The Changing Landscape of Restaurant Liability Insurance Post-Pandemic

While the COVID-19 pandemic has affected nearly every small business, restaurants have been one of the hardest hit industries. According to National Restaurant Association, estimates of restaurants forced to temporarily or permanently close due to labor shortages, loss of revenue, restrictions on business interactions and reduced capacity during the pandemic have reached more than 110,000. Many restaurant owners have turned to their insurance policies for protection during this time of business disruption, but most policies fall short of the coverage provided. New restrictions, guidelines and recommendations for restaurants have continuously changed since the start of the pandemic, forcing owners to be even more efficient and resourceful in meeting customer needs and keeping their business afloat. However, these difficult times in the industry have forced restaurants to rethink and improve not only their business strategies, but also their risk control, best practices and safety measures to protect both their employees and customers.

Political reactions

Throughout the pandemic, the majority of insurance claims were related to loss of revenue against property policing, as well as third party bodily injury against customers related to the pandemic. General liability insurance protects a business against financial loss if it is liable for property damage or bodily injury caused by services, business operations, or employees. It provides protection against lawsuits, accidents, and additional litigation that could potentially devastate a business. For a Covid claim to be valid, the claimant would have to prove that the virus was contracted due to the restaurant’s negligence and detail how, when and where they fell ill. All of this might be hard to pin down.

For the business interruption element to trigger under a property insurance program, there must be insurable physical damage or loss due to a covered peril. Most property policies apply exclusions relating to viruses, mold, bacteria and/or communicable diseases as non-covered perils. With these exclusions and no direct physical loss to property, property programs do not include virus-related business interruption protection. Although these stipulations are not included in current policies, many brokers and agents have recommended that clients report or notice insurance policies anyway, which avoids spurious reporting and allows for record keeping. revenue losses and the creation of a reserved space with the understanding that a state or federal government could require insurers to provide some level of protection in the future. So far, there has been no ratified carrier response on lost revenue, business interruption losses, or government legislation changing carrier positions as a result of the pandemic.

Mitigate the risk with preventive measures

Given that there is currently little insurance protection, restaurateurs are encouraged to increase other measures to improve risk mitigation and safety procedures for employees and customers. Many have implemented more stringent safety guidelines like increased hand washing and temperature checks at the front door in a bid to keep their employees and customers safe, with some requiring vaccinations and the use of masks. They have also moved to digital menus rather than paper menus to reduce “touch points”, as well as to increase the frequency of cleaning and disinfecting frequently touched surfaces. Given the pressure to operate a safe and clean environment, many restaurants have hired weekly disinfection services to clean and disinfect restaurants, while some have invested in personal disinfection machines. Further evaluation of their current food safety practices has increased, with greater emphasis on temperature control, prevention of cross-contamination, and general food storage processes.

Navigating the industry after the pandemic

As the pandemic progressed, many restaurants adapted to online and expanded delivery options. Increased safety measures included providing instructions with delivery slips to customers for handling food. With the rise of restaurants offering delivery services, restaurateurs must now implement fleet safety processes such as Motor Vehicle Record Checks (MVR) to ensure driver safety. The increased exposure of non-owned rented vehicles given reduced foot traffic and increased deliveries has prompted restaurants to turn to third-party delivery partners such as Uber Eats and Grub Hub to help. to carry out their activities effectively. These models bring another additional layer of exposure, forcing restaurants to implement strict contracts with these vendors to ensure they are properly protected against liability. Insurance companies are likely to step up and clarify the exclusion of viruses from coverage due to the pandemic.

The pandemic has forced restaurateurs to think ahead and ensure they are properly protecting their staff, customers and catering establishments. As many business operators refer to their lack of coverage in their policies as a result of the effects of the pandemic, it is important to seek out a qualified professional who can offer information to deal with changing business risks that may have an impact on losses and their future insurance coverage. With the help of these qualified insurance professionals and credible risk management advisors, businesses can gain additional protection by reviewing current insurance policies and recommending potential solutions.

Nicole M. Katz is first vice-president of Enterprise Risk Management Solutions. She brings over 22 years of experience in the risk management industry, specializing in large P&C insurance programs across various industry sectors including manufacturing, retail, hospitality, financial institutions and professional service companies. She is also an outsourced risk management advisor to a number of CRS’ large multinational investment fund clients. Prior to joining CRS, Nicole held various positions with major brokerage firms and was most recently Director of Risk and Safety Management for the New York Racing Association (NYRA).