Nashville restaurant Milk and Honey faces more than $6 million in damages from four separate lawsuits alleging at least 20 patrons were sickened by short rib gnocchi served at the restaurant on August 3 and 4, 2018. The gnocchi contained what the USDA determined were Salmonella-contaminated eggs from Alabama-based supplier Gravel Ridge Farms.
The lawsuits also allege kitchen staff undercooked the gnocchi by at least 10 degrees. Milk and Honey and its parent company, Monen Family Restaurant Group, are listed along with Gravel Ridge Farms as co-defendants in the lawsuits.
There are an estimated 48 million cases of foodborne illness in the U.S. each year. The financial impact of such outbreaks can be devastating for restaurants, said Michael Forde, Commercial Underwriter, Burns & Wilcox, Detroit/Farmington Hills, Michigan.
“The costs of (paying for) foodborne illnesses at restaurants can rise into the millions of dollars when you add everything up.” – Michael Forde, Burns & Wilcox
Some of the most common causes of foodborne illness at restaurants are Salmonella and E. coli, Forde said. In recent years, there have been a high number of recalls for different kinds of meat and lettuce, he added.
“The costs of (paying for) foodborne illnesses at restaurants can rise into the millions of dollars when you add everything up,” Forde said. “The financial loss goes beyond legal costs or damages to anyone who may have become sick.”
In rare cases, victims of such outbreaks have died, both in North America and abroad.
Even without catastrophic injuries or the loss of life, the financial impact can linger. “The damages from a foodborne illness situation can certainly stretch (into) years, or result in a business closing without the proper coverage in place,” Forde said.
Some restaurant owners believe that their Commercial General Liability (CGL) and Property policy will include coverage for the restaurant getting shut down due to foodborne illnesses, but often it does not, said Patricia Sheridan, Manager, Ontario Property and Casualty, Burns & Wilcox Canada. Commercial General Liability Insurance will cover bodily injuries, however, the insured could find themselves without business interruption coverage in a case like this, she said.
“You need coverage that fills the gap in a standard CGL and Property policy,” Sheridan said.
Coverage geared toward restaurants
The policy that fills the gap Sheridan identified is Restaurant Contamination Insurance, a type of Product Recall Insurance. Available in both the U.S. and Canada, Restaurant Contamination Insurance covers business interruption, brand rehabilitation, extra expenses, consultant costs and disease outbreak clean- up costs from an instance of food contamination. The policy can be triggered by a Public Health Authority (PHA) health announcement, foodborne illness, supplier contamination, among other insured events, Sheridan said.
Other restaurant costs associated with a foodborne illness outbreak include food disposal and comprehensive sanitization, as well as employee salaries, utility bills and expenses accrued while the restaurant is closed. While some of these costs may be covered under a Restaurant Contamination policy, many carriers require an additional Business Interruption endorsement for reimbursement.
“Some clients believe they’re already covered in case of an outbreak, but that’s often not the case.” – Patricia Sheridan, Burns & Wilcox Canada
The costs for a casual dining restaurant to manage and recover from a single case of foodborne illness can range from a few thousand dollars to more than $2 million, according to a study conducted by researchers at Johns Hopkins University’s Bloomberg School of Public Health in 2018.
The 2018 study also showed while incidences of foodborne illness can result in costs as high as $2.2 million for casual dining restaurants, these costs can reach $2.6 million for fine dining restaurants. Such figures can easily exceed a restaurant’s annual revenue. For small and/or privately-owned businesses, having the right coverage can be the difference between staying in and going out of business.
Following a foodborne illness, a restaurant may also need to take steps to repair its reputation. Reputation restoration coverage is commonly used, and is a part of our core Restaurant Contamination policy, Sheridan said.
In 2016 more than 300 people became severely ill in the 24 hours following their Thanksgiving Day meal at the now-shuttered Golden Ponds Restaurant and Party House in Rochester, N.Y. It was later determined the outbreak was caused by bacteria resulting from improper food handling processes.
“You may need to hire a public relations or advertising firm or another consultant who can help you recover your reputation,” Forde said. “This effort may take weeks or months. Even then it may not always work.”
“In the event there’s been a downturn in sales, (Rehabilitation Expenses) can be used to offset the damaging effects of the incident. Carriers can also provide a crisis management consultant available 24 hours a day, seven days a week. This is not available with every market or carrier so it’s important to read and understand what is available in your policy,” he added.
Restaurant chains have also come under fire for food poisoning. Four large-scale foodborne illness outbreaks occurred at Chipotle Mexican Grill between 2015 and 2017 and more than 600 people developed symptoms of food poisoning after dining at a Chipotle franchise in Powell, Ohio in late July 2018.
“You may need to hire a public relations or advertising firm or another consultant who can help you recover your reputation.” – Forde
Contaminated lettuce resulted in a Cyclospora outbreak that affected more than 500 McDonald’s customers in 16 states. Twenty-four of the afflicted diners had to be hospitalized.
Generally, Restaurant Contamination policies with limits up to $1 million are available, provided the restaurant does not have a long history of foodborne illness or other contamination claims, Forde said.
Large chain restaurants or ownership groups that manage 20 or more restaurant locations may require a more customized insurance package.
“The good news is that these policies can be tailored to (a restaurant’s) specific needs,” Forde said.
Premiums are often affordable, especially when best practices are followed
Restaurant Contamination Insurance premiums are typically based on revenue, Forde said. Smaller, locally-owned restaurants may receive $1 million in coverage for $1,000 or less per year, he added. Even restaurants with multiple locations may pay less than $1,000 per restaurant if its risk profile is strong.
Poor inspection records and history can adversely impact premium costs and insurability, Forde said. Many carriers will provide restaurant owners with advice and preventative strategies designed to help reduce the likelihood of food mishandling and contamination.
Sheridan recommends business owners take steps to show they follow accepted processes aimed at limiting contamination issues. In Toronto and other areas throughout Canada a Food Handler Certification program is available. The U.S.-based National Restaurant Association encourages members to participate in programs like ServSafe, to maintain optimal restaurant conditions.
“These (certifications) can help the insured in training staff on proper disposal methods, refrigeration and general health standards for food handling,” Sheridan said. Carriers will have an insured’s restaurant inspected within 30 days of a new insurance policy being bound, she added.
“If a restaurant has had an incident in the past but has taken strong steps to prevent something similar from happening in the future, we can usually still find coverage,” Sheridan said.
As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent about Product Recall, Restaurant Contamination Insurance and any related endorsements that might be right for you.