding that while some insurers offer pandemic-related insurance, such coverage largely remains cost prohibitive. “I don’t see a viable road for the insurance industry to willingly take on all of that risk.”

Insurers are also trying to wrap their arms around restaurants’ various pandemic-era pivots, such as meal kits, curbside pickup, selling liquor with off-premises orders, off-site dinners, online cooking courses and, of course, delivery, which surged over the last year. For restaurants running an in-house delivery service, the associated liabilities and necessary insurance can be costly, a reality that leads many to outsource delivery.

“These pivots are all potential new exposures that could change coverage and even bring additional premiums to the table,” says Rosanne Boik of Chicago-based Kamm Insurance Group.

Additionally, Boik, who has been working with restaurants on insurance issues for more than two decades, is urging many of her clients to consider purchasing employment practices liability (EPL), which covers a business for sexual harassment, wrongful termination and discrimination among other charges.

“The industry is seeing wrongful termination claims go through the roof due to employees who were let go during the pandemic and not brought back, alleging that they were not rehired as a result of one of these charges,” Boik says, adding that cyber insurance is another additional coverage area worth exploring given many restaurants’ increasing reliance on digital technologies and the ongoing, global work of nefarious actors.

Boik also notes that insurance rates, which were climbing before COVID-19, continue to rise given the accelerating number of claims as well as mounting lawsuits against insurers tied to business interruption.

“In some cases, we’re seeing double-digit rate increases,” Boik says.

To keep costs down and protections high in today’s climate, restaurants should:

Understand coverage – and who’s providing it. Scaramastra regularly
encounters “sophisticated businesses” who simply do not understand the coverage they purchased, particularly so with business interruption insurance, while many others failed to carefully vet their insurance provider.

“You’re buying a series of promises from a company to take care of you if something goes awry, so you don’t want to deal with someone simply looking for an excuse not to pay,” he says.

Control the controllable risks. Look to safety issues of insurance, such as loss controls, slip and falls and kitchen incidents, and establish a culture of safety in the restaurant to minimize claims. If there are multiple incidents of cuts in the kitchen, for example, consider a staff training session on responsible knife use.

“Remember that employees aren’t thinking about the boss’ insurance premiums,” Boik says, “but the boss can and should.”

Adopt a careful filing calculus. Boik suggests pursuing higher deductibles on property to minimize premium increases and to then be mindful of filing claims that might trigger premium increases.

“Let’s say you have a $1,000 deductible and then $1,200 in awning damage. Is it worth it to file a claim for $200 if your premium might go up?” she asks. “Insurance is typically there for big, catastrophic claims, so it might be wise to keep the focus there if you want to save on the premiums.”

Lean on a trusted broker. Much like having the right accountant or attorney, the right insurance agent, particularly one familiar with the restaurant industry, can offer thoughtful counsel on appropriate coverage that addresses common industry risks.

“It’s a good idea to think about things you’re worried about, hear what the broker thinks you should be considering and then have a thoughtful exchange about the products that
address risk,” Scaramastra says.

Is business interruption insurance really necessary?

As COVID-19 forced restaurant closures across much of the U.S., many owners were surprised to learn that their business interruption insurance offered no relief.

“Business interruption insurance has to be triggered by a direct physical loss of property. If there’s no physical damage, then there’s no business interruption insurance,” explains veteran restaurant insurance agent Rosanne Boik.

As restaurants learned of this, incredulously discovering that their business interruption insurance did not cover the greatest business disruption of the last century, many responded with lawsuits. While courts across the country continue hearing cases, many operators question the validity of business interruption insurance altogether.

Boik, however, continues urging her clients to retain business interruption insurance.

“You want coverage in place for incidents that are included in your policy form, such as storm damage, a fire or a car crashing into the restaurant,” she says. “That’s when that coverage kicks in and can help immensely.”

Daniel P. Smith  Chicago-based writer has covered business issues and best practices for a variety of trade publications, newspapers, and magazines.