Ten Insurance Policy Considerations for Multi-Unit Restaurant Operators

AmWINS Group, Inc - Program UnderwritersAs the Managing Director at AmWINS Program Underwriters Inc., Keith George has become an expert in delivery-program insurance options for restaurant operators. The company is an insurance program administrator for several pizzeria delivery programs, and offers owned, hired and non-owned auto liability coverage to restaurant operators that provide delivery services.

These questions cover the insurance options available for restaurant operators who provide delivery and alcohol services to their catering clients and discuss the types of insurance needed for adequate coverage.

1. In the catering space, how important is having an insurance policy for delivery drivers?

If employees are operating their personal vehicle(s) in the course and scope of employment for a restaurant owner/caterer, the employer is potentially liable for the employees negligent operation of that vehicle.  The coverage needed for the employer is Excess Non-Owned Auto Liability.  This coverage will apply excess of any other collectible insurance on behalf of the employer.  Other “collectible insurance” includes the personal auto liability coverage of the delivery employee’s personal auto policy.

Typically, the personal auto policy of the delivery driver will contain a “business pursuit exclusion” or a specific exclusion of coverage for accidents arising from the use of the vehicle for food delivery.  The Non-Owned auto liability coverage protects the restaurant owner in the event the personal auto policy of his employee either  1.) denies coverage or 2.) does not afford sufficient limits to adequately cover the amount of the claim for damages.  If a restaurant owner has delivery drivers using their own personal auto to deliver his product, the employer/business owner  needs to purchase Non-Owned Auto Liability coverage to protect their business.

2. How does insurance for catering programs differ from restaurant chains that offer strictly delivery service?  

The catering business doesn’t really differ from restaurant chains from a delivery exposure standpoint, assuming the personal auto of an employee is used in the delivery process for both.  Based on the size of the typical catering job, the catering firm may choose to purchase their own vehicles to handle large deliveries of food and equipment as needed.  The typical chain restaurant uses small, fuel efficient autos and deliver one or two individual orders on each delivery.  The major difference I see lies in the off-premises liability created once they are at the customer’s premise setting up and serving.  Specifically, concerns arise over slip/trip type claims, damage to the customer’s premise from spills or breakage and potential liability from the serving of alcoholic beverages.

3.  What type of insurance options are available to multi-unit restaurant operators who have delivery vehicles they provide to their delivery drivers?

If the multi-unit restaurant operator purchases their own vehicles for delivery, they need to insure the vehicles on a Business Auto Policy.  They should be screening the Motor Vehicle Records of all employees who may drive those vehicles.  This is typically done on a semi-annual basis to make sure the delivery driver meets the driver eligibility criteria of the insurance company providing the coverage.  Often, the insurance company or insurance agent will do this for the owner but it’s a good idea for the restaurant owner to do this prior to hire.  It’s easier for the owner to forego hiring someone up front as a result of a poor driving record than it is to terminate their employment when the insurance company tells you they can’t drive for you.

4. What liabilities do restaurant operators face if they think their employees’ auto insurance is enough protection? 

From a liability standpoint, the restaurant owner is potentially risking his business if an employee is using his personal auto to deliver the employer’s product.  As previously stated, personal auto policies purchased by employees typically include coverage exclusions arising out of the use of the vehicle  for “business pursuits.”   In the event of an accident where the personal auto policy of the delivery driver denies coverage or does not afford sufficient coverage limits,  the injured party and his attorney will typically go after the deeper pockets of the employer.  The reality is serious accidents result in large awards.

5. Are you able to speak about the insurance pros and cons of company-owned vehicles versus having delivery drivers use their own? 

Pros for owned autos include:

  1. Knowing that the vehicle(s) are properly insured assuming a Business Auto Policy has been purchased.
  2. Ability to potentially have access to a greater labor pool as potential employees may not want to use their own vehicle for delivery.
  3. Tax ramifications of depreciation of the vehicle and ability to deduct expenses associated with the operation and maintenance  of the vehicle (consult your tax advisor).

Cons for owned autos include:

  1. The cost of purchasing the vehicle and the cash outlay for ongoing maintenance and insurance.
  2. Employees tend to cause more wear and tear on a company vehicle than they would their own.
  3. There is a cost associated for temporary or permanent replacement vehicle(s) if the owned delivery vehicle is in service or repair.

Pros for use of personal auto of delivery driver include:

  1. The cost of purchasing Non-Owned auto liability is typically less than insuring a fleet of owned autos
  2. There is no cost associated with the purchase and maintenance of an owned auto.

Cons for use of personal auto of delivery driver include:

  1. The restaurant owner will need to monitor the condition of their delivery driver’s vehicles to make sure they are in proper working order and road worthy at all times, and that the delivery driver has personal auto insurance on his vehicle. (Non-owned auto policies may contain a deductible provision that states the business owner is liable for the first $2,500 or $5,000 of any claim if the delivery driver does not have insurance whether that insurance is collectible or not.)
  2. Finding applicants that have a vehicle or are willing to use it for delivery.

In all circumstances associated with delivery, it is incumbent upon the restaurant owner to make sure that drivers have acceptable Motor Vehicle Records, and that the vehicles used for delivery are in good working condition and meet all state inspection criteria.  Also, there are “safe delivery driving” courses available that, if purchased, should be used to document that employees were properly  trained for their position.

In the event of an auto accident that ends up in court, the ability for the restaurant operator and their attorney to produce documentation that the driver met standards, the vehicle was in proper working condition and that the driver was trained, will help with defense.

6. What are some other insurance considerations multi-unit restaurant operators need to review if, for example, they serve alcohol as part of their delivery program? 

If serving alcohol, make sure all servers are properly trained in a formal alcohol training course (e.g., TIPS, TAM, RAMP ServSafe, etc.).  Additionally, the restaurant owner should purchase Liquor Liability coverage.

In addition to use of a certified alcohol training course, create a written policy for serving alcohol and make sure management reviews this written policy with servers on a regular basis.

Other insurance considerations for multi-unit restaurant owners: 

Any promotional “Happy Hours” offered, any live entertainment (bands) or vending/game machines, pool tables? Added exposures such as these will typically add to the cost of insurance.

7. What are some of the insurance pros and cons to having a catering program that also can supply and serve alcohol? 

If a catering operation supplies and dispenses alcohol, they should be properly licensed to purchase and dispense in accordance with their applicable state law and their servers should be trained.  Obviously, introducing alcohol into the catering equation comes with added potential  liability; avoiding it eliminates the potential for claims to arise.  If the restaurant is in the business of purchasing and dispensing alcohol, Liquor Liability coverage should be purchased.

8. What are some other insurance considerations if restaurant operators provide catering options such as on-site service in regard to setting up the food and serving it to guests?

If food is set up on customer premises,  be aware of existing hazards at the location such as where the heat sources are or any uneven surfaces that could result in spills or breakage.  Remember, if you spill red wine on Mrs. Jones’ new carpet, you’ll probably end up paying for it.

What happens when your parked van leaks oil on the customers’ driveway?  Are there any pets or small children that you need to be aware of?  All of these are common-sense items to consider but are often overlooked and can result in accidents that give rise to claims for damages.

9. What should restaurant operators consider when reviewing insurance options in regard to catering drop-off and/or full service orders? For example, how does each option change their insurance policy?

The longer the restaurant operator is on a customer’s premise the greater the chance of something fortuitous happening.  If it is a simple drop off, make sure food items are properly packaged and are in spill proof containers, and serving appliances and utensils are clean and in proper working order.

10. Is there anything else restaurant operators need to consider that we may have overlooked? 

I would add that it is always good advice to make sure the restaurant owner purchases Hired and Non-Owned auto even if they are not delivering.  There may be instances where the owner directs an employee to run errands such as going to the bank or post office using his own personal car.  It can be construed that this act, while not “food delivery” is still a “business pursuit.”  If the employee is involved in an accident, coverage could be denied by his personal insurance carrier.  The pricing for non-delivery Hired and Non-Owned liability is very inexpensive and is typically readily available.  Lastly, it should be noted that Non-Owned auto liability coverage does not provide any reimbursement for damage to the delivery driver’s car in that it only pays for Bodily Injury and/or Property Damage to third parties.

AmWINS Group, Inc.

~Interview conducted by Valerie Killifer, Media Services, MonkeyMedia Software