Don’t Get Fried by Uninsured Losses

If you’re a quick-service restaurant (QSR) owner or want to become one, you know these businesses can be quite lucrative. Most Canadians dine out at least once a week, and QSRs are especially popular because of their convenience.

But success in the fast food business comes with risks, like liability and property damage claims. You need adequate insurance to cover these risks.

Most QSRs are part of large food service chains. As a franchisee, you pay the parent company an upfront franchise fee and foot the bill for operating licenses, rent, equipment leases, advertising fees and royalty payments. Your franchisor may include business insurance as part of your fees, or stipulate the types of insurance you must obtain on your own.

Even if business insurance is included in your franchise package, you may need additional insurance to cover gaps in these policies. We can review the coverage in your franchise agreement to determine if it includes enough protection. If you’re an independent operator, we can also help you purchase your own business insurance.

Know that you may be required to carry certain types of coverage, such as property and liability insurance, to secure a lease, obtain a loan or line of credit from a bank, or get the backing of investors.

Commercial general liability is essential

All restaurants need commercial general liability (CGL) insurance. CGL insurance protects against costly legal claims if a customer sues you. CGL covers bodily injury and medical expenses; property damage; and personal injury, including libel and slander.

In food service, it’s especially important to have liability coverage for food-related illnesses, such as food poisoning. You may need a separate policy to cover food liability. In some cases, you may need product liability insurance, which would cover you if the food items you receive from your franchisor or supplier are contaminated or defective.

Business owners policies (BOPs) cover the basic insurance needs of a small business, generally liability, property and business income coverage in one policy.

While you may be covered by your franchisor’s CGL policy, the policy might not pay a claim if you’ve made changes to your store that aren’t in your franchise agreement. For example, if you decide to provide outdoor seating or install an awning and someone is injured as a result, you may be responsible for the claim if the franchisor didn’t require it.

CGL policies don’t cover employment-related liability claims. You can purchase separate employment practices liability insurance to protect against lawsuits involving sexual harassment, discrimination, wrongful terminations, retaliation, failures to promote and breaches of employment contract, among other claims.

Liability insurance is sold with various limits, typically starting at $1 million. The limit is how much a policy will pay out in a given year for legal expenses and damages. Liability limits are important because you pay the difference if a claim exceeds your limit.

Ask us if you need to increase your liability coverage. You can do so fairly easily with umbrella insurance, a separate policy that provides coverage above your liability limits.

Commercial property insurance

QSR operators face several property risks. These include kitchen fires, theft and vandalism, sewer and drain backups, and catastrophic weather. Check what your commercial property insurance covers and what the limits are on your policy.

Even though your franchisor may provide basic coverage, ensure your equipment. such as freezers and refrigerators, fryers, grills and drink dispensers. are insured. You may want to purchase an equipment breakdown policy, which covers the cost of repairing or replacing equipment that stops working due to mechanical or electrical failures.

You should also have business income insurance, which covers losses if your business is interrupted or shut down due to a fire or natural disaster, a covered government closure, or an accident. This coverage will pay for lost income while your business is being restored or rebuilt, allowing you to meet your expenses and make payroll.

If your restaurant has a company vehicle, you’ll need a commercial auto policy to cover any claims associated with its use. A good example is if you make deliveries.

Cyber insurance

Any business that handles sensitive customer information should be concerned about cybercrime and data breaches. Food service is particularly vulnerable since restaurants use point-of-sale systems to process credit cards. Your systems could be hacked or subject to ransomware.

Cyber insurance protects your QSR from loss of data, disruption of your company’s networks, loss of income if your business is shut down and damage to your reputation. It also covers customer notifications if there’s a breach, credit monitoring for affected customers and security investigations.

Many business owners policies (BOPs) and program policies include some cyber protection. Remember, you need to protect your own computers and networks and your customers’ personal information. You could be held liable for a data breach if you don’t take appropriate security precautions.

Business owners policies and program insurance

Many commercial insurers offer business owners policies (BOPs) to cover the basic insurance needs of a small business. BOPs provide general liability, property and business income coverage in one policy. Commercial package policies (CPPs) allow you to build your own bundle, and they include coverage not found in BOPs.

In addition, some insurers have created specialized coverage tailored to restaurants, known as program insurance. Program managers often bundle coverage not normally available in BOPs or CPPs into their insurance packages. A program might include the basics, plus employment practices liability and food liability, for example.

Most QSRs are part of large food service chains. As a franchisee, you pay the parent company an upfront franchise fee and foot the bill for operating licenses, rent, equipment leases, advertising fees and royalty payments.

Our brokers can help you compare policies, choose suitable coverage and fill any gaps in your franchisor-provided insurance.

It’s exciting when a QSR concept takes off and your business is humming. It can be rewarding for the owners and employees. Just make sure you have the risks of running a busy restaurant covered so you can enjoy the fruits of your hard work.