E&O Insights: Food for Thought When Insuring Bars and Restaurants

It is probably fair to say that just about every town has a restaurant or tavern. Thus, pursuing these commercial risks is probably close to a no-brainer. Before you take that first step, however, be aware that these risks do have some unique exposures and failure to properly address them can lead to errors and omissions (E&O) claims activity.

Obviously, when considering restaurant and tavern risks, the spectrum is fairly wide and the exposures diverse, based on the specific risk. Whether you are looking at a 5-star restaurant, a café or diner, coffee house, sports bar, martini bar or simply your neighborhood tavern, you must evaluate the exposures to ensure the proper job has been done. In most situations, the carrier to be used will depend heavily upon the risk, their exposures and their experience – and, in many situations, the excess and surplus lines market may be your only choice. If so, you must be aware of some limitations on the coverages offered.

A Great Starting Point

To begin use one of the various exposure analysis checklists available. If the agency staff is not completely aware of the various exposures these risks have, these checklists will provide some solid information and insight. Does the risk have an ordinance or law exposure? Do they provide valet service? Do they have valuable fine arts hanging on the walls? What is their crime exposure? Do they sponsor any athletic events?

These are just a few of the questions you will need to have answered to ensure that you offer the client the coverages they need. But before meeting with the prospect, it is key that you understand the exposures yourself.

For more upscale risks, you will be dealing in the admitted marketplace. If you don’t currently have a market, check with your wholesaler or go online into a search engine to identify some markets. Because of the specialization of these risks, it is preferable that you deal with a company that includes this as one of its specialties, demonstrates some solid expertise, and provides a strong and complete product offering.

In many situations, specialty carriers offer numerous coverages for no additional premium. Included among these are: outdoor property, pollution cleanup, coverage for guests’ property, fine arts, off-premises sign coverage, accounts receivable and valuable papers, quality business interruption with a broad crime offering, and automatic coverage for any special events in which they are involved.

Fewer Bells and Whistles

If you are forced to go to the E&S market (probably for more of a tavern exposure) things change quite a bit. The coverage will probably be more limited, without the same degree of bells and whistles. One coverage typically excluded in the E&S market is protection for assault and battery.

If there is the potential for a fight to break out, absence of this coverage could leave the tavern owner on the hook for the claim, but could also lead to an allegation against your agency for not providing the necessary coverage.

This claim (which is still open) alleged the failure of the agency to secure general liability coverage for a restaurant and bar that did not contain assault and battery coverage. Following a confrontation in which a drunken client got into a fight with a bouncer, the customer died of head injuries. His estate sued the client. When the loss was tendered to the carrier, the carrier denied coverage based on the very broad assault and battery exclusion. The client subsequently settled with the estate for $120,000.

Suit was filed against the agency, alleging it failed to procure proper coverage for the client’s operations. No specific request was ever made by the client to secure coverage resulting from an assault. As part of their proof, the client has produced an expert who is expected to testify that general liablity coverage was available without the assault and battery exclusion. Whether this is true has yet to be proven. This claim is still open with an exposure of $120,000 plus defense costs and interest.

Dealing in the E&S Marketplace

As with any risk, when you receive the policy from the carrier, check to be certain it reflects the coverages that were requested. Advise clients, verbally and in writing, that when they receive their policy they must review it to make sure everything is in order.

If you already insure a risk in this market, be certain that when you receive the renewal policies, you check them over for any changes. You are probably aware that the E&S market is not required to issue conditional renewal notices advising you of changes; you need to catch these either through your evaluation or from your wholesaler. Obviously, bringing any reductions to your client’s attention is crucial. Moreover, it is highly recommended that you get their approval in writing for these changes.

The current economy has hit this industry hard – and we have all heard the numbers for the success rate among restaurants and taverns. Take the time to learn this industry and your clients’ exposures. Your knowledge and expertise, coupled with the right market, can make insuring restaurants and taverns a rewarding undertaking.

Topics Excess Surplus Professional Liability