Insuring Restaurants and Taverns: Don’t Let Them Give You Heartburn
Our guest blogger and E&O expert Curtis Pearsall of Pearsall & Assciates shares his tips for being sure we, as agents, dot the i's and cross the t's when it comes to insuring restaurants and taverns.
Chances are just about every town in our great country has a couple of restaurants /taverns, so your pursuit of these risks is fairly likely. Unfortunately, since these risks have generated more than their fair share of E&O claims, before you take that first step, it is important to understand that these risks do have some unique exposures that need to be properly addressed.
Tremendous variety to the risks in this class
When discussing the restaurant / tavern class of business, there is tremendous variety and diversity to the exposures they present. Whether you are looking at a 5-star restaurant, a cafe or diner, coffee house, sports bar, martini bar or simply your neighborhood tavern, it is important to understand the exposures they potentially present to ensure the proper job has been done. In most situations, the market / carrier to be used will depend heavily upon the risk, their exposures, and their experience. With some risks within this class, the Excess and Surplus Lines market may be your only choice. If so, you must be aware of some limitations on the coverages offered.
Exposure Analysis Checklists are a great source of information
To learn the ins and outs of this class of business, a great place to start is through accessing the information contained within your Exposure Analysis Checklists (Vertafore / Rough Notes, etc.). These checklists will provide some solid information and insight, including a questionnaire detailing by line of business the pertinent questions to ask. Questions should include:
Does the risk make deliveries? Do they provide valet service? What is the level of their security? Do they sponsor any athletic events? So, before you meet with the prospect, take some time and do your homework. The time spent preparing for the call will help make the call more productive and help you understand the exposures much clearer.
Try to use carriers that specialize in this class
For more upscale / family oriented risks, you probably will be dealing with the admitted marketplace. Because of the specialization of these risks, look to deal with a company that includes this as one of its specialties and has demonstrated some solid expertise. There is a good chance their product offering may be more comprehensive. Coverage for exposures such as 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 may be more readily available.
For some risks, such as a tavern exposure, the E&S market may be your only options. The coverage will probably be more basic without the same degree of bells and whistles. Many E&O claims have focused on the lack of Assault and Battery, citing the establishment owner was not aware this coverage was not provided.
With some risks within this class, fights have been known to happen and without this coverage, your client could be on the hook. This claim involves an agent who had procured a GL policy for the client with Assault and Battery exclusion. Following a confrontation in which a drunken client got into a fight with a bouncer, the customer died of head injuries. When the claim was submitted to the carrier, they denied coverage. The E&O carrier paid out over $150,000.
Even if Assault and Battery coverage is provided, not all forms read alike so be sure to review the form carefully to determine the extent of coverage. Some Assault & Battery forms limit coverage to only "on premises" or "only assault by employees", etc. Bring the specifics to the client's attention and be sure to document this discussion.
Documentation is key
For most risks, the issue of workers compensation needs to be discussed with the prospect. Based on the structure of the organization, it would be appropriate to ask the owner if they want coverage for themselves and then let them make the decision. Obviously be sure to document these discussions not only in the agency file but also through written communication with the client to ensure that there is no misunderstanding.
As with any risk, when you receive the policy from the carrier, check to be certain it reflects the coverages requested. With the above claims situation and many others, one could only wonder if the client, when they read their policy, would have realized the shortfall. There is no doubt a part of the agent's defense in E&O litigation that involves the client's duty to read their policy. To reinforce this, agents, when they send the policy, should include a cover letter advising the client to read their policy and to contact the agency promptly if they have any questions / don't understand it or there is a need for corrections of some type. If you personally deliver the policies, it is best to still include the letter and bring it to the client's attention.
Some E&S issues
If you already insure a risk in the E&S market, be certain when you receive the renewal policies to check them over for any changes. Since the E&S market is not required to issue Conditional Renewal Notices advising you of changes, changes in the coverage could occur without your knowledge. As a result, agents need to identify any differences between the expiring policy and the proposed renewal terms and then bring any reductions to your client's attention. It is highly recommended you get their approval in writing noting these changes.
By taking 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. Without this, it could be your worst case of heartburn.