Many times I’m asked why a restaurant would need to purchase an umbrella, and usually the question comes in a different form such as “The restaurant owner thinks $1 million dollars in coverage is enough, and I tend to agree. Why would Honey Boo Boo Child’s Family Restaurant need $2 million in coverage? He only has $800,000 in annual sales.”

I have lots of examples of losses, but I thought today I would discuss one of the most common: Food Borne Illness. Of all the risks a restaurant faces, quite possibly the largest exposure in 2012 was outbreaks of food borne illness.

How could a food borne illness claim possibly exceed $1,000,000? In one of the most famous cases of the year, Jimmy John’s infected and/ or hospitalized 29 people with E. coli from sprouts it served. Jimmy John’s is now facing millions of dollars in damages resulting from defense costs, hospital bills, other medical expenses, lost income, pain and suffering, emotional distress, disability, loss of quality of life, and other damages. Two years prior, Jimmy Johns had a Salmonella outbreak which caused even more illness. In addition to their monetary losses, Jimmy John’s has suffered a major hit to its public image. The damage financially and the lost goodwill could take years to recover.

However, many restaurateurs think they are immune to such losses since they do not serve as many people as big chains, or because they operate out of only one location. In all actuality, it is even worse for an independent restaurateur because independent restaurants cannot rely on future profits to shield them from a claim. Jimmy John’s has the size and annual income to offset a loss outside of its insurance, even one or two as bad as those described above. Margarita’s Restaurant, a family owned and operated restaurant in Holland, Michigan, does not, and was forced to close during an investigation, leading to a loss in income for the owner AND his employees. An outbreak of Norovirus there caused AT LEAST 200 people to become sick. Alonzo Salinas, the owner, when interviewed, stated claims were still appearing, and it was unknown how many more people have become sick since the tainted food was served.(1.)

It is too early to judge what those individual’s cases will be worth in terms of monetary damages, but a similar claim DID just settle for $6MM. Though confidentiality agreements forbid discussing the name and particulars of the case, the following information was disclosed in compliance with the confidentiality agreement:

  1. Non-Confidential Facts – Outbreak of food borne illness resulting in three separate injury and/or death claims. One claim involved the wrongful death of an 81 year-old male survived by his wife and two adult children; another claim involved the fetal demise of twins; and the third claim involved a woman who elected to have an abortion following the diagnosis and treatment of her illness.
  2. Description of Case: The case involved three victims of a food borne illness outbreak.  Each of the three victims was determined by microbiological and epidemiologic analysis to be members of the outbreak class. However, there were exceedingly difficult legal and factual questions regarding the source(s) of the outbreak. The case was in litigation for approximately two years and settled shortly before trial.
  3. Settlement Amount: The combined settlement of $6,425,000 was apportioned as follows: $3,500,000 to the couple that suffered the death of unborn twins; $2,700,000 to the family of the wrongful death victim; and $225,000 to a woman who elected to have an abortion.(2.)

In addition to these horrendous injuries, the restaurant was forced to close its doors, causing people to lose jobs, and resulting in lost income for employees and the restaurant.  

As that restaurant discovered, if you own your restaurant, a judgment in excess of the insurance (i.e. the money comes out of your own pocket) may bankrupt you, ruin your life’s work, and force you to shutter your doors. Instead of bankruptcy, the best option is to prepare in advance, and to purchase a relatively inexpensive umbrella policy, which will pay all losses in excess of the first million dollars, up to the policy limits. Many times, independent restaurants can receive an extra million dollars in coverage for $700, or five million dollars for $2,000. These umbrellas will cover not only food poisoning, but also slip and falls, vehicular accidents involving vehicles being used on company business, and liability accruing from serving patrons too much alcohol, which results in injury or death. Broken down over the course of a year, this is $1.90 per day, or the average cost of one extra entrée sold per week. When explained this way, an umbrella policy is a no brainer, as an insured will receive an extra million to five million dollars in coverage for no more than the effort involved in selling one or two more entrées per week.

Though a restaurateur and his or her agent ultimately have to make the determination of how much coverage he or she will need and balance that against how much he or she can pay, an umbrella policy is the surest way to sleep well at night knowing your assets, family, and life’s work are protected. McGowan Program Administrators is happy to work with you and your independent agent to provide a solution which will fit your needs and protect you.

(1.)  “Margarita’s Mexican Restaurant Closed Indefinitely after 150 Fall Ill.” Wzzm13.com. N.p., n.d. Web. 08 Jan. 2013.
(2.)  Six-Million-Dollar Food Poisoning Settlement.” Food Poisoning Settlement for over Six Million Dollars Wrongful Death. N.p., n.d. Web. 08 Jan. 2013

 

Neil P. McGowan, Esq. M.B.A.
npm@mcgowanins.com  •  800.545.1538

 

If you have any questions about umbrellas, please speak to your agent, and ask them to contact an underwriter at McGowan to discuss coverage options. For restaurant insurance, please ask to speak to Neil P. McGowan. He will always be happy to talk to you about any concerns or questions you have. He can be reached by email at npm@mcgowanins.com or by phone at 800.545.1538. McGowan Program Administrators writes specialty coverage for restaurants in all 50 states. Neil McGowan is a licensed property and casualty insurance agent and also an attorney in the State of Ohio.