What to Know About Underwriting Restaurants & Bars

Liquor liability claims are on the rise for the bar and nightclub sector. The number of insurance carriers willing to write tough to place establishments has dwindled fast, according to Marc Adler, Managing Director, Burns & Wilcox Brokerage in Scottsdale, Ariz.

“Liquor liability claims have increased. Assault and battery claims have increased so underwriting approaches are tending to get a little more conservative,” he said in this interview with Insurance Journal’s Andrea Wells.

Overall the number of carriers available to liquor driven or assault and battery related risks have diminished, primarily due to either state guidelines related to liquor (some jurisdictions are tougher than others) and the adverse claims history seen in the industry recently.

Insurance Journal: How do underwriters determine what qualifies a restaurant/bar as primarily liquor driven?

Mark Adler: There’s certain criteria that underwriters look at in the market as to what makes a risk more liquor driven and more susceptible. … A restaurant that might have wine and alcohol service, but is really a restaurant, might have 30 to 50 percent liquor sales. That’s because you’re selling very expensive bottles of wine. It doesn’t make them a true liquor driven risk. Whereas a bar might serve food, but 60 to 70 percent of sales is liquor. Your alcohol consumption and exposure to adversity goes up.

IJ: What are some of the more challenging states when it comes to the liquor liability claims?

Adler: Texas and Pennsylvania come to mind as being two of the tougher ones. Nevada would be on the other spectrum. It’s probably one of the lighter, easier states to underwrite.

IJ: What should agents know when looking for a market for a harder-to-place restaurant or bar?

Adler: First and foremost, what are their protocols in terms of safety? Liquor training is one of the first things underwriters will look for. They want to see which of the national organizations servers will be trained under to make sure that everybody in that establishment, whether it be the server, waitress, waiter or bartender has been properly trained.

Next would be the type of amusement or devices used at the location, such as darts, dance floors, pool tables, etc. Mechanical bulls are a red flag.

The next thing, review security. Do they have a bouncer? Do they have armed security? Do they have unarmed security? Is it off-duty police? All that weighs into underwriting. While security may sound great, it presents a different exposure that must be underwritten. They have to understand the controls that are in place to handle the risk, whether it’s a third party providing the security to the bar or a direct employee of the bar.

IJ: What about assault and battery?

Adler: That depends on the class of business. On restaurants, it’s pretty vanilla. You typically won’t find a limitation. … When you start to move into what we call the bar/tavern or nightclub side of the industry then you get a little bit more specific. It can range from being silent to sublimiting coverage if there’s underwriting concerns or excluding it in total.

IJ: What is the biggest concern you see when it comes to insuring restaurants?

Adler: One of the biggest, and probably the most popular, is foodborne illness. How many times do we see where a restaurant has a contamination exposure and is shut down? Any establishment in the food industry right now is in need of foodborne illness coverage. It helps protect the restaurant in terms of a business interruption claim should they have to shut down. It also helps protect trade name restoration.

Beyond that, a slip and fall injury or a chipped tooth from something in their food, those are probably the largest or the most critical items right now.

IJ: Is foodborne illness coverage a standalone policy or by endorsement?

Adler: It’s both. There are some standard markets that will add some limited coverage to their package, but the most comprehensive coverage is a standalone coverage. … To truly get the most comprehensive coverage, a standalone policy is best.

IJ: Are most restaurants/bars buying cyber coverage today? Or is it only needed if they larger-size establishments?

Adler: I wouldn’t relegate it to a certain size. The way we have the discussion with our clients is they need it regardless of size because the small restaurant that gets hit can’t sustain a financial loss like that.

Cyber is just as much in demand as foodborne illness, if not more. Again, to truly get the most comprehensive coverage, it purchase a standalone policy.