Protecting A Restaurant’s Balance Sheet with High Umbrella Limits

High jury verdicts in liability cases against businesses are part of our landscape, making it critical for the hospitality industry, which inherently comes with a wide range of unique and complex exposures, to secure the proper insurance program. Just take a look at some of the types of lawsuits against restaurants that took place over the last few years:  

Two years ago, a Florida woman sued a local restaurant for negligence, vicarious liability and breach of duty after suffering severe and traumatic injuries in a car accident following an evening of drinking at the establishment. The lawsuit alleged the bartender willfully and unlawfully served alcoholic beverages to her knowing that she was under age 21. She was awarded $9,635,000 in economic damages, which includes $650,000 for past loss of earning capacity; $2 million for future loss of earning capacity; $900,000 for past medical expenses; and $6,085,000 in future medical expenses. She was also awarded $50 million in non-economic damages, which included past and future pain and suffering, disability, physical impairment, disfigurement, mental anguish, inconvenience, aggravation of a disease or physical defect and loss of capacity for the enjoyment of life.

In other cases, several restaurants throughout the U.S. have been sued after customers were injured in the process of slipping on peanut-covered floors. A steakhouse in Texas, for example, was sued for more than $1 million a few years ago and reached a confidential settlement with a woman who suffered injuries.

Chipotle was hard hit in 2015 and 2016 with E.coli and norovirus breakouts throughout the country, settling with more than 100 customers for unknown amounts. Most recently, a customer filed suit against the El Toro chain after eating at one of its locations, becoming ill and testing positive for the norovirus. In her lawsuit, the patron claims the restaurants’ owners were negligent and breached their duty to provide properly handled food. In total, 434 people were affected by the virus after eating at two of El Toro’s locations.

While in many instances, settlements are confidential, the amounts that become known to the public can be staggering – particularly when there are serious injuries. A broad General Liability policy with Premises Liability, Food Borne Illness and Liquor Liability coverages will insure a restaurant for covered losses up to the policy amount (note Liquor Liability coverage on a General Liability may have a lower limit than stated on the policy – more on that later). Most General Liability policies typically include limits of up to $2 million. Settlements or judgments exceeding the amount of coverage on the General Liability policy will then have to be paid out-of-pocket by the restaurant. This is where a Commercial Umbrella policy steps in.

Commercial Umbrella insurance provides businesses with additional liability coverage to help protect against the potentially ruinous costs of claims. It extends the Liability coverage over the primary, underlying liability policies, such as General Liability and Commercial Auto, for an additional layer of insurance to further protect business assets. Typical limits available for Commercial Umbrella insurance are between $5 million and $10 million. This may be enough for a small operation but larger establishments or restaurants or chains with multiple locations need to carry higher Umbrella limits to respond to catastrophic incidents and the potential of class-action suits where multiple parties have been injured. There are Umbrella markets available that offer $5 million to $300 million limits to satisfy any type of restaurant.

It’s also important to understand what, exactly, is covered when purchasing an Umbrella policy. For example, if the Liquor Liability policy a restaurant carries is written as a stand-alone policy, one must make sure it is listed as an underlying policy on the Umbrella declaration’s sheet.  If not, then the Umbrella is not going to kick in once the Liquor Liability policy limits are exhausted. If Liquor Liability protection is available as an add-on coverage in the General Liability policy or package policy but for a lower limit than the stated liability limits, then the Umbrella policy may not cover over and above the Liquor Liability coverage as the underlying limit may not be high enough to qualify for Umbrella protection. Also in some cases, an Umbrella policy may simply have an exclusion stating that it does not apply to liquor liability claims.  An experienced insurance broker that specializes in the restaurant industry will ensure that an establishment not only has the proper underlying Liability coverages but also that the amount of Umbrella limits fits the operation’s risk profile and will respond to the exposures it faces.

About NorthStar Insurance Services

NorthStar Insurance Services provides comprehensive insurance for the hospitality industry including General Liability, Food Borne Illness/Food Contamination, Liquor Liability and Commercial Umbrella insurance. For a consultation, please call NorthStar’s office at (800) 301-1944 to speak with a member of our team.