Insurance Requirements

INSURANCE REQUIREMENTS

Cover your A$$ETS

The restaurant business is a high-risk business and statistics have scared many insurance companies away from writing restaurant coverage, so selecting a good agent and shopping around is my best advice.

As with attorneys, CPA’s and the like, you should always interview several agents describing your business, your specific needs and getting a feel for the agent’s personality, as well as expertise.  A qualified Insurance Agent will be one of your most necessary and trusted teammembers and you want to ensure that they understand what’s most important to you and always work on your behalf.  Getting the best rates is not the only important consideration.  You want to make sure that the insurance carrier is solid and reputable and that the agent can and will assist with claims, potential lawsuits and a myriad of other unforeseen issues in this most challenging business…

NECESSARY COVERAGE:

General Liability

Most importantly, you will need a General Liability insurance policy which covers the basics of operating a small business including fire, flood, property damage, customer accidents, vandalism, loss of business events, etc..  

NOTE:  Your agreed limits of coverage depends on the size and scope of your establishment and will be higher with a higher deductible if you own your property vs. lease a space, as your landlord will carry his own insurance on the building as well.   

Your agent will ask you several in-depth questions about your projected sales, number of seats, whether you will serve alcohol on the premises, if smoking is allowed, number of fire extinguishers, Ansul fire protection systems, Sprinklers, distance to fire hydrants or other water bodies, number of employees, if you have live entertainment and dancing, pool tables and video games, distance of trash dumpster to your building, as well as outside independent contractors you expect to use for services such as snow removal,  plumbing, electrical, etc…  You will need to obtain “Proof of Insurance” documents for all outside subcontractors and keep these on file at your restaurant. 

As always, check with your agent on specifics and limitations of any coverage prior to signing documents. Once covered, you can expect an on-site inspection by the insurance company to verify your answers and assess potential risks and other hazards.  

NOTE:  Loss of Product Coverage is available at reasonable cost in case your food spoils due to loss of power, fire, etc., so make sure to ask your agent.  Terrorism Coverage is available and may make sense if you are in a major city like Washington DC or New York, but if you are in small town Kansas, chances are you wont need this specialty coverage.

Liquor Liability:

Serving alcohol adds significantly to the risk of your restaurant; especially if you have a busy full liquor bar, happy hours, nighttime entertainment and dancing, beyond simple wine and beer dining room service.  If you plan to serve alcohol and/or beer and wine, you will need a Liquor Liability policy in addition to the General policy covered above.  This policy covers you for alcohol related accidents inside and outside your premises, bar fights and customer injuries, etc..  You will receive best rates if all of your bar and waitstaff are TIPS, BASIC or other alcohol safety program certified.  

NOTE:  You will be asked for yearly estimates of food and alcohol sales and then will be audited after fiscal year-end.  This means that if your revenue estimates were low in relation to actual sales figures, the insurance company will bill you for the difference, even if you had no claims during the year.  If your estimates were high, you will receive a refund.

NOTE In recent years, there have been many accidents (vehicular and otherwise) traced to “over-pouring and or over-serving” by restaurant and bar personnel.  

In many states, in addition to the restaurant owner, the offending bartender or employee may also be named in a lawsuit or potential investigation.  To protect yourself, your restaurant and your staff, make sure you make “responsible alcohol service” priority 1, keep all safety program certificates on file, create an alcohol service policy and procedure manual signed by each server and bartender, train any security staff in proper handling of dangerous incidents, maintain strict documentation of any and all events, etc.. This demonstrates to the courts professionalism, and responsibility and gives your establishment an advantage over sloppy policies and record keeping.  I can’t emphasize enough to “Train, regularly spot check and routinely test your staff on responsible alcohol service”!

Umbrella Policy

Its also worth considering an “Umbrella Policy” which provides extra and added coverage beyond your liquor liability and general liability policies.  This policy may make sense if you have a large, successful establishment with high traffic and revenue.

As always, check with your agent on specifics and limitations of any coverage prior to signing.

Worker’s Comp

Worker’s Comp insurance is required in all states if you have employees on payroll (even 1).  This coverage protects you against work-related accidents inside or outside your premises.  It does not cover employees who are off-duty visiting your restaurant as a customer.  When an accident occurs (and any first aid treatment required), you must notify your insurance company of the date, time and specifics of the accident usually filling out a phone report with a claims representative. If hospital or medical clinic care is required, copies of doctor reports and bills must be submitted to your insurance company. To get coverage, your agent will ask you the number of staff you employ, your total payroll estimates for the year, sales projections or actuals, etc…  

NOTE:  You will be asked for yearly estimates of your annual payroll and number of employees.  An  audit will be conducted by an inspector on-site at the end of your policy period who will review your payroll records.  If your total yearly payroll estimates were low in relation to actual, the insurance company will bill you for the difference again, even if you had no claims during the year.  If your estimates were high, you will receive a refund.

Health and Life Insurance:

The requirement to provide health insurance coverage to your full-time employees varies from state to state.  If your restaurant is open seasonally or less than a full year, you may be exempt from providing coverage to these employees (Check with your state department of labor for this requirement).  As owner’s you may choose to have yourself and family (and possibly “key-managers”) covered under a health insurance plan at your company’s expense.  You may also choose Life Insurance coverage.  

NOTE: Many banks will require Life Insurance policies for owner’s under large loan situations with any proceeds (if an owner dies) first going to the bank to pay off the loan, before family beneficiaries are paid.

Installment plans

As the cost of all insurances will run you into the thousands of dollars, Installment plans are available from most reputable carriers with down payment and a nominal finance charge.

NOTE: With all forms of coverage and policies, If you switch carriers for any reason or if you terminate coverage prior to the expiration of the policy, a residual refund check will be mailed to you.  If your business is dropped by the insurance company for too many claims, high-risk practices or false information , you will not receive a refund for unused coverage.