Risk Management for the Food Service Industry

Chapter 2: Understanding Food Business Insurance Policies
Part 3: Essential Insurance Policies for Food Services Professionals

Now that you know that foundational insurance coverages that can safeguard any small business, let's delve into some policies that were designed with restaurants, bars, catering services, and other food services businesses in mind:

  • Liquor Liability Insurance.
  • Off-Premise Insurance.
  • Hired & Non-Owned Auto Insurance.
  • Umbrella Liability Insurance.

Keep reading to learn why these coverages are vital to your food business's continuity plan.

Liquor Liability Insurance

If you serve alcohol to your patrons or allow them to BYOB, you open your food service business to the possibility of liability suits. In most states, dram shop laws hold liable establishments that sell, furnish, or serve or alcoholic drinks if they continue to serve an obviously intoxicated guest who goes on to injure someone.

Who Needs Liquor Liability Insurance?

As a rule, if you serve alcohol or allow patrons to drink it on your premises, you'll want to secure a Liquor Liability policy. Some states even require restaurants, caterers, or bar owners to carry Liquor Liability Insurance if they sell alcohol. For reference, these are the primary indications that you'll want to invest in your own policy:

  • You live in a state that requires Liquor Liability Insurance before you can sell or furnish alcohol to your customers.
  • You sell or serve alcohol.
  • You have a BYOB policy and patrons consume alcohol at your establishment.

Do any of these apply to you? If so, feel free to chat with an insureon agent to find a policy that fits your needs.

What Does Liquor Liability Insurance Do?

Liquor Liability Insurance can shield your business from the rippling consequences of liquor-related incidents. Say, for example, a drunk patron starts a fight with one of your other customers and punches that person in the face. The injured guest could sue your business for medical expenses.

Though Liquor Liability coverage is a staple for most food services professionals who generate revenue through the sale of alcohol or liquor, InsuranceJournal.com reported in the article "Bars Often Roll Dice on Liquor Liability Coverage" that bar and tavern owners tend to be underinsured. That's a gamble that could saddle them with serious debt or bankruptcy.

So what's the benefit of carrying Liquor Liability Insurance? The policy can offer your business…

  • Assault and Battery coverage. Fights are the most common cause of liquor-liability claims. That's why most Liquor Liability Insurance policies include assault and battery protection. Your policy may outline specific instances for coverage, such as sexual assault, stabbings, shootings, and more. Be sure to talk to your insurance agent to determine which inclusions are appropriate for your business.
  • Legal Defense Costs coverage. Attorney fees alone can drain a small-business owner's finances – and liquor-related claims are notorious for becoming drawn-out court battles. Even if your business is ultimately not found liable for wrongdoing, you'll still have to pay for your legal defense, which can cost you thousands of dollars. When reviewing possible Liquor Liability policies, be sure you choose one that covers both your legal defense and court-ordered compensation costs.
  • Intoxicated Employee coverage. Though you probably prohibit employees from drinking on the job, you don't want to take chances when it comes to protecting your livelihood. To better protect bars and restaurants from liquor-fueled incidents, look for a policy that covers employees as though they were patrons.
  • Mental Damages coverage. Violence is traumatic, and if other patrons witness a booze-induced fight on your premises, you could be sued for damages. These claims may allege the incident caused undue stress, psychological trauma, or anguish.

Though your plan can protect you from a slew of liability charges, your Liquor Liability policy cannot cover incidents related to the sale of alcohol to minors.

How Can I Spot a Quality Liquor Liability Policy?

A quick Google search will turn up countless Liquor Liability policies, all promising exemplary coverage. But how can you discern which policies are legitimately worthy of your consideration?

Look for a Liquor Liability policy that includes coverage for…

  • Legal defense fees when you're faced with a liquor liability suit.
  • Court-ordered compensation when you're found liable for damages.
  • Liquor-related incidents that happen away from your premises (e.g., an auto accident caused by a patron who become intoxicated at your bar or restaurant).
  • Bartenders who drink on the job.
  • Assault and battery incidents (e.g., a scuffle between a drunk patron and a bouncer).
  • Specific criminal instances, such as sexual assault, stabbing, shootings, etc.
  • Mental damages for those who witnessed a violent, liquor-related event on your premises.

Your coverage needs depend on the kind of establishment you run, the revenue you generate from alcohol sales, where you live, and other factors. To find a policy hand-selected to fit your food services business, apply for a free insurance quote from insureon today!

Off-Premise Insurance

As a caterer, food truck owner, or food vendor, you travel with your cooking gear, inventory, and refrigeration units. Typically, your Property Insurance policy will only cover this equipment within a specified radius of your primary business location.

For the freedom and flexibility to travel wherever your business takes you, you'll want Off-Premise Insurance. This is a kind of Property Insurance that follows your covered gear when it's away from your primary location – en route or in storage.

Your policy can offer your food service business…

  • Off-Premise Property coverage. Off-Premise coverage can protect others' property in your custody or control, including the venues where you operate. So if your heating equipment catches fire and damages the reception hall that your business is catering, your policy can cover the property damage even though you don't own or rent the facility.
  • Off-Premise Equipment Breakdown coverage. Off-Premise coverage can also cover your equipment and supplies when they're in transit or in use at another location. If your equipment is damaged by a power failure somewhere other than your primary business location, your policy offers compensation for the cost of repairs or replacements. Your policy can cover mobile refrigeration units, stoves, ovens, computer systems, and electrical culinary supplies against damage. Also, if your food products are ruined directly by your malfunctioning, damaged, or broken equipment, your policy may be able to compensate your business for the associated cost.
  • Accounts Receivable coverage. Some Off-Premise policies may also include coverage for damaged accounts receivable records.

If this policy seems appropriate for you, know that you can easily add it as an endorsement to your Property Insurance plan.

Hired and Non-Owned Auto Insurance

If you send your employees to run occasional errands on behalf of your business in their personal vehicles, this is another avenue for potential lawsuits. If they have an accident, the other driver could sue your restaurant or bar for damages.

That's why Hired and Non-Owned Auto Insurance (HNOA) was invented. This insurance protects your business by…

  • Covering liability claims due to accidents in rented vehicles.
  • Covering liability claims due to accidents in an employee's personal vehicle while conducting business errands.

For both claim scenarios, your Hired and Non-Owned Auto policy can cover the cost of your legal defense, settlements or court-ordered compensation, and other expenses related to the initial charge.

One note, though: HNOA does not protect you or your employees from individual lawsuits. It only protects your business. For protection against individual claims, be sure that you and your employees carry adequate Personal Auto Insurance.

Umbrella Liability Insurance

Umbrella Liability Insurance (aka Excess Liability Insurance) is an insurance policy that can help you pay for claims that are so expensive they max out another policy's limit.

You may consider adding Umbrella Insurance to your business protection plan if you want to…

  • Afford worst-case scenarios. Umbrella coverage can help you pay for the extra expenses when a claim maxes out the limits of your General Liability Insurance, Employer's Liability Insurance (part of most Workers' Compensation plans), or Hired and Non-Owned Auto limits.
  • Get more coverage with one premium. Though you can put your Umbrella Insurance toward several policies, you only pay one premium for the extra coverage!
  • Cut costs, not corners. Excess Liability Insurance can cost as little as a few hundred dollars per year (annual premiums can be as low as $350 to $400). At the same time, it offers additional financial protection in increments of $1 million.

Here's how Umbrella Liability coverage works:

Say you're tangled in a General Liability lawsuit over a serious slip-and-fall incident on your premises, and your restaurant settles with the plaintiff for $800,000 to cover medical costs, lost work time, and pain and suffering. Once you factor in $300,000 for legal fees (yours and the plaintiff's), you're past your $1 million GL limit.

This is when your Umbrella Insurance steps up to the plate. You can file a claim with your Umbrella Insurance so that it covers the additional $100,000 for the claim without forcing you to dip into your bank account.

Next: Part 4: What Business Insurance Can't Cover (and the Riders that Fill the Gaps)

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