The recession may be over, but restaurants are still finding it tough to bring back customers in the numbers they saw during boom times. Many are turning to innovations to grow their business. While that can be a plus for their balance sheets, it can also open the door to unexpected liabilities that their insurance policies were not designed to cover.

All too often, the lack of appropriate coverage only becomes evident when a mishap occurs and a claim is filed. After someone has already threatened to sue for damages is usually a bad time for restaurant owners to discover they should have consulted with their insurance agent about their insurance needs before changing their business model.

Agents can head off this scenario and build a strong consultative relationship with their restaurant customers by asking key questions at renewal time. Here are some of the trends that could put restaurants at risk and the questions agents should ask their restaurant customers :

Mobility. Has the restaurant added new services, such as delivery of meals using hired drivers with their own cars?
Branch out businesses. Has the restaurant started a new line of business, such as catering?
Trendy foods. Has the restaurant introduced new menu offerings as part of the strategy for attracting more customers, such as locally sourced foods, an emphasis on organic ingredients or assurances about non-allergenic ingredients?
Additional payment methods. Is the restaurant accepting new methods of payment, such as online credit charges or smartphone purchasing?

Armed with the answers to these kinds of questions, you can offer your customers a menu of options that go beyond the coverage required for an on-site restaurant operation. Insurance carriers with experience in the food services industry can work closely with you to make sure your customers have the right “ingredients” in their policies.

On the Road

When restaurant owners saw a steep drop-off in business several years ago, some decided that if the customers were not coming to them, they would take the food to the customers. Delivery of prepared meals moved beyond traditional pizza joints and began to show up in a variety of restaurants.

Unfortunately, many restaurant owners forgot to take insurance needs into their calculations. They may not have been aware that their standard commercial auto coverage does not address their liability for drivers they hire who use their own cars, the typical arrangement for delivery services. They may not have known that they cannot buy insurance for someone else's car.

The first thing you can do as their agent is educate them about “hired and non-owned” auto coverage that will protect their company if they become the deep-pocket target of someone injured by a delivery driver. You can also advise them to evaluate their umbrella coverage to make sure they have adequate limits now that their business will involve more use of automobiles; jury awards for injuries from vehicle accidents have skyrocketed over the past decade.

Other recommendations you can offer your customers should focus on the people hired to make the deliveries. The restaurant should develop and follow hiring protocols, such as checking state driving records to make sure the applicants do not have excessive tickets for speeding, arrests for drunken driving, at-fault accidents and other indicators of poor driving practices and skills. They will also want to institute policies that address what can and cannot be done during the course of deliveries, such rules regarding obeying speed limits, using cell phones, drinking on the job, carrying passengers and other possible restrictions.

Anyone can make a mistake while driving, but if restaurant owners are forced to defend themselves against a lawsuit, they will want to be able to argue they hired someone with a good driving record and had driving standards in place that employees were required to follow.

In addition, the person hired to drive should be required to carry insurance that not only has adequate liability limits, but also does not exclude coverage for driving during the course of conducting business. The restaurant should require the driver's policy include the restaurant as an additional insured. The driver should prove the coverage is current and meets the restaurant's requirements with a certificate of insurance.

Finally, the restaurant would also be well advised to use a vehicle maintenance checklist that identifies problems such as bald tires, non-functioning headlights and burnt-out bulbs for turn signals. An unsafe vehicle operating in their name can expose them to liability if they have not taken steps to perform regular inspections.

By making your restaurant customers aware that a delivery service, even one they are trying on a pilot basis, has to be managed carefully, you can help avoid any misunderstanding about where their coverage ends and their liability exposure begins.

Catering and Special Events

Some restaurants have opened up side businesses to provide food for off-site conferences, special events such as golf tournaments, weddings, bar mitzvahs and other private functions. This catering service may be something that is provided regularly or as an infrequent, one-off occurrence. Either way, exposure to liability increases across several dimensions.

One area to examine is workers' compensation. Employees who are delivering food, lifting trays and equipment from delivery vans and putting them in place at unfamiliar event locations may be more exposed to back strains, slips and falls and other injuries. You will want to help your restaurant customers ensure that their workers' compensation coverage is not limited to activity within the four walls of the restaurant and that the limits are adequate to address exposure.

If alcohol is being served at the event, the restaurant should make sure that all proper liquor liability controls are in place, with adequate training for staff about serving inebriated guests and avoiding under-age drinking. If the restaurant's policy does not include off-premises liquor liability, additional coverage should be added.

In addition, the precautionary measures that are advised for delivery service also apply to catering and special event services. Employees who will be driving company vans should have good driving records and be trained about company policies regarding safe driving.

For restaurants that cater on only an occasional basis, special event insurance may be the most economical solution, issued to cover the exact circumstances of each situation. For those who do multiple events each year, a policy can be put in place that covers all events, with the customer reporting in advance details about the events as they are scheduled.

A critical step is to encourage customers to notify you about special events in advance so that you can help them arrange the best coverage. By giving you the information you need to put the carrier on notice, the restaurant owners can be assured that any catering missteps are covered.

Keeping Up with Trends

Increasingly, high-end restaurants are interested in demonstrating to potential diners that they are in line with the latest culinary trends. This includes offering locally grown produce and specially raised meats, using organic ingredients and avoiding items that are allergens for some people.

While these trends are rooted in the desire to have fresh, pure, uncontaminated food that has traveled only a short distance from farm to plate, they introduce an element of risk if careful controls are not put in place. Food-borne illness, such as a reaction to salmonella on fresh spinach or e coli bacteria on meat, is a problem, regardless of the source. National food distributors, however, typically have protocols in place to handle recall situations and insurance coverage to address damages.

Restaurants that choose to buy locally should ensure that growers have proper procedures in place to limit contamination and deliver unspoiled food. They also ask produce and meat providers to show proof of liability insurance with a highly rated insurance carrier and require that the restaurant be added as an additional insured.

You may also explain to your customers about the advantages of trade name restoration/food-borne illness policies. This type of coverage helps minimize the costs associated with crisis management in the event of an incident that would damage the reputation of the restaurant. This could include covering expenses to set up a call center to deal with inquiries from restaurant customers, providing public relations expertise for responding to media requests, and communicating with regulators, community leaders and other stakeholders.

If restaurants are offering foods that may be allergens for some customers—such as dishes fried in peanut oil—you can advise the owners to use cautionary signage. For example, menus can carry a message that says some dishes contain peanuts, MSG, gluten or other ingredients people may be sensitive to.

Similarly, if the restaurant is providing uncooked food to be prepared at home, the items should be given to customers with stickers advising that they be refrigerated until use and then cooked at the proper temperature for the right amount of time before consumption.

Safeguarding Transactions

Another area that is evolving rapidly for restaurants is how consumers pay for their meals. To encourage more business, some restaurants now allow ordering and payment online. Others may have the capability to allow people to pay with their smart phones in place of a credit or debit card.

With increased exposure to ways for hackers to steal private information, including account numbers for credit and debit cards, restaurants should consider purchasing cyber liability insurance. These policies typically cover the costs of dealing with the state-by-state regulations that govern steps that must be taken in response to security breaches that expose people to identity theft and fraud.

The Recipe for Success

During the recession, restaurants lost millions of customers who were cutting back on discretionary spending. Now many are rebuilding their businesses, sometimes by trying new techniques and offering different services.

Agents who are tuned in to what those changes may mean can earn restaurant owners' trust – and repeat business – by making sure insurance coverage keeps pace with how the restaurants are actually operating. By asking the right questions at renewal time, agents can help restaurant owners identify all the right ingredients for complete coverage.

Special Reports /

4 Trends That Can Put Restaurants at Risk

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