Up to 90 percent of U.S. restaurants lack proper insurance coverage, exposing them to significant risk in the event of a foodborne illness outbreak. According to a study from researchers at the Johns Hopkins Bloomberg School of Public Health, a single foodborne outbreak could cost a restaurant millions of dollars in lost revenue, fines, lawsuits, legal fees, insurance premium increases. And that doesn’t even include damage to a restaurant’s reputation.
Unfortunately, for decades, restaurants of all sizes including diners, food trucks, cafes and many others that sell prepared, non-packaged food, have not had access to the proper insurance when it comes to legal and financial exposures regarding foodborne illness events.
Despite the industry’s seeming lack of preparedness, foodborne illness is nothing new. Perhaps the most prominent foodborne illness outbreak occurred at Jack in the Box locations back in 1994, killing four children and hospitalizing more than 170 people. Jack in the Box recovered, but it weathered the storm with the backing of major corporate resources.
Of course, not every restaurant and food service provider has this kind of financial backing. So why aren’t restaurants concerned about lacking significant coverage to protect themselves in the event of an outbreak? Without supplemental insurance that covers foodborne illness, restaurants truly risk it all.
What’s at risk
Quite simply, the difference between a restaurant that is covered and ready to react and one that is not can be the difference between survival and failure.
Great restaurants have folded because they were not prepared to deal with the public and legal consequences of a foodborne illness outbreak. Without an insurance program, the major risks in the event of a foodborne illness event include immediate loss of revenue, long-term harm to the brand and business, liabilities such as salaries and location costs, and potential litigation if serious harm occurs.
Aside from the expenses incurred in the event of an outbreak, a foodborne illness event significantly damages a restaurant’s reputation. The eatery or brand loses huge amounts of public trust and stock value when they encounter a foodborne illness event. And brand reputations have never been destroyed faster. In the years since the Jack in the Box outbreak, all the ways in which we share and consume information has changed. Social media enables nearly instant boycott mobs any time a business negatively impacts its customers.
A verified foodborne illness outbreak requires immediate public notification by the local public health department. With the speed and reach of social media, especially on a local scale, this means the restaurant’s traffic effectively drops to zero, even if the health department allows them to remain open.
While big brands have significant funding to serve their own crisis damage control in the public eye, most restaurants don’t. A good supplemental insurance plan for foodborne illness won’t just take into account the actual expenses incurred and revenue lost, but also assist in crisis PR management that may be crucial to making sure a restaurant can get back up on its feet.
Dealing with an outbreak, and managing customer responses, is another consideration for restaurants to grapple with. If an eatery serves 500 people each day, or 3,500 each week, it would be nearly impossible for an owner to manage something as basic as phone calls from that many customers. So, while the restaurant may not technically be shut down, no patrons are coming in, no food is being cooked, and ownership is scrambling to maintain their reputation, their clientele and their sanity.
How does insurance mitigate against the risk?
Many restaurant owners falsely believe that their general liability or standard business interruption insurance covers foodborne illness events, since they cover injuries or maintenance on the premises. But in reality, these restaurant policies do not cover the full scope of needs that arise from foodborne illness outbreaks.
Independent restaurant owners, managers and administrators should be aware of this significant lapse in their insurance plans and can look into programs that will protect them from the legal, financial and public effects of a foodborne illness event.
By supplementing standard business insurance with a targeted policy for foodborne illness outbreaks, restaurant owners are assured that their costs will be covered, and the rebuilding process will be assisted by experienced professionals.
In addition to covering costs such as employee salaries, mandatory cleanings or sanitizing, equipment replacement and more that don’t fall under most business interruption policies, the industry’s best foodborne illness insurance packages offer a third-party crisis communications team to help deal with media and public sentiment.
These teams may also provide customer support for anyone who is affected by the outbreak, arranging health services such as vaccinations and doctor visits, and an information hotline where operators ensure every step is taken to satisfy the needs of every customer to assuage their concerns. By doing everything in its power to help those affected and alleviating any complaints or issues, while documenting the process, a restaurant and its insurance carrier helps prepare against potential litigation.
Every business that sells prepared food from a deli to a buffet, has just as big a need for coverage as the largest brands in the country. It may be even more important for small owners with one location, or a handful of locations, because major chains have enormous resources to protect and rebuild from negative public sentiment.
A single location owner doesn’t have the revenue support from other locations to keep afloat during a downturn. After the insurance carrier handled paying employees and guaranteeing every affected customer is taken care of, they would focus on helping to rebuild the brand.
Crystal Jacobs is the Restaurant Guard Vice President and Program Director at U.S. Risk. Restaurant Guard Insurance is an innovative provider of comprehensive and customized insurance solutions to the restaurant industry that include contamination coverage for food-borne illness and a range of options for professional, management and staff liability—even losses caused by terrorism or terroristic threats. Headquartered in Dallas, Texas, Restaurant Guard Insurance is a division of the U.S. Risk Insurance Group, a specialty lines underwriting manager and wholesale broker with 16 domestic and international branches.