People who work in food service often aspire to run a restaurant or bar of their own. Many restaurant owners started their career as an entry-level food service worker. It can be a very rewarding business, especially if you love preparing food and interacting with people.
Managing a restaurant or bar is hectic, though. You have many demands on your time, from food procurement to hiring staff. In the press to get everything done, don’t forget about insurance!
You’ll need insurance to protect your establishment from liability exposure and property damage claims. Let’s look at some risks restaurant and bar owners face, and the types of coverage you’ll need to protect against those risks.
Restaurant and bar liability risks
Because you serve customers on your premises, your exposure to liability claims can be quite high. Think about what would happen if a customer fell on a slippery floor, had their payment data stolen, was assaulted at your bar or had an allergic reaction to food you served. Depending on the severity of the injury or damage, you could face a costly lawsuit.
Commercial general liability (CGL) insurance is the restaurateur’s primary protection against claims involving injury and property damage. You’ll likely be required to purchase it if you take out a loan from a bank or lease a space. It’s a key coverage that every business should have.
Make sure you’re covered for food-related illnesses and alcohol-related claims as well. If you serve alcohol, you will need liquor liability coverage. You may also need to purchase assault and battery insurance to cover violent acts involving patrons, your employees or security guards.
An insurance broker can help you get complete liability coverage and will know how to fill any gaps in your CGL policy. Regardless of the type of liability coverage you purchase, your protections will generally fall into two main categories:
- Bodily injury and property damage
- Personal injury such as libel and slander, copyright infringement, misleading advertising and use of another’s intellectual property
Many restaurants also purchase excess liability coverage through an umbrella policy, which helps cover claims that exceed your policy limits. Also ask your broker about a data breach policy, since hackers are always working to break into your payment systems.
Liability policies won’t cover bodily injury to your employees. Your workers’ compensation insurance would cover that. CGL doesn’t cover professional liability or employment practices liability claims, either. For those, you need separate policies.
Commercial property coverage
Another important coverage for restaurants and bars is commercial property insurance. Unfortunately, there are many situations where you may have property claims, from the flooding of a restroom to equipment breakdown to theft of your liquor stock.
Kitchens are a special risk. Fires are common in eating and drinking establishments. A fire can get out of control in seconds, destroying valuable property and possibly injuring employees and patrons.
Commercial property insurance covers your building and premises, furnishings, equipment, supplies, products and other items you use to operate your business. Common covered perils include fires, theft, vandalism and weather-related incidents, such as windstorms and tornadoes. To cover equipment failure, ask about equipment breakdown insurance, which can help with repairs and lost income.
If you provide catering services and transport food and equipment to customers’ locations, you may need additional insurance to cover your property when it’s in transit and off-site. Ask your insurance broker if you need inland marine insurance.
Vehicles you use for your business should be covered by commercial auto insurance. In some instances, a personal vehicle can be used to make deliveries. But most personal auto policies don’t cover business use, so it’s best to add them to your company policy under a nonowned auto clause.
Workers’ compensation
We don’t usually think of food service as hazardous, but employees can cut themselves on knives and equipment, burn themselves frying and cooking, slip on wet surfaces, or hurt themselves lifting heavy objects.
Workers’ compensation covers you against the cost of these work-related injuries. It’s required by law and provides your employees with care and rehabilitation, as well as lost wages if they need to take time off work.
To minimize the risk of workplace injuries, follow appropriate safety procedures in the kitchen, the loading dock and other accident-prone areas of your operation. Train your employees on the correct way to use equipment and carry heavy loads. Make sure your servers understand the traffic flow in and out of the kitchen.
Employment practices liability insurance
Employment practices liability insurance (EPLI) covers liability issues that occur when you hire and supervise employees. Job discrimination, sexual harassment, retaliation and wrongful termination are just a few claims you could face. These types of claims can be quite costly. An EPLI policy is designed to help with your legal expenses if a claim occurs.
A good EPLI provider will work with you to ensure you make efforts to prevent claims, such as an employee handbook and written policies against discrimination and harassment. The best way to avoid lawsuits is to have sound HR policies and follow good employment practices.
BOPs provide several types of coverage in one policy
Many insurance carriers offer business owners policies (BOPs) to cover the basic insurance needs of small businesses. The standard BOP gives you CGL, commercial property and business income insurance in one bundled policy, usually at a lower cost than if you had to buy them separately.
Business income insurance replaces lost income if your restaurant or bar is shut down due to a fire or natural disaster. It can keep your business afloat if you can’t reopen right away.
Be aware that BOPs are limited in scope, so you may need to purchase additional coverage. BOPs usually don’t include auto insurance or EPLI.
Commercial package policies (CPPs), an alternative to BOPs, can give you more flexibility. A CPP allows you to add the coverage you want and drop the coverage you don’t. Some insurers also offer program insurance tailored to the needs of the hospitality industry. Talk to your insurance broker about designing a plan for you.
Food service is a dynamic, resilient industry, and many restaurants and bars were able to adapt and thrive even during the pandemic. But to succeed, these establishments need to be adequately insured. Get the right coverage for your operation so you can focus on running your business worry-free.
This content is for informational purposes only and not for the purpose of providing, financial, medical or legal advice. You should contact your attorney, doctor, broker or advisor to obtain advice with respect to any particular issue or problem. Read more about our limitation of liability here.