empty dining tables and chairs

Q & A: Restaurants and Insurance

Dealing with COVID has put tremendous pressure on restaurants. Running a successful dining enterprise is hard enough in normal times but challenges like employee illnesses, lock-downs, capacity restrictions, civil unrest and public safety measures have all posed challenges that are new to restaurateurs.

Insurance is often the last line of defense for a business. I’ve wondered about how restaurant insurance has been affected by todays turmoil. I also think that when things get a little more normal, that there will be people who want to get into, or back into, the restaurant game. They’ll want insurance too.

So to get some answers I turned to an old friend. Allison Jamnik has worked in the insurance industry for over 25 years as an underwriter, marketing representative and a licensed independent agent.  She and her family have lived in East Lansing, Michigan since 1999.  In 2018 Illinois Casualty Company expanded their business into Michigan, which allowed her to expand into her favorite area of business, restaurants and taverns. She and her husband (also in insurance) are working from home these days; her daughter attends MSU and periodically visits for meals and cash.

FORK PITCH: Unless someone has already owned a restaurant, they won’t understand what insurance is like. What are some of the things you cover?

ALLISON: We protect  property from fire, theft, vandalism.  This year, we are providing coverage for our policy holders that suffered legitimate damage to their property from rioting.  Also included  is coverage for lost business income: for continuing expense and lost profit during the period of restoration resulting from a covered cause of lossAn example: On a Saturday in October, a fire breaks out in a sports bar.  The fire is quickly extinguished, but the smoke, water and fire damage will cause the business to close for about 30 days. , this includes the World Series and Halloween, some of their biggest revenue days.  Business Income coverage allows the business to continue to pay their staff, pay their bills and will replace the profit that would have been earned. While many insurance companies provide coverage on a stated limit basis and sometimes include a monthly limitation ,  our policies at  Illinois Casualty Company  don’t  contain a stated limit or any monthly limitation.  Coverage is available on an actual loss sustained basis using historical data.  We can  also cover ordinary payroll for up to 360 days which is important for a key employee like a good waiter or bartender.

FORK PITCH: And Liability coverage?

ALLISON: Our business policy  also provides liability coverage.    This protects the financial interests of the restaurant owner in the event of an injury or property damage to a third party.  A common liability claim is for a “slip and fall” by a customer.  An altercation is another common liability.  claim and many insurance carriers limit or even exclude coverage for assault and battery. Illinois Casualty Company also provides Workers Compensation coverage and Umbrella Liability for higher liability limits. 

FORK PITCH: How does alcohol factor? 

ALLISON: Many insurance carriers are not comfortable with any significant alcohol sales.  It is a very small portion of the overall insurance market and few carriers truly understand how to handle the resulting claims and also how to help the business owners protect themselves.  ICC was founded as a liquor liability insurance carrier in 1950 and remains very committed to being a specialist in this area.  This means we are what is known as dram shop. We specialize in the kind of coverage that  protects the liquor license holder against claims involving an injury or property damage to a third party arising out of the sale or furnishing of alcoholic beverages.  An example would be a motor vehicle accident with an allegedly intoxicated patron as the driver.  Many altercation claims are also filed as liquor liability insurance claims.

FORK PITCH: How do you cost insurance?

ALLISON: There are so  many factors that go into costing insurance.  Examples of a few are receipts food/alcohol sales, building capacity, location (is this a bar most patrons have to drive to or are they walking from their city apartment), jurisdiction (legal climate) entertainment.  Illinois Casualty Company has experience in costing entertainment. We’ve also found a correlation between the number of years a restaurant has been in business.  Some may think the older the establishment the less the premium should be but there’s less likely to be losses with establishments that have been in business between 5-25 years. 

For example if we have a small sports bar with one pool table we will debit the account; a larger one across the street with 2 or more pool tables we may credit the premium.  One pool table, often  between the bar and the bathroom and if  people get a little tipsy and  start playing some pool and another tipsy patron needs to use the facilities and messes up the pool players  shot…  Cues start swinging.  The other bar with multiple pool tables most often has to place them in another room.  The patrons are actually there to play pool. Away from the bar, likely  less trouble.  This is just one example of multiple factors for costing insurance. 

FORK PITCH: So food safety and illness?  Because I was, tangentially, in the business of supplying a safer food to restaurants but I could never get anyone to cost the risk of an outbreak. Could you explain? 

ALLISON: We don’t cover loss due to virus or bacteria However If your business a is ordered closed by the Board of Health or any other governmental authority as a result of the discovery or suspicion of “food contamination”, we will pay:

  • Your expense to clean your equipment as required by the Board of Health or any other governmental authority;
  • Your cost to replace the food which is, or is suspected to be, contaminated;
  • Your expense to provide necessary medical tests or vaccinations for your infected “employees”.  However, we will not pay for any expense that is otherwise covered under a Workers Compensation and Employers Liability Insurance Policy;
  • The loss of Business Income you sustain due to the necessary suspension of your “operations”.  The coverage for Business Income will begin after you receive notice of closing from the Board of Health or any other governmental authority; and
  • Additional advertising expenses you incur to restore your reputation.

We will not pay any fines or penalties levied against you by the Board of Health or any other governmental authority as a result of the discovery or suspicion of food contamination at the “premises” described in the Declarations.

FORK PITCH: Most restaurants run on thin margins and count every penny but do some clients want to expand coverage?

ALLISON: Every business is a risk. Insurance is merely a vehicle to transfer risk to the insurance company for those risks that the business owner is not comfortable retaining.  Types of coverage, limits of coverage and deductibles can all be modified depending on the customers risk tolerance.   We rely on them to work with the client to determine their risk tolerance.  Even a franchise sports bar is going to have different needs based on location, albeit suburban or city.  Many agents encourage adding  EPLI (Employment Practices Liability Insurance) to help manage things like discrimination claims.

FORK PITCH: Where do clients tend to under-insure?

Most clients tend to under-insure their Business Personal Property.  This is usually written at the cost of replacement and includes items such as furniture and fixtures, equipment and inventory.  It is unfortunate at time of loss to have to inform a policyholder that their limit for Business Personal Property was not even enough to cover the contents of their stockroom and cooler. 

FORK PITCH: Are chain restaurants different? 

ALLISON: They certainly can be.  While a franchise tends to have more policies and procedures in place, they can also suffer from some dilution of management attention as they grow locations when compared to an independently owned and operated restaurant with a long time owner. 

FORK PITCH: What are most claims for? 

ALLISON: Slips and Falls…Motor vehicle accidents involving either a delivery or an intoxicated patron…On premises altercations…Property losses such as wind, hail, power outage and fire…Food spoilage or alleged food contamination

FORK PITCH: COVID has greatly affected, and continues to affect, the restaurant industry. You are in Michigan would you guess what percentage of restaurants have closed? 

ALLISON: The latest stats were published June 15th by the MRLA, as of that date 1,000 restaurants had permanently closed and 74% of restaurants project they won’t be profitable until mid-December MRLA is sending out a new survey next week to restaurant owners I will share those results once they are in. 

FORK PITCH: I imagine that a pandemic would fall under acts of god but how has your industry adjusted to the situation?  

ALLISON: A pandemic is an event that the insurance industry has considered and prepared for.  Many insurance companies have used an industry standard virus exclusion to clarify that coverage is not intended.  Insurance is structured to collect small dollars from many to be able to pay large dollars to a few.  When every policyholder suffers a significant loss  there is not enough premium or surplus to cover all of the losses. 

FORK PITCH: Are you making any increased demands on restaurants to ensure safety? (if yes, how do they react?)

ALLSION: Well managed restaurants recognize that they have to win the confidence of the customer by ensuring that they are providing a safe environment. 

FORK PITCH: Assuming a vaccine or some other resolution, what change do you foresee for the industry? 

ALLISON: We anticipate that habits have changed.  An increasing number of people will chose to “eat out” through pick-up or delivery. 

FORK PITCH: What’s your favorite restaurant, client or not.  

ALLISON: My favorite restaurant does happen to be a client.  It’s the Peanut Barrel.  The sign on the alley way entrance reads “Home of the Hokey Pokey A Place to Turn Yourself Around” It’s definitely where Bill and I go to turn ourselves around. Just like Cheers our favorite,  Bell’s Two Hearted Ale, is served before our backsides hit the seat.  Pre-COVID there were monthly Euchre tournaments and it’s a great place to cheer for Sparty.  Right now the restaurant is open and doing well mostly because of expanded outdoor seating and increased takeout.  The clientele used to be mostly MSU faculty and a middle age crowd, however, I’m noticing with the students coming back  to campus and limited restaurants reopening the ratio of students to faculty patrons is evening out.   


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