Foodborne illness? There's coverage for that
Up to 90% of U.S. restaurants lack proper coverage for an exposure that could cripple their business.
For decades, independent restaurants including diners, food trucks, cafes and many others that sell prepared, non-packaged food, have been underserved by the insurance industry when it comes to their legal and financial exposures regarding foodborne illness events. I’ve seen great restaurants fold because they were not prepared to deal with the public and legal consequences of an outbreak.
Unfortunately, many restaurant owners falsely believe that their general liability or standard business interruption insurance covers these types of events since they cover injuries or maintenance on the premises. In reality, these restaurant policies do not cover the full scope of needs that arise from foodborne illness outbreaks. It is estimated that 90% of restaurants do not have the appropriate coverage to address an exposure that could cripple their business.
It’s time to educate the industry on this significant lapse in their insurance plans and encourage them to look into programs that protect small and medium-sized food service providers from the legal, financial and public effects of a foodborne illness event.
Supplemental foodborne insurance
As insurance providers, one of our jobs is to make the rebuilding process as smooth as possible in the event of an insurance claim. Perhaps the most prominent though not the largest foodborne illness outbreak occurred at Jack in the Box locations in 1994, killing four children and hospitalizing more than 170 people. It made national news and resulted in the public becoming fully aware of E. coli. The chain recovered, but it weathered the storm with the backing of major corporate resources.
In the years since the Jack in the Box outbreak, all the ways in which we share and consume information has changed, with social media enabling nearly instant boycott mobs any time a business negatively impacts its customers. Now we see almost monthly recalls of packaged food products from grocery stores, and major restaurant chains such as Chipotle lose huge amounts of public trust and stock value when they encounter a foodborne illness event.
By supplementing standard business insurance with a targeted policy for foodborne illness outbreaks, restaurant owners are assured that their costs will be covered and the rebuilding process will be assisted by experienced professionals.
While most independent restaurants don’t currently have foodborne illness coverage, the coverage does in fact exist and has for a long time. However, the insurance industry has not done a good job of educating this market on their full risk and may have miscalculated the ROI of insuring smaller restaurant risks, since premiums are small. As a thoughtfully constructed package of powerful protections and support structures, foodborne illness packages are an excellent vehicle to help adjusters educate and convince their clients of the importance of these supplemental coverages.
What it covers
In addition to covering costs such as employee salaries, mandatory cleanings or sanitizing, equipment replacement and more that don’t fall under most business disruption policies, the industry’s best foodborne illness insurance packages offer a third-party crisis communications team to help deal with media and public sentiment.
A verified foodborne illness outbreak requires immediate public notification by the local public health department. With the speed and reach of social media, especially on a local scale, this means the restaurant’s traffic effectively drops to zero, even if the health department allows them to remain open. This is why a crisis communications team can be vital to help regenerate public trust and support.
These teams may also provide customer support for anyone affected by the outbreak, arranging health services such as vaccinations and doctor visits, and an information hotline where operators ensure every step is taken to satisfy the needs of every customer to assuage their concerns. These steps help those affected, alleviate complaints or issues while documenting the process, and help a restaurant and its insurance carrier prepare for potential litigation.
Who needs coverage?
Every business that sells prepared food, from a deli to a buffet, has just as big a need for coverage as the largest brands in the country. It may be even more important for small owners with one location or a handful of locations because major chains have enormous resources to protect and rebuild from negative public sentiment. A single location owner doesn’t have the revenue support from other locations to keep afloat during a downturn.
What risks should restaurant owners consider?
The major risks include immediate loss of revenue, long-term harm to the brand and business, liabilities such as salaries and location costs, and potential litigation if serious harm occurs. The difference between a restaurant that is covered and ready to react and one that is not can be the difference between survival and failure.
Manpower is another major consideration. If a restaurant serves 500 people each day, or 3,500 each week, it would be nearly impossible for an owner to manage something as basic as phone calls from that many customers. So while the restaurant may not technically be shut down, no patrons are coming in, no food is being cooked, and ownership is scrambling to maintain their reputation, clientele and sanity.
Once the insurance carrier handles paying employees and guaranteeing every affected customer is taken care of, they will focus on helping to rebuild the brand.
Claims coverage questions
If a restaurant owner does not have relevant coverage for a foodborne illness event, all an adjuster can do is educate them on more specific coverages for foodborne illness to protect future endeavors. If they do have a policy, they will file for loss of revenue and begin the process of helping the restaurant determine which employees are essential and must be retained, and what extra expenses beyond loss of revenue will be covered.
Crystal Jacobs (Crystal.Jacobs@restaurantguardinsurance.com.) is the Restaurant Guard vice president and program director at U.S. Risk Insurance Group.
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