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The Comprehensive Guide to Restaurant Insurance

 December 14, 2022     UFG Insurance    Business  Read Time: 7 min

Diners sit in a crowded restaurant, illustrating the concept of restaurant insurance

The restaurant business is hard enough before you even consider insurance. With so many different policy types and coverage limits available, it can be confusing to know what your business really needs.

Every business is different, from a high-volume franchisee to a small family diner or ice cream stand, and that requires a tailored, collaborative approach. Here at UFG Insurance, we have a big appetite for restaurants and a long history of service to the industry. That has taught us some valuable lessons about the unique needs of food service businesses.

In this post, we’ll explore the following topics to help you learn about restaurant insurance coverage and purchasing considerations including:

  • Restaurant insurance coverages from A-Z.
  • Extending your restaurant insurance coverage.
  • How restaurant insurance rates are set.
  • Other issues to consider when buying restaurant insurance.

Don’t let the complexities of business insurance scare you off from your dreams. Read on to learn how to best protect your growing restaurant business.

Restaurant insurance coverages from A-Z

The basics (general liability, commercial property and workers compensation)

All businesses big and small need to have general liability coverage, as well as commercial property coverage if they have a location and equipment. General liability insurance can cover your business for damages caused by your employees, operations or location (such as a slip and fall accident). Commercial property insurance can help protect everything inside your location, including the chairs, tables, food prep and serving equipment.

You can pair your general liability and commercial property policies as part of a business owners policy (BOP), which helps make it easy to protect your business for less than the cost of purchasing those coverages separately. You can learn more about the advantages of a BOP here.

Businesses with employees, with the exception of those in Texas, also need to hold workers compensation insurance. Workers compensation covers medical care and lost work wages for employees who are injured on the job, whether due to an accident or a long-term occupational hazard (like a chef’s carpal tunnel syndrome). It also helps to protect the employer from legal fees and financial settlements sought by injured employees claiming negligence.

Business interruption insurance

Also known as “business income coverage,” business interruption insurance can help protect against lost income when your restaurant closes due to a covered peril, like fire or storm damage. Beyond your lost profits, business interruption coverage can also help cover payroll, operating expenses, taxes and even debt payments, helping you bridge the gap until you can reopen again.

Catering penalty reimbursement insurance

This specialty coverage may pay contract fees and penalties if your restaurant is unable to cater a planned event due to a covered property loss, like storm damage to your kitchen. It can help you focus on cleaning up and getting back to work instead of figuring out how you're going to pay expensive catering penalties.

Employee dishonesty and theft insurance

While you want to trust the people you hire, the truth is good help can be hard to find. It’s important to protect your business from internal risks as well. Employee dishonesty coverage can cover the cost of stolen property or goods, cash or checks, credit card fraud or even unauthorized wire transfers. This coverage is typically added as an endorsement to a company’s commercial property insurance policy.

Employment practices liability insurance

Typically abbreviated to EPL insurance, employment practices liability coverage can help protect your business from lawsuits related to employment violations like sexual harassment, discrimination or wrongful termination. This coverage is most important for larger companies or chains that hire lots of workers, but it’s likely that no business is immune from employee lawsuits.

Note that these policies may pay for the costs of defending against legal claims and their related judgments but will typically not cover punitive damages or fines. They are often issued as an endorsement to your general liability policy.

Equipment breakdown insurance

Most restaurant kitchens rely on heavy-duty equipment, all of which can break down unexpectedly. Equipment breakdown coverage can help pay for repairs to equipment as well as other property damaged by its malfunction (like a burnt wall caused by an overheating oven). Some equipment breakdown policies may even cover extra expenses incurred to keep your business in operation, such as freezer rental or mobile ovens.

Liquor liability insurance

Commonly referred to as “dram shop insurance,” liquor liability coverage exists to help protect both the public and the covered business from injury, death and damage claims related to alcohol sales. Most states now require a minimum level of coverage as a condition of holding a liquor license and some landlords require it to lease restaurant space.

It’s important to note that liquor liability coverage is typically excluded from a company’s general liability policy. That means it needs to be purchased as an endorsement to your business owners policy or as a standalone (monoline) policy. 

Outdoor-patio dining coverage insurance

The boom in outdoor dining is great for customers, but a potential headache for restaurant owners who face more risk with their business property exposed to the elements. Outdoor-patio coverage can help protect your restaurant's outdoor tables and seating, canopies, awnings, decks and walls — valuable protection typically not included in standard BOPs.

Spoilage and food contamination insurance

It only takes one power outage or accident to ruin your expensive, perishable ingredients. Spoilage and contamination coverage is a great way to help protect your investment in your ingredients; it can also help cover cleaning costs for your refrigerators, freezers and other appliances, so you don’t jeopardize food safety.

Water and sewer line insurance

Water and sewer line insurance can help cover your property from damage caused by backed-up sewer, drain or sump water. This is especially important for restaurants and food businesses, where grease and food scraps often go down the drain and accumulate to cause plumbing issues.

Water and sewer line insurance is often added as an endorsement to a commercial property policy, as water and sewer backups are excluded from standard coverage forms. Check with your UFG agent for more information about what is and is not covered.

Extending your restaurant insurance coverage

While the coverages listed above are the most common in the restaurant and hospitality industries, every business is unique and some have tougher insurance needs than others. This is why UFG offers so many different polices and coverage options to our clients.

You may want to consider adding or extending coverages, or increasing your coverage limits, after consulting with your insurance agent. Some insurance programs, like UFG Insurance’s Restaurant Ultra Property Plus, allow clients to do either or both as their business grows. 

Possible coverage extensions include:
  • Data processing equipment coverage.
  • Arson reward payments.
  • Brands and labels coverage.
  • Security breach/ID services.
  • Fire extinguisher and fire suppression system cleanup coverage.
  • Accounts receivable coverage.
  • Key employee replacement coverage.
  • Unauthorized business credit card use coverage.
  • Outdoor signage.
Increased limits are also available for coverages like:
  • Property off premises ($50,000).
  • Property in transit ($25,000).
  • Debris removal ($50,000).
  • Fire department service charges ($10,000).
  • Pollutant cleanup and removal ($25,000).
  • Personal effects and property of others ($25,000).
  • Outdoor property ($10,000).

How restaurant insurance rates are set

Restaurant insurance premiums are set off a complex web of variables, from your business size and clientele to your hours of operation, location and building. Your overall premium cost will also be determined by the level of insurance coverage you need.

Generally speaking, the following restaurant types see the most competitive premiums due to their lower levels of risk:
  • Non-franchised restaurants, like family-style, bar-and-grill and fine dining establishments with less than 50% in alcohol sales.
  • Bakery, coffee and pizza shops, especially those built or renovated in the last 20 years.
  • Sandwich shops.
  • Dessert and ice cream shops.
  • Contemporary casual restaurants.
Restaurant types that typically see higher premiums include:
  • Franchised fast food restaurants with deep fryers.
  • Social dining organizations (i.e. American Legions, VFWs, Fraternal Order of Eagles).
  • Restaurants with more than 50% in alcohol sales.
  • Owned buildings with habitational rental units above or below.
  • 24-hour restaurants.
For businesses in the last group, proactive risk management and equipment investments may help lower your insurance premiums. For example, new cooking oil management technologies can reduce the risk of grease fires in kitchens, while solid risk management practices can reduce employee accidents. Talk to your UFG agent to discuss other ways to help keep your premiums low.

Other issues to consider when buying restaurant insurance

For many business owners, it’s easy to purchase restaurant insurance based on premium pricing alone. However, it’s also important to take into consideration other benefits and offerings that can make your life easier and bolster your protection.

We recommend restaurant owners ask the following questions to their agent about their insurance carrier:
  • Do they offer complimentary expert consultations with risk control professionals or nurse triage programs to help keep claims and premiums low?
  • Do they have industry-specific expertise that will help your business recover faster after a claim or disaster?
  • Do they offer 24/7 account access and provide prompt 24-hour claims reporting?
  • Do they have a strong financial track record and an “A” financial strength rating?
Here at UFG, we pride ourselves in saying yes to all of those questions and offering a comprehensive approach to restaurant insurance. Whether you’re actively looking for new insurance coverage for your restaurant or food service business, or just thinking through what it would take to make your dream a reality, our agents are ready to help.
Reach out to your local UFG agent to get the conversation started!

The information provided is for informational purposes only. Every attempt is made to ensure that the information is accurate; however, it is not intended to replace professional advice. For more information, see Disclaimers & Other Legal Documents.