Crunch Time

One coverage point to which producers should pay heed: Benefield warns of mold exclusions in many Property policies. The exclusion must be removed or the client's coverage will be inadequate.

General Liability rates for restaurants also are rising, but not as steeply. 

In the view of Scott Erhardt, area vice president and Restaurants First Program Administrator for Arthur J. Gallagher & Co. in Tampa, GL rates are up 2 to 6 percent for good risks and 6 to 11 percent for others.

Benefield says he is seeing GL rate hikes of between 5 and 20 percent for Guaranteed Cost coverage; for high-deductible plans, rates range from flat to increases of 10 percent. 

Rate hikes for restaurants that purchase bundled Property/Casualty policies range from 10 to 15 percent, says Jeff Kroeger, a vice president at Tarrytown, N.Y.-based Restaurant Select Inc. RSI places coverage primarily in New York and New Jersey.

Switching insurers is one strategy that owners have been pursuing to counter these rising costs.

Keith Kazanova, who co-owns five McDonald's franchises in Aurora, Ill., saw his packaged policy rates jump at least 10 percent annually for several years, even though he says his loss history had been relatively clean: one minor slip-and-fall claim.

Last year, however, Kazanova's costs dropped about 33 percent—though his coverage terms remained largely unchanged—after he switched insurers.

Doug Levy, owner of Feast, a fine-dining restaurant in Tucson, Ariz., also cut his costs when he switched insurers. Instead of increasing 7 percent, his costs edged up 1 percent—but his Building Contents coverage was doubled to sweeten the deal.

Nearly every standard market is willing to take on restaurants as long as they can be underwritten profitably, says Steve R. Franke, a Scottsdale, Ariz.-based vice president of contract underwriting of the West region at specialty insurer Scottsdale Insurance Co. 

COURTS, CATERING, OCCURRENCE & COCKTAILS 

While brokers and insurers say that General Liability terms are stable, a July 2012 federal appellate court ruling raises questions about the definition of a very basic term: occurrence.

Overturning a magistrate's decision in Republic Underwriters vs. Moore et al., the U.S. Tenth Circuit Court of Appeals ru

led that all the illnesses caused by contaminated food that a restaurant served on-site and at an off-premises catered event constituted a single occurrence. 

The panel ruled the illnesses resulted from the restaurant's ongoing food preparation and that the number of locations where the food was served was immaterial. 

The decision—which could influence courts in other circuits—underscores the importance of policyholders understanding how their insurers define occurrence and the importance of purchasing adequate limits, says policyholder attorney Diana Gliedmand, a shareholder with Anderson Kill & Olick in New York.

Court awards and settlements also are tightening the Liquor Liability market, insurance experts agree. 

Willis' Benefield says restaurants with liquor sales exceeding 10 percent of total receipts will find fewer interested markets.

Liquor-liability rates for restaurants with clean loss histories and solid controls in place likely will be 3 percent to 5 percent higher, says Lowell D. Fuller, a Tampa-based managing director of restaurant risk and insurance solutions at Gallagher. On the other hand, those with poor claims experience could be hit with rate increases several times greater than that, he says.

Restaurants that provide weekend entertainment have to be careful about coverage terms, notes RSI's Kroeger. Many admitted insurers exclude Assault and Battery co

verage, leaving policyholders unprotected if sued by patrons injured in brawls during shows.