Terry's Restaurant Insurance Blog


Restaurant Insurance And The Employment Practices Liability Add On

For several years now I have been writing blogs, urging restaurant owners to learn about, understand and purchase Employment Practices Liability Insurance (EPLI) for their restaurant.  Now we are seeing a fast developing trend where this protection is being added automatically to many insurance company’s restaurant insurance package policies.  This is a great trend and I applaud the insurance companies for moving in this direction.  Now with the basic coverage hurdle past us, the new risk for restaurant owners is that they don’t carefully review the included protection to make sure that it is right for their particular situation.

Let’s back up a bit and go over what Employment Practices Liability Insurance is.  As an employer, you owe your employees certain protections and what you owe them is being defined with a broader and broader brush as more lawsuits are won by employees against their employers.  You risk your assets to lawsuits by both employees and prospective employees for discrimination against them on the basis of race, religion, sexual orientation, age, sex, health, nationality and many others.  And remember, the offense for these discriminations doesn’t have to come from you the owner; they could be from one of your managers to another employee or from one employee to the next even if neither is in a managerial position vis-à-vis the other.  You also are vulnerable to claims from an employee for sexual harassment, whistle blower harassment as well as other types of harassment.  Since you can’t monitor every conversation or know every employee’s personal disposition, insurance is your next best form of protection.

So if your restaurant insurance package policy now includes EPLI coverage, can you just leave it at that?  Well, the answer is no.  This kind of insurance protection is pretty new and at this point in time the policy language is not standardized so you really need to read it carefully.  What good would the coverage be if the large print giveth and the fine print taketh away?  So, carefully read the definitions in this form.  How does the coverage define a loss?  Which kinds of discrimination or harassment are covered?  What must happen for the insurance company to respond to a claim? 

Once you have a good handle on what is covered and what triggers your protections, next start to understand the coverage limits in the form. Are the costs of hiring an attorney and defending your restaurant from this claim covered?  If defense costs are included in the protection, are they inside of your policy limit or outside of it?   This is important because in many of these types of claims, the defense costs can be the lion’s share of your losses.  What is the overall limit of coverage provided?  Is this enough to handle your worst case scenario?  What is the deductible?  Can you afford that?  And don’t forget that most of these policies are written on a claims made basis.  That could have a huge impact on your protection if you change insurance companies or are slow to file the claim.  To learn more about this issue read my blog on claims made versus occurrence based liability insurance.

I’m very glad to see a trend here where insurance companies are starting to add this coverage to all of their businessowners insurance policies.  This is far better than no coverage at all.  Now it is up to the restaurant owners to make sure that they evaluate this protection to make sure that it is adequate and broad enough to actually save them from big losses when and if they face one of these claims from their employees.

Clinard Insurance Group is an independent insurance agency located in Winston Salem, NC.  We insure hundreds of restaurants, all across North Carolina, South Carolina, Tennessee and Georgia.  We would be happy to help you answer any restaurant insurance questions that you may have.  Just give us a call, toll free, at 877-687-7557 and we will take as much time as you need to help you understand your insurance options.


How Will The New DOMA Ruling Affect Your Restaurant?

When the Supreme Court struck down the defense of marriage act’s exclusion of same-sex marriages from recognition under federal law, it may have set in motion a wave of needed revisions to your restaurant’s group benefit plans.  This ruling effectively changes over 1000 federal laws in one sweeping move.  How might these changes affect your employee benefits programs?  Have you calculated the impacts of these changes on your restaurant?

While on the surface, this ruling appears to clarify the federal government’s stance on fair treatment for same-sex couples, on the other hand the conflict between this ruling and the many and varied state laws on this issue certainly creates a new level of confusion.    So while we have the certainty that employer provided benefits, such as health insurance, can be offered to same-sex spouses in states where they can legally wed each other, without the cost of this benefit being taxable to the employee, many more questions are now raised.  For instance, if you have withheld taxes for a same-sex couple benefit that was previously taxable, are you now compelled to calculate the tax refund for those employees and return that money?  If so, how to collect from the IRS to pay this refund? 

Other questions abound.  What if you have same-sex employees who are legally married in one state but work for your restaurant in a state where same-sex marriages are not permitted by law?  What amendments do you need to make to 401k or retirement plans that your restaurant sponsors in order to be in compliance with this ruling?

As the relevant governmental agencies such as the IRS and the U.S. Department of Labor have yet to comment publicly on this ruling, it is still possibly too early to begin making changes to your benefit programs.  It is safe to assume that these agencies, once they do begin to establish changed rules to deal with this major change, will allow some time for communication and compliance with the new rules.  But you need to have some system in place to keep on top of these changes when they come in and to make sure that you meet any deadlines imposed for changes and communication of changes to your employees who receive these benefits.

If your restaurant operates in multiple different states, then your imperative in all of this will be to discover which state’s marriage laws will control your obligations on these benefits and tax issues.  At this time we don’t know whether federal benefit laws will default to the statutes for the state in which your restaurant is domiciled, the state in which the couple was married, or the state in which the employee works.  And if you have employees that might perform work for you in multiple states, then this becomes even more confusing.  In the short term it is expected that regulators are going to have a tough time figuring out the answers to these questions.

Here’s a short list of some of the areas that you may want to keep an eye on for clarification from the appropriate regulators in the future:

  • Eligibility for joint and survivor annuities, hardship distribution and early deferral of required minimum distributions under pension plans governed by ERISA rules.
  • Tax exemptions for group health plan contributions.
  • Mandatory 401k beneficiary designations and right to consent.
  • Guaranteed unpaid leave for emergencies involving married spouses under the Federal Family and Medical Leave Act.
  • COBRA continuation health care coverage
  • ERISA-governed health and retirement benefits equal to benefits provided to same-sex spouses.
  • Protection from workplace discrimination on the basis of gender of an employee’s spouse under title VII of the civil rights act.
  • Eligibility for tax favored treatment for flexible spending accounts and health savings accounts.
  • Special group health benefits enrollment rights under the Health Insurance Portability and Accountability Act.

Should you need help with any of your employee benefits programs for your restaurant, from disability and health insurance to 401k plans and retirement accounts, please call us, toll free, at 877-687-7557.  We look forward to helping you.


Climate Change And Your Restaurant Business Interruption Insurance

Earlier this year NASA released a report indicating that global climate change can be expected to cause weather events of increasing frequency and and intensity in the coming years.    This means more weather related disruptive losses for restaurants.  And with restaurants relying on global supply chains for supplies, the bad weather event need not even happen in your own backyard to create problems for your restaurant.   What kind of business interruption insurance do you carry on your restaurant?  Have you carefully reviewed it to make sure that it will respond in the way that you need it to should you have a claim?

A 2012 Allianz Global Corporate and Credit study found that in the last decade roughly 30% of all business interruption related losses were covered by insurance.  That’s a lot of uninsured losses.  Can your restaurant afford to overlook this important protection?

Most restaurant owners don’t fully understand business interruption or extra expense coverage and tend to gloss over it when working with their insurance agent.  This can be a mistake.  You should take a little time and try to think through as many loss scenarios as possible to get a solid handle on your exposure to these types of losses.  Areas of concern include:

  • Lost Sales – Once you have lost these sales, there is no way to make them up but many of your fixed costs will continue to mount up while your revenue stream has dried up.
  • Lost rent or lease payments  - if you own the building you are in and have other tenants, what is your obligation to them and how will you make up this loss?
  • Employee Wages  - If you are unable to continue to employ or pay your workers during down time, many of them will move on to other jobs.  At the very least you should identify your critical staff and have a plan to keep them from jumping ship while you rebuild or repair your restaurant after a large loss.
  • Taxes – What will be the tax consequences of your loss?  Which taxes will go on, even when you are out of business temporarily?  Where will the money come from to pay these ongoing tax expenses?
  • Loan payments – These obligations will likely continue after a loss even though your revenue may take a hit while you rebuild or repair your restaurant. 
  • Utilities – Another expense that might go on or even go up in the repair and rebuild process.  How will you cover these expenses with no revenue coming in?

One common misconception that we run into with restaurant owners is the mistaken belief that their landlord’s insurance policy will cover them for these losses in some way.  This will almost never be the case.  In fact, some of the tougher leases out there may even require you to continue to pay rent in the case of a partial loss to the building that is covered by the landlord’s insurance.  If this partial loss means that you can’t stay open for business, then you are at the mercy of the landlord’s repair team as to when you can get back in business.

Hand in hand with the process of evaluating your business interruption insurance coverage is the process of creating a solid disaster plan.  Here are a few items for consideration as you construct your disaster plan:

  • Make a plan to have cash on hand for initial losses.  Know where you will get this cash and make sure that your source is liquid so there is no delay waiting on funds.
  • Educate your employees on your disaster plans and make sure each employee knows his or her role in that plan.  They should fully understand what to expect before, during and after the disaster event.
  • Make sure that you are performing regularly scheduled backups, off site, of all of your data, records and important papers.  This backup should either be done electronically to an offsite data storage site or the backup disc should be physically removed from the premises each day.  A backup disc that burns in the same fire as your restaurant won’t do you much good.
  • Have a plan for a temporary location change if that is possible for you.  Any way that you can find to get back into business quickly and start generating revenue as soon as possible will reduce your overall losses.
  • Make sure that you have alternate supplier chains for each and every supply that you purchase.  The disaster that interrupts your business may not strike your restaurant; it could very well strike a supplier and if you have no other option your business could be interrupted.

Clinard Insurance Group insures hundreds of restaurant all across North Carolina, South Carolina, Georgia, Tennessee and Virginia.  If we can help you with any of your restaurant insurance questions or needs, please feel free to call us, toll free, at 877-687-7557.


Restaurant Insurance – The Audit And How To Make It As Painless As Possible

For most people, including restaurant owners, the word audit carries some pretty negative connotations.  But with your restaurant workers compensation insurance policy as well as your restaurant general liability insurance policy, an audit is the way that you settle up with your insurance company at the end of the policy term.  And while the audit process will undoubtedly take up some of you time, understanding it in advance could save you a lot of time, money and frustration.

Why does your insurance policy need to be audited by the insurance company?  Well, this happens when the rate basis is something that cannot be determined accurately before the policy has expired.  Your workers compensation policy is based on the dollar amount of payroll that you pay to each employee over the policy term.  And your restaurant general liability insurance may well be based on your gross sales for the policy period.  All you can do in the beginning is to make an estimate of these numbers.  Once the policy term has passed, an audit is necessary to find the actual payroll or sales numbers and to calculate the final premium for that policy.  At that time you will either owe a little more money or be due some back, depending on whether your estimate was too low or too high.

To keep your audit process as painless as possible, start by carefully reading and reviewing the pre-audit letter that you receive from your auditor.  This letter will tell you just what you need to have ready when the auditor calls or visits.  Take the time, right then if possible, to gather your documentation and go over it for yourself to make sure that it is accurate.

Next put your payroll records into order with totals and details available by the following criteria:

  • Policy Period – from inception to expiration date
  • Job Classification – have your payroll separated between the different classifications from cooks to managers to wait staff and clerical people.
  • Overtime versus regular pay – Be sure to have the overtime amounts documented clearly as the workers compensation rates do not apply to the extra bonus paid for overtime work.  This step will help lower your costs if you have paid out significant overtime over the year.

Make sure that you are clear on the meaning of the term Gross Payroll.  The audit will be based on the gross payroll numbers.  This is the amount of payroll before deductions that reduce the employees’ taxable income like 401k plans or cafeteria-style plans.

Keep the lines of communication open.  If you are able to meet your auditor with all the information that he or she needs, the chances that the audit will go awry or waste your precious time are much reduced.  The more research work that the auditor must do when visiting your restaurant, the greater the chances of the process getting tangled up, resulting in errors that will take your time to correct.

Once the auditor has finished the audit and submitted it back to the insurance company, you will receive a final audit statement.  Take a moment to review the numbers to be sure that they are correct.  If you see any errors, contact your agent for help in resolving them.

Clinard Insurance Group insures hundreds of restaurants all across North Carolina, South Carolina, Georgia and Tennessee.  We work hard to help our restaurant owners to have a smooth and trouble free audit process each and every year.  If you would like help with your restaurant insurance, please call our office, toll free, at 877-687-7557.  We look forward to helping you.


A New Concern For Restaurant Owners – Pregnant Employees On The Job

Restaurant owners in North Carolina have plenty on their plates.  With so many employees and the rules associated with their responsibilities to these employees, restaurant owners have a lot to keep up with these days.  Now add in a new wrinkle – liability exposure for damages sustained by an employee’s fetus in utero.  What is your exposure?  How are you covered?

Pregnant mothers of course are protected by your workers compensation policy for injuries sustained while on the job in your restaurant.  But what about the injuries that a fetus may sustain as a result of your workplace?  Case law is pretty thin on this issue right now but more and more people are beginning to challenge employers for these kinds of injuries.  A California case, Snyder vs Michael’s Stores, Inc. addressed the question of whether or not the workers compensation policy will respond to injuries to the unborn child.  In this case the court ruled that coverage applies if the child’s claim is deemed collateral to or derivative from an employee’s injuries.  The court went further to say that this derivative injury rule applies only if the child were seeking damages for the mother’s work related injuries, or if the claim necessarily depended on the mother’s injuries.

This case then, leaves out of workers compensation coverage the situations where the mother’s health is not put at risk but the fetus’ health is.  When this happens, workers compensation is not seen as the exclusive remedy and the child is allowed to sue the employer as a third party injured through the employer’s negligence.

To further confuse the situation, consider the U.S. District of Columbia case, Lockhart vs. Coastal International Security Inc.  In this case the courts ruled that workers compensation law expressly limits the the liability of an employer to an employee and to that employee’s dependents.  This case then makes the workers compensation system the exclusive remedy for these types of claims.  This is in direct contrast to the California decision.

If the California rules are followed, then you, as a restaurant owner have an even larger exposure.  Will your general liability policy step in here and offer you protection from the coming third party lawsuit?  While the general liability insurance policy does have an exclusion for injuries to employees (as that is best handled by the workers compensation policy), this exclusion would not apply to the child as that child is not an employee of your restaurant.

While there is some uncertainty regarding who may sue you and where you may find insurance protection, it is appalling to me that so many NC restaurants have no workers compensation insurance coverage in place.  Going bare is extremely risky, and if you have 3 or more employees, also illegal in North Carolina.  Still, nearly 50% of the restaurants in our state do not buy workers compensation insurance protection.  The best plan of action for you is to review your workers compensation insurance and your general liability policies to make sure that both have high limits of coverage and are in force and ready to protect you.  After that, there is no substitute for careful risk management for all employees.  And bear in mind that with a pregnant employee you may have a non-employee third party in your restaurant that may hold the right to sue you for injuries.

At Clinard Insurance Group, we want to help you with your restaurant insurance needs.  We can save you money while helping you make sure that you have the restaurant insurance protection that you want and need.  Give us a call; toll free, at 877-687-7557.