What Insurance Coverages Does Your Restaurant Need?

If you operate a restaurant, it's important to ensure that your business is properly protected by insurance. Most restaurants obtain commercial property and liability coverages by purchasing a business owners policy (BOP) or a standard package policy.

General Liability

A restaurant needs general liability insurance to cover bodily injury or property damage claims that result from accidents, like slips and falls. The policy also covers product liability, which protects your restaurant from claims arising from food-borne illnesses. Food that customers consume on your premises may not qualify as a 'product' under your policy unless an endorsement called Product/Completed Operations Hazard Redefined is attached. This endorsement ensures that claims arising out of food you sell will be covered under products/completed operations coverage, whether it is eaten on or off your premises.

Close-up of a chef using a knife to chop fresh produce, colourful vegetables and bell peppers.
••• Image courtesy of [Mint Images] / Getty Images.

Buildings that house restaurants are prone to damage by fire. Moreover, many restaurant owners lease the building in which they operate. If you accidentally start a fire that damages a building you rent, your landlord might sue you for property damage. Fortunately, a liability policy automatically includes a coverage called Damage To Premises Rented To You. This coverage is usually subject to a sublimit, such as $100,000. Make sure your limit is adequate. Some insurers will provide $300,000 or more.

Some will cover include this coverage without a sublimit.

Perhaps your restaurant provides valet parking. If you accidentally damage a customer's vehicle while parking it, will the damage be covered by your liability policy? The answer is no due to the care, custody or control exclusion. Fortunately, you can insure your business against such damage by purchasing garagekeepers liability coverage.

If your business provides health insurance, dental coverage or other benefits to workers, you should consider buying employee benefits liability insurance. This coverage will protect you against lawsuits arising from clerical errors or administrative mistakes you make while handling employee benefits.

Other Liability Coverages

Here are some other liability coverages a restaurant may need.

  • Liquor Liability. General liability policies exclude claims for bodily injury or property damage for which you may be held liable if you caused or contributed to someone's intoxication through the sale or service of liquor. If your restaurant sells or serves alcoholic beverages, you'll need to purchase liquor liability insurance.
  • Employment Practices Liability. Restaurants may be sued by employees for discrimination, harassment, and other workplace torts. Such torts aren't covered by general liability insurance. To protect your business, you'll need to purchase employment practices liability coverage.
  • Umbrella. A commercial umbrella affords extra limits over those provided by your general liability and commercial auto policies. It also covers some claims that aren't covered by those policies.

Commercial Property Insurance

Here are some property coverages a restaurant owner should consider:

  • Sewer Backup: If sewer water backs up into your restaurant, you'll have a huge mess on your hands. To make matters worse, sewer backup is an excluded peril under a typical property policy. To protect yourself, be sure you buy sewer backup coverage.
  • Business Income: If a fire or another peril damages property at your restaurant and your business is forced to shut down, you could suffer a large income loss. You can avoid such events by purchasing business income coverage.
  • Utility Interruption: Most restaurants require electricity, gas, water, and communications services to operate. An interruption of any of these can cause damage to your property. It may also force you to shut down your restaurant. You can protect your business by purchasing utility interruption coverage.
  • Extra Expense: If property at your restaurant is damaged by a fire or another peril, you may be able to continue operating while repairs are performed by renting alternate equipment or moving to a temporary location. To ensure those additional costs will be covered, you'll need to purchase extra expense coverage.
  • Spoilage: Food stored in refrigerators or freezers may spoil if cooling equipment breaks down or shuts off due to a power outage. You can insure your restaurant against costly spoilage losses by purchasing spoilage coverage.
  • Equipment Breakdown: Many restaurants depend on machinery like steamers, boilers, ovens, refrigerators, freezers, ice makers, and food warmers. This equipment can be damaged by a steam explosion or by an electrical or mechanical breakdown. To cover such damage, you need equipment breakdown insurance. The latter can be extended to include loss of income, extra expense, and spoilage coverages.
  • Electronic Data Processing: Most restaurants use computers to create, store, send, and receive electronic documents. Some use electronic table ordering systems. Most property policies afford minimal coverage for electronic data and equipment so you should consider buying electronic data processing coverage.
  • Fine Arts: Is your restaurant decorated with paintings, statuary or other artwork? If so, protect your investment by buying fine arts coverage.
  • Employee Theft: Restaurant employees may steal food, cash, and other property from their employers. Theft by employees is an excluded peril under a typical property policy. To protect your business, you'll need to buy employee theft coverage.
  • Peak Season: You should consider buying this coverage if your restaurant generates a high volume of business at certain times of the year, such as the summer months or the Christmas season. It provides a higher limit for personal property coverage during a specified time period. Many BOPs automatically include this coverage, providing a 25 percent seasonal increase.

    Commercial Auto

    Many restaurants own vehicles they use for picking up supplies, delivering food or other business purposes. Business-owned vehicles should be insured under a business auto policy. The policy should cover non-owned autos and hired autos as well as vehicles the restaurant owns.