When your business is serving or hosting guests, you have to protect against harm to their health, their property, your property and your workers. It’s a big task. Hospitality insurance goes a long way in helping you keep your company financially healthy. It provides a monetary backstop that can protect you from cash flow problems that could lead to bankruptcy if a disaster strikes. Here are the essential insurance coverages you should consider, as well as affordable steps you can take to reduce the most common causes of loss at restaurants, bars, taverns, inns, hotels, resorts, and catering businesses.
Insurance Policies for Your Hospitality Business
Hospitality is a broad industry, but all niches have a few things in common: you host a wide range of visitors, have staff working in numerous hazardous situations, and rely on your property being accessible and your equipment working properly. There are five basic categories of insurance coverages for hospitality businesses, as well as several more worth considering:
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Property insurance,
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General liability insurance,
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Liquor liability insurance,
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Food-borne illness insurance, and
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Workers compensation insurance.
A hospitality or restaurant package policy can be assembled to include essential coverages plus some valuable add-ons. Small businesses may opt, instead, for a business owners policy (BOP), which covers the basics, or a restaurant or hospitality program, which has extra coverages specifically designed for your corner of the hospitality market.
Property Insurance for Restaurants & Hotels
Business property insurance can cover your buildings as well as your equipment, furnishings and stock for perils such as fire, explosion, burst pipes, vandalism, and theft. It can be modified to include things like food spoilage and equipment breakdown. You can also add coverage in a commercial property policy for glass panes or window breakage, damage to exterior signs, and loss of valuable papers or currency.
While not strictly a property insurance issue, business interruption (sometimes called business income) coverage is an important protection that is related to your property coverage. It kicks in to provide a revenue stream when your hotel, restaurant, or bar is shut down due to insured property damage. It can be written to cover utility failures, supply chain interruptions, and closures of roadways or other access to your business due to a peril named on your insurance policy. (Equipment breakdown insurance often includes business income coverage.)
Sewer and drain backup is another vital coverage that might not be included in your business property policy. It can apply to kitchens and restrooms, and it can pay for cleanup and other expenses resulting from a backup.
Insurability and premiums are tied to the kind of restaurant or hotel you operate, number of guests per month (or some other time frame particular to the insurer), value of your property, its age and construction details, location, claims history, time in business, and protective measures such as sprinklers, door alarms, distance from a fire hydrant, security cameras and safes. The safer your business, the better chance you to get high-quality coverage and lower premiums.
General Liability Insurance for Restaurants & Hotels
General liability insurance is a basic liability policy that helps pay for injuries to non-employees sustained on your premises or when interacting with your offsite employees or equipment. It also provides some coverage for customers who become ill from food you serve, though this last peril is quite limited (sometimes to a single person or table).
Slips and falls that cause injury are the primary types of problems that arise, but claims could include a fire a caterer starts, burns a server causes in a spill, or a cut or other injury caused by your furnishings or tableware. While many of these claims require minimal remuneration (such as payment for setting a broken bone or emergency outpatient treatment) some can be quite expensive, especially if a head injury, disability or loss of income is involved.
Because of the potential for catastrophic losses, many restaurants, bars, and hotels increase their limits of coverage by obtaining excess liability or umbrella insurance. Excess liability insurance applies to a single underlying policy, such as general liability, and expands the dollar amount of your coverage by millions of dollars. You can buy multiple excess policies if you want to build out limits of more than one liability policy, such as both general liability and liquor liability. The alternative to carrying multiple excess policies is to get a commercial umbrella policy, which can apply to more than one underlying liability coverage at a time.
Liquor Liability Insurance for Restaurants & Hotels
Any establishment that serves alcohol can be sued for the behavior of a patron who over-imbibes, even after that customer has left your premises. These lawsuits can generate extreme legal defense and settlement or verdict costs. A liquor liability insurance policy can defray those outlays and keep your business solvent.
Liquor liability insurers often mandate policyholder staff training, closure times, state law compliance, ID age checks, limits on the percent of total receipts coming from alcohol sales, and refusal of service to inebriated customers. Some insurers will include assault and battery coverage in a liquor liability policy.
Food-borne Illness Insurance for Restaurants & Hotels
Food-borne illness (otherwise known as food contamination) insurance is protection that goes beyond what general liability insurance covers for sickened patrons. Whereas general liability is often restricted to isolated instances, such as illness from an undercooked piece of meat or an allergic reaction to an undeclared or accidental allergen exposure, food-borne illness insurance can deal with:
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Illness of multiple individuals caused by tainted food,
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Costs of product recall,
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Decontamination expenses, and
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Business income loss.
Some policies also provide access to crisis management advisors or media relations firms to handle notifications and reputational issues.
Workers Compensation Insurance for Hotels & Restaurants
Workers comp claim severity in the restaurant sector is one of the highest across all industries, with slip, trip, and fall accidents costing about 50% more than the average workers compensation claim. Because workers comp premiums are highly dependent on your loss history and safety programs, presenting your loss control efforts in a detailed format can help you find favorable pricing.
On the hotel side of the sector, housekeeping is a common source of workers compensation claims due to exposure to slick surfaces, repetitive motion, lifting and bending, and chemical use.
A good risk control program is essential to minimize employee injury. Many agencies, associations, and insurance companies offer complimentary risk analyses and safety programs when you become a policyholder or member.
Who Needs Hospitality Insurance?
Hospitality insurance is a broad term that can encompass coverage for these businesses:
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Hotels
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Motels
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Restaurants
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Bars
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Taverns
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Inns
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Resorts
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Convention centers
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Sporting or other event venues
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Caterers
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Ghost kitchens
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Wineries/tasting rooms
If your business hosts guests or serves food or alcohol, consider hospitality, restaurant, or bar and tavern insurance.
Other Helpful Insurance for Restaurants & Hotels
EPLI:
Employment practices liability insurance goes a step beyond workers compensation. In workers comp insurance, Part B of your policy provides employer protection against liability lawsuits, but it applies only to physical injury or mental or physical illness caused in the course of work duties. EPLI, on the other hand, helps pay for legal defense and settlement or award costs if an employee alleges another kind of personal injury, such as emotional or professional mistreatment. This can include claims of discrimination, harassment, or a hostile workplace.
Employee Theft:
Hotel and restaurant workers have ample opportunity to steal your money or the money or valuables of guests, so financially guarding your business against such losses is worth considering. You can obtain a first-party fidelity bond that protects your establishment’s assets that are stolen by an employee, such as money from the till. This bond, sometimes called an employee dishonesty bond, is typically restricted to embezzlement, fraud, forgery, and theft of business cash. To insure for theft of customer valuables, cash or credit card information, consider a third-party fidelity bond. That bond is a good complement to cyber insurance.
Commercial Auto:
Any business that owns its own vehicles or relies on employees’ use of their personal autos to run company errands should have a commercial auto insurance policy. The property side of the policy insures against damage to the vehicle. The liability side protects your company assets (and your drivers’ personal assets) if an accident causes harm to a non-employee or their property. If you offer valet service, commercial auto won’t be sufficient. You will need a special type of liability insurance for valets.
Flood or Earthquake:
Commercial property insurance for restaurants and hotels doesn’t include flood or earthquake damage. Those policies are sold separately and should be strongly considered if you live in a region known for either of those disasters. Flood risk is often tricky to determine, so work with your insurance agent to see where natural bodies of water, overflow swales or retention ponds, and dams are located. All of these have inherent potential to cause flooding.
Event Cancellation Insurance:
Putting on an event can involve a lot of upfront costs for food, beverages, tent rentals, security personnel, staff, and other expenses. Although you may require a deposit from the host, it usually does not cover all your expenditures if the event does not happen due to weather disruptions, supply chain issues, or no-show performers. You can add this type of coverage to your hospitality insurance policy or purchase it as a stand-alone policy.
Cyber:
Hacking is consistently one of the top five risks business owners worry about— and they should. A release of credit card data or other customer personal information can be a financial disaster, especially for a small business. Because of the very broad attack surface of the hospitality sector, it is extremely vulnerable to cyber breaches. While patching and employee training are crucial, the simple fact is the hospitality industry has two times the volume of public-facing internet-accessible devices than the next most-exposed sector, according to Trustwave. Back up quality cyber hygiene with solid cyber insurance. Consider a stand-alone policy because a cyber endorsement to a primary liability policy, like general liability, offers pretty low limits of coverage compared to your exposure.
Reduce Risk & Cost of Insurance for Restaurants & Hotels
Your liability insurance policies may require your restaurant, bar or hotel to follow some guidelines to stay compliant with the terms of your coverage, but you can go beyond that to reduce your risk of both small and large claims and make your business more attractive to insurers, which often means you can secure best-in-class prices.
Running a HACCP (hazard analysis critical control point) analysis or some equivalent risk review is a good starting point. It will help you identify and mitigate hazards. Your food, sanitation and operational safety plans can springboard off of this analysis.
By adhering to legal and contractual obligations regarding alcohol service and by training employees on how to deal with combative customers, you can minimize patron and employee injuries as well as business liability costs. Some agencies, insurance companies and restaurant associations offer learning management systems that target hospitality risk management, so inquire about these resources.
Keeping equipment and vents clean, especially cleared of grease, can prevent fires and keep your appliances in better working order. Many a hood and vent fire has been started due to built-up grease that should have been cleaned. Don’t take shortcuts.
Ensure lighting in parking lots, stairways and guest areas is adequate, and consider putting emergency call buttons in freezers, elevators and garages. Security cameras and remotely controlled door locks can enhance your safety profile.
Keeping to a written maintenance plan for equipment, doors, elevators or escalators, and parking lots or landscaping will go a long way in preventing mishaps, breakdowns, injuries and business closures.
Work With Your Insurance Agent
If you are looking for insurance for your restaurant, bar or hotel, speak with an insurance agent who is familiar with your industry. These agents will have access to insurance companies that specialize in programs and coverages tailored to your needs. They will understand nuances, such as high employee turnover, security provisions, and assault and battery risks, that could fly under the radar. They can also present your establishment in the best light to insurers instead of submitting a generic application.
Find a local agent near you who works on the hospitality, restaurant, bar or hotel insurance industry and build out a manageable set of coverages that protect your employees, your guests and your business’s longevity.