Restaurant Insurance Policies, Compensation Become Key Issues

Experts advise restaurant and bar owners to consult with their insurance broker to make sure that their insurance coverage properly matches their exposure to loss. (Photo by: Milkos /

Legal disputes have been arising nationwide over pandemic-related business interruption claims. Insurers have won most of the trial court rulings, but restaurant policyholders have also scored victories in disputes.

Raleigh, N.C.-based Chef Ashley Christensen is one restaurant owner who sued her insurance company over business interruption coverage due to COVID-19.

WRAL reported last month that Christensen filed a class-action lawsuit on behalf of her commissary kitchen AUX Kitchen and restaurants – which includes Death & Taxes, Beasley's Chicken and Honey, Poole's Diner, Poole'Side Pies, Fox Liquor Bar and Chuck's Burgers against the Cincinnati Insurance Company.

Christensen said that her staff went from 300 people to about 50 in the weeks following the COVID-19 shutdowns, according to the lawsuit.

Business Insurance reported a Missouri state court in February ruled that a restaurant’s COVID-19-related business interruption claim was covered by Zurich Insurance Group. For the case, Ja-Del Inc. v. Zurich American Insurance Co. et al, the Kansas City-based court ruled “this Court finds and concludes that the language of the policy at issue is ambiguous and, therefore, the claim is covered under the policy.”

Ja-Del Inc., which operated Jack Stack Barbecue Restaurantssued Zurich and its brokers last year saying it had suffered lost income and “direct physical losses” as a result of mandated pandemic shutdowns, but Zurich denied its business interruption claim.

Restaurant Insurance Claim Outlook

John S. Williams with Farmers Insurance in Colleyville, Texas, said the increased outlook for insurance claims in 2021 will likely be lower due to the reduced number of people visiting restaurants due to COVID-19 restrictions.

“I know that Noble Public Adjusting based out of Florida has sued a carrier for spoilage and they were successful,” said Williams. “They think this means they have found a back door in to getting coverage extended for business interruption as it relates to COVID-19. I don’t think they have.”

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Some states are trying to push legislation through Congress, which would force insurers to cover these losses. Williams expects it to pass in places with more of a liberal attitude. “The problem, then, will be the increase in rate at renewal,” he said. “If you start forcing an insurer to assume a risk which was not accounted for (and previously not covered), they have to set aside the proper reserves to cover those losses. The best way to build reserves… raise the premium.”

David Reischer, Esq., attorney and CEO of, said it is highly unlikely that any business can receive compensation from their business owner’s insurance policy from the pandemic. “The ability to insure against the risk of a pandemic is typically excluded in business interruption insurance because insurers well understood even before COVID-19 that the financial cost of a pandemic is not quantifiable,” he said.

Restaurant owners that bring an action against their insurance company will probably be successful because these policies are usually written very carefully by insurance companies. Reischer said many Business Owners Policies (BOP) are carefully written to exclude for pandemic related claims but nevertheless a policy should still be reviewed to confirm that such an exclusion is written into the policy. Thereafter, the specific scenario and claim will need to be analyzed to determine whether the event is indeed covered by the policy.

As an example, Reischer said a business that was forced to shut down due to a decree from the government will probably not trigger a business interruption clause. “However, a business that closes due to fears that an infected worker may contaminate business equipment may potentially trigger a business interruption clause,” he explained. “The exact language of the policy will need to be carefully reviewed and a legal argument will need to be made.”

Outdoor Spaces and Insurance Coverage

Over the past year, many restaurant and bar owners have been preparing for the end of pandemic restrictions by expanding and upgrading outdoor spaces for customers.

John Hannon, CEO of Evarts Tremaine, insurance agents since 1844, noted that with added outdoor square footage, business owners may be wondering, “Does my liquor liability and bar insurance extend outdoors?” His answer is, "Be careful and check with your insurance agent."

Bar, pub and tavern owners should immediately verify that their liquor liability insurance policies cover off-premises incidents and claim exposures. “Many liquor liability insurance policies only cover incidents that take place at the bar or restaurant’s premises. Insurance coverage may be excluded for beverage delivery, or for incidents that occur on an adjacent patio, sidewalk or DORA (Designated Outdoor Refreshment Area),” said Hannon.

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Evarts Tremaine recommends policies that include a definition of “your premises” that is much broader than just the address listed on the declarations page of the insurance policy. They guide their clients in the use of specific endorsements – often called riders — to appropriately expand the definition of “your premises” for businesses that typically have an off-premises liquor liability exposure.

Business owners should consult with their insurance broker to make sure that their insurance coverage properly matches their exposure to loss. In terms of the overall outlook for restaurant operators when it comes to insurance for 2021, “We are seeing higher rates across the board along with more restrictive coverage which includes stronger communicable disease exclusions,” concluded Hannon. “Additionally, underwriters are becoming more discerning for cyber risk policies and employment practices policies.”

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