Storm damage, slip-and-fall injuries among potential perils for restaurants
At a time when construction delays are common due to the pandemic, it is more important than ever for contractors to review their contracts.
When Tropical Storm Isaias hit New Jersey in August, powerful winds destroyed outdoor dining spaces at multiple restaurants and led to thousands of dollars in property losses. Temporary structures may be more susceptible to wind, hail and other storm damage due to weaker materials.
After what we have been through in Louisiana this year with so many hurricanes, wind is a concern. If there is rain or snow, there could be a collapse loss.
Property damage from a storm or fire would be covered under a restaurant’s commercial property insurance, which covers the physical property and its business contents.
If a storm caused a direct damage loss by a covered peril and caused a restaurant to shut down temporarily, lost revenue may also be covered if the restaurant carried business interruption coverage on its policy, says Patricia Sheridan, CIP, director, commercial insurance at Burns & Wilcox in Toronto, Ontario.
Increased use of heaters poses worsened fire risk
In 2018, fires caused 3,655 deaths and 15,200 injuries in the U.S. Dining structure heating elements that are accessible to a customer, like fire pits or standing propane-fueled patio heaters, can be particularly hazardous. Authorities in Canada issued a safety notice in October about the dangers of patio heaters, noting that these must be installed correctly, properly ventilated, and kept a safe distance from flammable objects.
These heaters can be very dangerous, especially in places where alcohol is served and customers may be intoxicated. If a restaurant has a customer who stands up near the heater and takes one misstep, their clothing could catch fire. Anytime you are adding temporary heating, you have to be very careful about the risk of fire and asphyxiation.
Bodily injury or property damage to third parties due to fire or other incidents that occur on the business premises could be covered by the restaurant’s CGL insurance. Injuries sustained by employees, meanwhile, would be covered under a business’s workers’ compensation insurance.
In many cases, the presence of a temporary heating source inside of a potentially flammable space such as a tent would make the outdoor dining structure an unacceptable risk to an insurance carrier, Sheridan explained. Tripping hazards are another potential source of injury in these structures.
“Extra poles sticking out could cause a fall if they are not marked properly,” she said.
Restaurants could also put customers at risk by installing outdoor seating close to busy roads or in areas otherwise used for parking. If you have someone sitting in your restaurant, the chances of a car going through a restaurant are a lot less than a car going up onto the sidewalk or into a parking lot; you definitely pick up some additional liability.
With that an absolute auto exclusion, if someone crashes into the outdoor parking lot seating area, the CGL insurance policy would probably not respond to that loss. The CGL insurance policy might say anything related to auto is not covered.
Despite concerns about the safety of more enclosed dining spaces, liability for coronavirus transmission is unlikely to be covered by a restaurant’s insurance policies. While some states have considered granting businesses immunity from this type of claim, if any and all COVID-19 protocol is strictly followed, you can still get sued and have to go to court.
Restaurants can transfer risk by using third-party contractors
Restaurants are encouraged to use qualified and insured third-party contractors when taking on an outdoor dining structure project — not only for the benefit of the contractor’s experience but also because it is essentially a risk transfer for them. If the restaurant does all of the work themselves, then they are assuming all of that liability as the restaurant owner.
A contractor can be held liable if a structure fails or someone is injured due to a faulty design or installation. Insureds should try to transfer the risk of these types of losses to the contractor’s insurance policy.
Construction companies rely on architects, engineers and contractors professional liability insurance and E&O insurance to protect them against losses caused by mistakes made in their professional services. These professionals might also consider excess liability insurance to obtain higher limits, or a protective indemnity enhancement, which sets aside a separate limit for the legal liability of the general contractor to its subcontractors.
General contractors can purchase this extra layer of limit to protect them against their subcontractor’s errors. Another newer coverage they may also want is a faulty workmanship carve-back, which bridges the gap between the CGL insurance and the professional liability insurance.
COVID-19 and other communicable disease exclusions are not common in professional liability insurance policies, but any potential liability for virus transmission would have to directly link an outbreak back to a problem with the contractor’s design. There could also be liability if the company was completely negligent in adhering to the Centers for Disease Control and Prevention’s guidelines.
At a time when construction delays are common due to the pandemic, it is more important than ever for contractors to review their contracts, make necessary changes and consider adding a force majeure clause. This is a clause in contracts that essentially releases both parties from obligation when there is an extraordinary event or circumstance beyond the control of the parties, like COVID-19.
Contractors should discuss this and other risk mitigation strategies with a knowledgeable insurance broker who understands their business operations.
In professional liability, every form is different. It is important for a broker to understand your needs and the exposures completely. The same advice applies for restaurant owners considering the addition of temporary dining structures or other changes, Sheridan added.
“It is up to the broker to help the business owner and recommend the appropriate limits, coverages and prevention measures,” Sheridan said. “It is important to work with a reputable broker who is familiar with this line of business and can identify any potential issues.”
Bonnie Steen is VP, associate managing director underwriter, commercial insurance at Burns & Wilcox, and can be reached at bbsteen@burns-wilcox.com. Michelle Picklesimer, underwriting director at Burns & Wilcox, can be reached at MPicklesimer@Burns-Wilcox.com.
A version of the article was originally published by Burns & Wilcox.
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