Keeping Restaurants Out Of The Headlines

Even though a good portion of her business comes from providingcrisis and media management consulting for restaurants, consultantPam Ritz likes to keep a low media profile.

“I deliberately dont advertise the media-control work we do,because we dont want the media coverage that were doing that,” saidMs. Ritz, explaining why the Web site for her firm, Specialty RiskManagement (at www.callSRM.com), devotes only asmall amount of space to the work she does to support a verytargeted business interruption insurance program forrestaurants.

The program, called Trade Name Restoration Food-Borne Illness,is essentially an insurance and risk management services package.Professional Liability Insurance Services in Lago Vista, Texas,acts as the program administrator for the coverage written bysyndicates at Lloyds of London. (A nonadmitted product, it must bepurchased through surplus lines brokers.)

The policy used to be a tough sell to the agency community,according to Ms. Ritz and Dave Hanley, president of PLIS. However,with recent media attention to hepatitis outbreaks and otherfood-borne illnesses, the product is selling itself to agents andtheir clients, the pair contend.

“We would actually have to fight with agents all the time,” Ms.Ritz recalled, noting that agents believed the income losses from abusiness interruption stemming from a food-borne illness situationwere covered under typical property-liability packages they wereselling to restaurant industry customers.

It is true that “if somebody eats at your restaurant and getssick, your general liability policy will pay for the medicalexpenses from the lawsuit,” she said. However, the businessinterruption “will trigger for fire or hail. Its not set up totrigger for food-borne illness or media [exposure].” Withoutphysical damage to the restaurant, the business interruptioncoverage “remains asleep,” she said.

When a restaurant insured asks an agent, “Am I covered for afood-borne illness event, the agents answer is yes. But what theagent is thinking [of] is [coverage] for the person that gets hurt.It never occurs to an agent that the loss of income may be moreproblematic,” she said. “But what do you do when theres no onecoming into a restaurant?” she asked, highlighting a “real andunique exposure for restaurants” that media power and 24-hour newsreports exacerbate.

According to Mr. Hanley, with news of outbreaks related toE.coli, listeria, salmonella and hepatitis calling attention to theproduct, many “major clients” are going to their agents to find outhow much it costs.

“Big clients buy the product not so much for the actual loss ofincome but to be able to tell their stockholders that in the eventof a major outbreak, [they can] put income back into the bottomline,” stabilizing the stock price, he said.

Its not necessarily a large-company product, he said, notingthat the book runs from “small Mom-and-Pop restaurants to topfood-service organizations” costing anywhere from $600 to $1million for policy limits up to $40 million.

Small restaurants, in fact, may be “more vulnerable to peoplenot coming in the door when they are well known in a small city,”Ms. Ritz said.

The Trade Name policy, developed in 1997, not only covers for aloss of business income, but it has the national crisis managementcomponent which comes into play immediately. Mr. Hanley explainedthat clients can call a 24-hour, seven-day-a-week hotline servicedby Ms. Ritz and a team of risk managers to help them through healthdepartment problems, dealings with the Center for Disease Controland Food and Drug Administration, and media events. “Their job isto get the client back up and running,” she said.

While anyone can buy the crisis services independent of thepolicy, Ms. Ritz said, noting that 50 percent of her business isprivate consulting, “insureds get the benefit of what we learn fromprivate-client business and they get the same service.”

While the policy trigger is a food-borne illness and a mediaevent, services are covered for actual and potential events. “Weask people to call us even before theres an event,” Ms. Ritz said,giving the example of a situation when “an employee calls in andsays, Im sick and have a disease that could be communicable viafood.”

“We actually rate our services by whether or not we can preventor mitigate the larger media event,” she added.

Asked about coverage for a situation like a recent one at aChi-Chis restaurant where a Hepatitis A outbreak was traced to asupplier of green onions, Ms. Ritz said that accidentalcontamination associated with suppliers is generally covered underthe policy.

The policy, which provides six months of business incomecoverage under a standard program, and 18 months under an enhancedone, also has other special features. For example, if inoculating agroup of people exposed to hepatitis is the best way to prevent itsspread, “general liability wont pick that up because no one is sickyet,” but this policy will.

Mr. Hanley noted that the policy excludes events related to MadCow disease, explaining that a very large event in Europe in theearly 1990s scared off reinsurance markets. Still, SRM publishesnewsletters to address related crisis management.

The policy also doesnt cover backing-up of drains or mediaevents associated with unsanitary conditions uncovered on a healthdepartment inspection. If you have a food-borne illness, the policycomes to life, he said.

Noting that the policy does cover events related to bothaccidental and malicious contamination, Mr. Ritz said that crisismanagement services related to an individual patron finding a ratin a bowl of chili, for example, would fall under the program.

“We have had live salamanders in hot spaghetti, in addition torats that have been deep fried,” Mr. Hanley said.

As for underwriting factors, he said, PLIS looks to see if arestaurant is financially sound, reviews cooking and proceduremanuals, and checks out the type of food being served.

“As long as you put a steak on a flame, cooking it quickly oneach side kills any food-borne illness,” but thats not the casewith a hamburger, he said, for which, according to Ms. Ritz, thebacteria on the outside is mixed throughout the ground meat.

Beyond that, the underwriter reviews typical businessinterruption criteria related to debt obligations, costs andincome.

For additional premium, the program can be written to includebusiness interruption related to workplace violence.

Restaurants in the Headlines

Outback Steakhouse: In a civil liquor liabilitycase in Indiana state court against Outback, a jury awarded $39million to two plaintiffs injured by a drunk driver, theTampa-based company announced last June.

Chi-Chis: A Hepatitis A outbreak linked togreen onions served at a Chi-Chis restaurant in a mall in BeaverCounty, Pa., sickened more than 500 people, including 13 Chi-Chisemployees, the company reported in November. Chi-Chis is underbankruptcy protection.

OCharleys: A Hepatitis A incident involving 77people, most of whom were linked to a Knoxville, Tenn., location ofOCharleys Restaurants, prompted at least 12 lawsuits alleging fearof, or injuries from the incident, according to a companystatement.

Rhode Island Nightclub: A fire at the Stationnightclub in West Warwick, R.I., killed 100 people and injured some300 patrons on Feb. 20, 2003, giving rise to lawsuits naming theclub and others, including Shell Oil Company, named for activelypromoting an event at the club. (See NU Online NewsService, May 30, 2003.)

Dennys: On May 24, 1994, Dennys announced the$54 million settlement of two public accommodations class actionsalleging racially discriminatory practices, according to a 1994filing with the Securities and Exchange Commission.

Reproduced from National Underwriter Edition, January 16, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.