Running a food service business can be high-risk and high-reward. A successful business will have a high volume of foot traffic as customers visit your restaurant and food couriers dash in and out delivering orders. That flow of people, combined with the hazardous nature of cooking equipment and food allergens, can equal a recipe for disaster if your business is not insured.
That’s why entrepreneurs in the food and beverage sector should not overlook the potential risks. In an industry where the profit margins are razor-thin and 41 per cent of restaurants are operating at a loss, a setback from an uninsured claim can be more than many business owners can withstand. Avoid getting burned and ensure you’re well prepared and protected when operating a restaurant business in Canada.
In this article, we will break down the key types of insurance coverages every restaurant or catering business should consider, why they matter and how to choose the right policy to keep your business operating smoothly.
Why get insurance for a food and beverage business?
While mishaps happen in any industry, accidental injuries are more frequent in the food and beverage business. An environment where dangers like sharp knives and hot flames are common, combined with a workforce that tends to skew younger and less experienced, calls for extra protection against hazards.
No matter if you own a small family-run restaurant or a large-scale catering operation, the proper insurance coverage can mean the difference between a minor setback and a major one. Beyond helping cover the expenses related to specific claims, insuring your restaurant business can:
- Fulfill event contract requirements: Having business insurance in place is necessary for meeting event contract requirements for pop-ups, street food festivals, farmer’s markets, trade shows and more. Many event organizers in the food and beverage business will require proof of insurance before allowing your business to enter into a contract.
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- Meet location specifications: Beyond satisfying event organizers’ requirements, insurance can also be a checklist item needed to lock in your physical location, whether with the landlord of your rental property or the bank to secure a mortgage.
- Increase your credibility: Already having an insurance policy in place demonstrates professionalism and reduces the risk of potential legal and financial issues for your business. Your potential vendors and partners will trust that you run smooth and secure operations, which could help your business land bigger contracts.
- Provide ease of security: Having insurance allows you to confidently take on high-value or high-risk opportunities, knowing you have the right coverage to meet the contractual obligations and protect your own interests.
Choosing the right restaurant insurance for your food service business
The exact right insurance coverage for your business will be as unique as your business’s needs. It will be informed by your restaurant’s size, services and location, but certain policies are fundamental for every food and beverage business.
Commercial general liability insurance
Commercial general liability (CGL) coverage is especially important for businesses that have physical risk exposures, for example, a retail location or if the business operates at public and private events. CGL insurance provides coverage against property damage and bodily injury caused to a third party, be it customers, delivery people, or those just passing by, during the course of its operations.
Commonly, this coverage also includes two liability coverages that are especially key to restaurant owners:
- Product or completed operations liability: A must-have for restaurant owners, this insures your business against injuries or sickness allegations from customers after consuming your products.
- Tenant legal liability: For rented premises, this coverage helps to compensate your landlord if damages are caused to the space you rent by a fire, water damage or human error in the course of your business operations. Tenants can be held legally liable for repairs to the leased space without it.
Real-world scenario: You receive a claim from a customer alleging food poisoning caused by undercooked chicken that was served at your restaurant. That customer is seeking $20,000 in compensation for their medical expenses. With commercial general liability coverage, the insurance company will help you pay for the necessary expenses, from legal counsel to medical compensation.
Contents insurance
Food service businesses often need specialized (read: expensive) equipment, which makes contents insurance a staple. It provides coverage to replace or repair your business’s lost or damaged equipment, inventory and stock. These are often some of the most valuable investments a food and beverage business has, and are directly tied to your ability to maintain operations.
Real-world scenario: During dinner service, a fire started in the kitchen of your fast casual brewpub and caused damage to an expensive commercial stove. After the clean-up, it was also discovered that some kitchen backstock had been lost to the fire. After the dust settles, the damages result in a total of over $6,000. Contents coverage helps pay for the repairs or replacement of the damaged stove and inventory, enabling your restaurant to return to normal operations as soon as possible.
Cyber liability insurance
Almost every business has a digital footprint these days. If your food or beverage business uses online systems to store customer data or payments, you need to consider cyber liability insurance. It provides comprehensive coverage against cyber and data-related risks like system data breaches, hacking activities and ransomware attacks, which includes protection against the costs to recover lost data, legal fees, fines, ransom and managing public relations after a cyber incident.
Real-world scenario: Your fine dining restaurant uses a cloud-based POS system to manage customer transactions and reservations. That POS system was compromised overnight, resulting in the exposure of sensitive customer data. Ransomware encrypted all the POS data, making it inaccessible, and the attackers demanded a ransom payment to release the system.
Your insurance provider will launch an investigation to find and stop the cause of the breach. The policy will cover the cost of the investigation, legal fees, regulatory fines, ransom payment reimbursement and publicity fees to help restore customer trust.
Other optional coverages to consider
Depending on your business, you may want to consider additional coverage related to your specific products and services. Somen specialized coverage to consider includes:
- Liquor liability: If your business manufactures, serves or sells alcohol, take note. In Canada, you could be held legally liable for the actions of intoxicated patrons—including the property damage, injuries or accidents that occur as a result of being over-served. This optional coverage will help pay for the costs related to these incidents.
- Business interruption: A coverage that helps protect your business from lost income and ongoing expenses when surprise events force you to close. Business Interruption insurance covers the financial impact of being unable to operate, helping you stay afloat while you work towards getting back to the regular grind.
- Equipment breakdown: This type of coverage protects your business from the financial impact of mechanical or electrical failures of essential equipment by covering the cost of repairs or replacements. It may also contain coverage for spoiled inventory or extra expenses incurred to continue operations.
- Sewer backup: A painful and common issue for those in the food and beverage industry, this insurance provides coverage for damage caused by the backing up or overflow of drains, sewers, or sump pumps. Unlike general water damage, which may be covered under a standard commercial property policy, sewer back-up is often excluded unless specifically added as an endorsement to the policy.
Running a restaurant business in Canada can be as demanding as it is rewarding. From crafting memorable dining experiences to managing staff and suppliers, your work brings people together over food and hospitality. However, alongside the satisfaction of serving great food comes significant risks – from kitchen fires and food spoilage to customer injuries and liability claims.
Protect your restaurant business with Ownr insurance
Keep your business covered. Ownr Insurance offers commercial general liability and business contents insurance packages for eligible businesses starting at just $684/year, with cyber insurance available for an additional cost (subject to qualification). To learn more about the best coverage for your restaurant business’s needs, book a call with an expert to receive a customized quote.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed, and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.