How to protect your restaurant business from common and costly insurance claims

About 45% of the most common claims fall under commercial property insurance, but it’s good for restaurant owners to cover all of their bases when it comes to coverage.

One option to consider is a business owner’s policy, or BOP insurance, which combines commercial property coverage with general liability insurance into one package that is usually less expensive than buying the coverage separately.

Here are the four most common claims and how to reduce your risk in these specific areas.

1. Equipment breakdown

Claims related to equipment breakdown can be a result of equipment failure, lack of regular maintenance, and human error.

With such a wide scope of causes, it makes sense that equipment breakdown is such a common claim. Unfortunately these sudden and accidental malfunctions to business property and equipment can happen more often than expected.

Not only does equipment need to be repaired or replaced, but equipment breakdown can also lead to loss of income and inventory.

Fortunately, there are some steps you can take to reduce your risk in this area:

• Schedule routine maintenance for all kitchen equipment to ensure everything is in good working condition.
• Keep a maintenance log to track service dates and any repairs made.
• Train staff on properly using and handling all equipment to minimize misuse and prevent breakdowns.
• Consider commercial property or tools and equipment insurance to protect your gear.

2. Employee injury

The next most common claim is employee injury. Private industry employers reported 2.8 million nonfatal workplace injuries and illnesses in 2022, according to the Bureau of Labor Statistics.

Employee interactions with hot food, open flames, wet surfaces, and sharp knives are nearly constant with back-of-house staff at many restaurants.

However, there are steps to reduce the risk of employee injury:

• Supply employees with safety training and equipment.
• Rotate tasks that involve repetitive movements, like chopping or stirring, to reduce the risk of repetitive-use injuries.

Make sure to provide the right workers’ compensation insurance in case an incident happens (this is required by law in many states if you have employees) and familiarize yourself with the claims process.

3. Customer slip and fall

In addition to being one of the most common claims, customer slip and fall injuries are also one of the most costly claims (see the next section on the most expensive claims).

If a customer slips on a wet mat and breaks their arm, this can lead to medical expenses and legal costs that could impact a business’ bottom line.

Fortunately, there are some best practices to help reduce the chance of these types of accidents:

• Implement a strict cleaning schedule to ensure floors are regularly mopped and dried, especially in high-traffic areas.
• Use anti-slip mats in areas prone to spills, such as near sinks and beverage stations.
• Place visible signage to warn customers (and staff) of wet floors or other temporary hazards.
• Encourage staff to promptly address and clean up spills or other hazards as soon as they occur.

Consider general liability insurance, which can offer financial protection if a slip-and-fall accident happens.

4. Theft

Stolen inventory, equipment, and property. Shattered windows, busted doors, and broken locks. When a criminal steals from your restaurant, you take a hit financially but also emotionally.

To avoid the financial burden and stress, here are some practical steps to prevent theft claims:

• Install security cameras throughout your restaurant, focusing on entry points, cash registers, and storage areas.
• Use alarm systems and secure locks for all doors and windows.
• Implement strict cash handling policies, such as regular cash drops to a secure safe and limiting the amount of cash in registers.
• Train staff to be vigilant and report any suspicious behavior immediately.
• Consider commercial property insurance or a business owner’s policy so you have a financial safety net in case you experience theft.

Preparing for the Most Common Restaurant Insurance Claims Regionally and Seasonally

Knowing the biggest threats to your restaurant—seasonally and geographically—can help owners better navigate these risks and create a more resilient business.

Depending on the state where you do business, there is a wide range of most frequent claims.

For example, the top claim for Pennsylvania is equipment breakdown, for Florida it’s employee injury, and for California it’s vandalism. In both New Jersey and Tennessee, the top claim is for fire. Mississippi’s top claim is for wind, excluding hurricanes. In Michigan, it’s spoilage claims. And in Virginia, it’s power outages.

NEXT data also shows seasonal trends for property-related claims:

• Hurricane claims peak from September to November.
• Water damage claims are most frequent from December to February.
• Hail, tornado, and wind (excluding hurricane) claims are most common from March to May.
• Power outages and lightning claims are most frequent from June to August.

Though these trends are seasonal, many restaurant owners still find themselves unprepared year after year.

According to a NEXT survey of restaurant owners, 48% reported winter weather-related damage, and yet over half of respondents admitted to not feeling adequately insured.

Tips to reduce seasonal risks:

• Invest in preventative measures. For example, inspect your roof and repair any weak spots before winter. Back up restaurant data so nothing important is lost in a storm.
• Review your coverage to identify coverage gaps and make adjustments as necessary to avoid being underinsured.
• Consider commercial property insurance for financial protection.

How to Reduce Risks From the Most Costly Restaurant Insurance Claims

Some individual claims are more costly than others, regardless of frequency.

According to NEXT data from 2021 to June 2024, restaurants with a business insurance claim had an average total loss of around $9,000. Fine dining restaurants take the biggest loss per business, with average claims nearly double that of all restaurants.

Without the right business insurance, paying out of pocket could put a small restaurant out of business. That’s why it’s so important to have coverage, even for less obvious risks.

The top four most expensive restaurant claims from 2021 to 2024, according to NEXT data, are fire, slip and fall, assault and battery, and water damage.