When it comes to insurance needs restaurants are similar to all other businesses in the way that the owners are exposed to liability that can potentially put those owners under the risk of losing their properties and wealth. The following is a brief discussion summarizing the areas that restaurant owners need to worry about when it comes to protecting their wealth and property.
- Property Insurance considerations. Restaurant owners may own buildings or business property that need proper coverage:
(1) Building Coverage: If the restaurant owner owns the building, building coverage may be needed to protect the property from perils such as fire, collapse, smoke, etc. Depending on the location, age, and other factors, building may be covered at Replacement Cost (better) or Actual Cash Value -ACV- (Replacement Cost minus Depreciations.) The proper amount of coverage varies based on square footage. In Chicago, it costs between $100 to $170 per square foot to replace a commercial building.
(2) Restaurant Equipment: Will cover the value of the equipment that is owned by the business. Equipment can also be insured based on either Replacement Cost or ACV.
(3) Business Personal Property (content and inventory) such as food inventory.
(4) Physical Damage on business auto. If business owns a vehicle that requires physical damage (comp and collision) coverage can be obtained on both ACV or Stated Value (in stated value approach the business owner sets the value of the vehicle to be insured.)
(5) Business Income / Extra Expense. Provide coverage for the extra expense/ income of the business in the event of destruction of business by a covered loss. There is either a time limit, or an amount limit, or both for this coverage.
(6) Crime. It provides the businesses the protection from loss of money, securities, or inventory resulting from crimes (robbery, theft, etc.)
- Liability Coverage. Restaurant owners may be subject of lawsuit due to negligent acts of the business or its employees. The following should be areas of concerns to the business owners of restaurants:
(1) Commercial General Liability (CGL) provides fundamental coverage for business owner against lawsuits resulting from incidents such as consumers’ slip and fall(premises liability), use of harmful food (product liability), or lawsuits brought against the offenses of the restaurant (or its employees) against the reputation of other people or businesses in the course of advertising (personal & advertising injury). CGL also provides additional property damage to rented premises (fire legal liability) and coverage for bodily injury suffered by others on the premises of the insured, even though the insured was not negligent.
It is very important that restaurant owners disclose all aspects related to their business, such as yearly revenues, if the business provides catering or not, and if the business restaurant provides delivery or not. Additional important concerns to insurance companies include consumption of liquor, use of live entertainment, availability of dance floor, and other factors related to unusual services. These factors can affect the qualification for certain coverages and the premium that is charged to the policy.
(2) Liquor Liability. Dram shop laws provides for someone who has been injured by an intoxicated individual to sue the liquor establishment that sold/ served the alcoholic beverages to the intoxicated individual. If the restaurant serves liquor on the premises, then dram shop or liquor liability is necessary. Each state has certain minimum limits for liquor liability. In Illinois it is set at $300,000 each occurrence.
(3) Business Auto: If the restaurant owns a vehicle (for delivery, catering, or any other reason) the business owner may need to make sure that enough and appropriate coverage is purchased to protect the business.
(4) Hired and Non Owned Auto. Provides auto liability coverage for any vehicle rented by the restaurant business, or vehicles that are being used for running the business but are not owned by the restaurant owner (ie vehicle owned by someone other than the restaurant or its owner, while making a delivery.)
(5) Workers Compensation Provides coverage for injured workers, regardless of fault, if their injuries are work related. This is a mandatory coverage by the state in Illinois.
By John Benson