Aside from healthcare and long-term care, is there an industry that’s been more adversely affected by the COVID-19 pandemic than the restaurant business? As if restricted capacity, fears of community spread, vacated local offices and a battered economy weren’t enough to endanger independent dining establishments, a hard market for Property and Casualty insurance in general and COVID-related complications to an already troubled Employment Practices Liability (EPL) environment are making privately owned restaurants an endangered species.
How dire are the circumstances? On January 15, New England’s largest newspaper, The Boston Globe, ran a rare front-page advocacy article headlined “IF YOU WANT RESTAURANTS TO STAY, TAKE IT TO GO.” The subtitle: “All of them need our support now, so do your part.”
The situation, of course, is not unique to New England. As the Globe reports:
“The story is the same everywhere, even as the details differ. Independent restaurants are on the ropes. The owners, chefs, servers, line cooks, bartenders and dishwashers who animate them are fighting hard to survive. The pandemic may have slashed seating capacity for customers willing to eat indoors. Winter may have howled down outdoor dining. But these businesses just need to make it a little longer—to the warmer weather, to the vaccine’s full roll-out. They just need to make it to the other side.”
P&C Costs and Risks
Making it to the other side of the pandemic will take more than robust takeout sales. The restaurant industry continues to be persistently vulnerable to EPL lawsuits while also facing rising Property and Casualty insurance rates and/or underwriting scrutiny for lines of coverage including:
- Commercial Auto, with new or expanded delivery sources increasing exposures;
- General Liability, particularly Liquor Legal Liability;
- Umbrella/Excess Liability, thanks primarily to the ever-growing number of EPL-related lawsuits.
Already saddled with heavy Employment Practices Liability premiums resulting from age discrimination, harassment, wrongful termination and other employment-related claims, the industry has continued to see a surge in such cases. COVID-19 has contributed to the surge while also being the primary cause of two employee claims in particular:
- Failure to take proper steps to reduce health and safety risks
- Employer discrimination against employees with COVID-19 concerns.
Under these circumstances, EPL insurance remains an essential coverage for most restaurants, with risk management policies and procedures taking on ever greater importance.
Even before the pandemic exerted its full grip on the nation, the insurance industry publication PropertyCasualty360 last March reported on the restaurant industry’s “glaring EPLI coverage gap
Outlook for 2021
Here’s a summary of the landscape for the healthcare industry as outlined in Alera Group’s Property & Casualty 2021 Market Outlook
► Unlikely to see rate decreases:
While the sales and payroll for restaurants in General Liability and Workers’ Compensation are decreasing, rate increases, as a result of the current hard insurance market, will offset any exposure decreases for most restaurants.
► Little change in availability or capacity:
The market for restaurants has always been fairly restrictive. Clients won’t see much change in the number of insurance companies who want this business. Most restaurants will be able to purchase the limits they want; it will be a question of affordability.
► New risks to consider:
With the advent of COVID-19, owners are vulnerable to new risks from “to-go” alcohol sales and expanded food delivery to claims from customers and employees alleging they contracted the virus while in the restaurant. It’s critical to flag any changes in how your business is operating and to understand how insurance will or won’t provide protection if there is a claim.
► Few COVID-19-related claims are being covered by business interruption insurance:
Since the virus triggered government-ordered shutdowns in March 2020, judges have dismissed more than four times as many business-interruption lawsuits as they’ve allowed to proceed, according to a preliminary analysis by the University of Pennsylvania Law School. As insurers issue/renew existing policies, most are including COVID-19/contagious disease exclusions.
► Increased focus on balance sheets:
Given the impact of shutdowns and operating restrictions on revenues, underwriters will be paying close attention to restaurants’ financial strength.
► Be mindful of vacancy exposure:
It’s important to be aware of vacancy provisions in your policy. Most policies include provisions that exclude or limit coverage once a building becomes vacant. Vacancy is typically defined as having less than 31% of the total square footage in use for conducting customary operations.
There is some good news: The outlook is generally positive for two lines of coverage, Property and Workers’ Compensation. To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, click the button below.
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What You Can Do
Here’s what you can do...
Fortunately, restaurants aren’t entirely dependent on customer loyalty and takeout-service promotions to endure the pandemic. Proactive measures, including collaboration with trusted advisers and applying for federal assistance, are vital as well.
- Ensure staff is fully trained on COVID-19 protocol, and strictly enforce all policies and procedures.
- Consult with your agent/broker to make sure you have adequate limits and sublimits to cover your exposures. Inadequate limits could fail to protect you from a devastating loss.
- Consult with your financial institution regarding Paycheck Protection Program (PPP) guidelines.
- Apply for assistance through the new forgivable loan program available to small businesses thanks to the recently passed federal stimulus bill.
- Receive additional guidance on the federal stimulus package and preparations for mass distribution of the COVID-19 vaccine by viewing the recording of Alera Group’s January 12 webinar, “Relief Bill Overview, COVID-19 Vaccine."
To view the recording, click the button below.
About the Author
Paul Werner, Senior Account Executive, AIA, Alera Group
Paul is a Senior Account Executive in the Property & Casualty division of AIA, Alera Group whospecializes in mid-market and large accounts. With 30 years of insurance industry experience , he has built strong, long-lasting relationships with hundreds of clients. Paul takes pride in understanding the business of each client and enjoys his role as an experienced advisor to some of Central Pennsylvania’s top companies and their executives. Providing risk management solutions that are the best-fitting and specific for each of his client’s needs has helped him become a sought-out insurance advisor.