Restaurant insurance explained: a beginner's guide

A restaurant is a retail shop, a factory and a bar in one room, with open flame in the back and the public in the front. The policies it carries are mostly the ones any small business buys, a package for the property and general liability and a workers' compensation policy for the staff, but four things about the trade sit outside the standard forms: serving alcohol, keeping perishable stock, cooking over fire and sending food out in cars. Each has its own coverage, and a restaurant that has the package but not the four is insured for the ordinary and exposed for the likely.

This guide walks through the package and the four additions, explains why the hood suppression system and the health inspection matter to the carrier as much as to the fire marshal, and works through what a business income claim looks like after a kitchen fire. It is written for an owner with one location; a group adds locations to the same structure.

The package: property, general liability and business income

A business owner's policy or a commercial package covers the building if you own it, the tenant improvements you paid for if you lease, the kitchen equipment, the furniture, the stock and the money on site, against fire, wind, theft, vandalism and, depending on the form, other perils. It also carries general liability for the customer who slips on a mopped floor, the child who pulls a hot plate onto themselves and the guest who cracks a tooth on a shell fragment. Products liability, the part that responds to a foodborne illness claim, is included in general liability for a restaurant, and it is the single reason a restaurant's general liability rate is higher than a bookshop's.

Business income coverage pays the profit you would have earned and the expenses that continue while the restaurant is closed after a covered property loss. Extra expense pays what you spend to keep operating, such as renting a commissary kitchen or paying overtime to reopen faster. Both are written with a period of restoration, the time it reasonably takes to repair and reopen, and the limit should be sized to a slow rebuild in a market where kitchen contractors are booked out.

Liquor liability: what general liability refuses to cover

A standard general liability form excludes injury caused by serving alcohol to any business that sells or serves it. The restaurant that pours a fourth drink for a customer who then drives into a family on the way home is not covered under general liability for the resulting claim. Liquor liability is the separate policy, or the endorsement on the package, that responds to it. Every state in the region has some form of dram shop or social host rule that decides when a server can be held responsible, and the rules differ enough that the same facts can produce a claim in one state and none in another; the policy is written to respond to whatever the local rule allows.

Two features of a liquor policy are worth reading. Assault and battery coverage responds when a fight in the bar injures a patron and the claim alleges the restaurant over-served or failed to intervene; many liquor forms exclude it or sublimit it, and a place with a late licence needs it. And the premium is rated on alcohol sales as a share of total sales, so a restaurant that starts a happy hour or a bar programme has to tell the carrier or face an audit adjustment and a coverage argument.

Spoilage, equipment breakdown and the walk-in

A property policy pays when a fire destroys the walk-in cooler. It does not pay when the compressor fails on a Saturday night in July and the contents are warm by Monday, because a mechanical failure is not a covered peril and spoilage is a consequence, not a fire. Two endorsements fill that gap. Equipment breakdown covers the sudden mechanical or electrical failure of the cooler, the ovens, the dishwasher and the HVAC, including the repair and the resulting business income. Spoilage covers the stock that is lost when refrigeration fails or the power goes out, up to a stated limit, and is priced from the value of perishable stock on hand.

Suppose a Scottsdale restaurant loses power for thirty hours during a monsoon outage in August. The walk-in and the reach-ins hold $9,000 of meat, seafood and produce, all of it discarded. Under a spoilage endorsement with a $10,000 limit and a $500 deductible, the claim pays $8,500. Without the endorsement the property policy pays nothing, because nothing was damaged by a covered peril; the compressor is fine and the food simply warmed up. Invented numbers, and the outage scenario is one every desert restaurant should assume.

Fire: the hood, the suppression system and the inspection

Kitchen fire is the loss a restaurant carrier prices for first. The underwriting questions are specific: is there a hood over every cooking surface, is the suppression system a wet chemical type inspected and tagged on the schedule the fire code requires, when were the hood and ducts last cleaned and by whom, are there portable extinguishers rated for grease fires, and is the deep fryer separated from open flame. A restaurant that cannot show current inspection tags for the suppression system may be declined outright or written only in the surplus lines market at a multiple of the standard premium, and a claim after a fire where the system had lapsed can be contested under the policy's protective safeguards condition. Keep the tags and the cleaning invoices in the same folder as the policy.

Delivery, staff cars and hired and non-owned auto

When a server drives their own car to deliver an order and hits a pedestrian, the injured person sues the restaurant as well as the driver. The server's personal auto policy may deny the claim because the car was used for business, and the restaurant's general liability form excludes autos. Hired and non-owned auto liability is the coverage that responds: it covers the restaurant's liability for vehicles it does not own but that are used in its business. It is inexpensive and often overlooked, and any restaurant that delivers, caters or sends staff to the market should carry it. Vehicles the restaurant owns, a catering van for example, need a commercial auto policy in the business's name. Third-party delivery platforms carry their own coverage for their drivers, but the terms vary and the restaurant's exposure for the food itself does not go away.

Workers' compensation and employment practices

Burns, cuts and slips make a kitchen one of the more frequent sources of small workers' compensation claims, and the policy is required in all four states once there are employees, with the details set by each state's statute. The premium follows payroll by class, with kitchen and service staff rated separately, and a restaurant's experience modification factor rises quickly on a run of small claims, so a first-aid kit, a burn protocol and non-slip mats are underwriting arguments as well as good practice. Employment practices liability, a separate policy, covers claims of harassment, discrimination and wrongful termination, and a restaurant with a young, high-turnover workforce and tip pooling is more exposed to those than its size suggests. Wage and hour claims, over tips and overtime, are excluded from most EPLI forms or covered only for defence costs under a sublimit.

What the policies commonly exclude

Read the package for the following; each is either a gap to fill or a fact to accept.

• Flood and earthquake, on the property form, which need their own policies.
• Food contamination that does not injure anyone, such as a recall or a health department closure, unless a food contamination endorsement is added.
• Utility service interruption that originates off the premises, unless endorsed, which is what turns a power outage into a business income claim.
• Employee theft of cash or stock, which needs a crime policy or endorsement.
• Data breaches through the point-of-sale system, which need cyber coverage; a restaurant runs hundreds of cards a day.
• Live entertainment, valet service and outdoor seating on a public sidewalk, on some forms, unless disclosed and endorsed.

How to use this

A restaurant's insurance file should answer six questions: is liquor liability in place at a limit the lease and the licence require, is spoilage endorsed and sized to the stock in the walk-in, is equipment breakdown included, is hired and non-owned auto in place, is the suppression system tagged and current, and does the business income limit reflect a slow reopening. We go through the package line by line against those six and against what the carriers we represent in Arizona, Nevada, Utah and Idaho will write for the concept. If the package already carries all six, we say so and the visit costs you an hour.