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Program Business

Serving Up Risk

Food delivery is a huge trend in the restaurant business. But the road is paved with risk.
By: | May 2, 2017 • 5 min read

From fast food chains with nationwide delivery programs to neighborhood restaurants using third parties, restaurant delivery is now a multibillion-dollar business. And from the parking lots of office buildings to chic events, more restaurants are using food trucks to bring their kitchens into the community.

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Making dining mobile is a viable means to boost revenues, but insurance experts and risk managers say restaurants could be opening new doors of exposure. Those who want to implement deliveries need to ensure they’re properly validating employees or third-party drivers, and obtaining the right coverages.

Restaurant Deliveries on the Rise

The business of delivering food is booming. UberEATS now operates in 65 U.S. cities, and chains like Panera Bread, Outback, Starbucks and Applebee’s have either started or intend to introduce delivery programs. McDonald’s recently announced a pilot delivery program in Florida, and many independent restaurants have been inspired to put their food on the road.

Tom Metzner, vice president and senior loss control consultant with Lockton, said while it can be tempting for independent restaurants to establish a pilot delivery program, they could be opening new areas of risk. Metzner said many are partly absorbing the liability and not doing due diligence by thoroughly checking backgrounds, driving records and insurance coverage.

“If there’s an accident and the party is able to determine the driver was operating in the scope of business and had a poor driving record, courts have made sizeable awards under the doctrine of negligent entrustment,” said Metzner.

Tom Metzner, vice president, senior loss control consultant, Lockton

In 2013, a Texas jury delivered a $32 million verdict against Domino’s after an accident with a delivery driver killed a 65-year-old woman and left her 70-year-old husband with brain injuries. In April 2016, a jury in Georgia awarded $11 million to an injured woman from a crash with a Papa John’s delivery vehicle.

Restaurants can also potentially be held liable for injury to their drivers. The U.S. Bureau of Labor Statistics reports that pizza delivery driver is one of the most dangerous occupations in the U.S. due to accidents and robberies. Another common risk, which should be covered under most businessowners’ policies, is the potential for sickness due to improper food handling.

“It’s called time-temperature abuse. If [a driver] doesn’t maintain the proper temperatures, food can become contaminated and that creates the potential for foodborne illnesses,” said Metzner.

Third party services growing yet could face new regulations

AmWINS Program Underwriters recently announced a partnership with General Star Management Co. to offer a restaurant delivery program for hired and non-owned auto liability risks for those with 20 or fewer locations.

Some restaurants are using third parties for deliveries. Big chains and independent restaurants alike are looking to UberEATS and GrubHub to outsource their deliveries. UberEATS is currently available in more than 60 cities and charges a flat fee of $4.99 for all orders. The company’s agreement requires that “each party” maintain commercial general liability coverage of $1 million single limit per occurrence and $2 million aggregate, and workers’ compensation insurance where required by law.

Yet some attorneys say there could be court challenges in the coming years regarding exclusions, coverage and limitations of liability.

While Uber’s general commercial insurance applies when the driver is in the process of picking up or delivering food, there are questions about whether it applies when the app is open and they are “on the clock” but not specifically delivering food.

The growing restaurant delivery industry could also face regulatory challenges in the near future. In 2016, the Texas Restaurant Association said regulations may be necessary to address things like food safety, liability for bad delivery, and intellectual property violations. A bill being floated in California (AB-1461), addresses food delivery enterprises and could potentially require drivers to obtain a food handler card.

If [a driver] doesn’t maintain the proper temperatures, food can become contaminated and that creates the potential for foodborne illnesses.” —Tom Metzner, vice president, senior loss control consultant, Lockton

Regardless, AmWINS’ Managing Director Keith George said the issue is coming to the forefront as more restaurants offer delivery services.

He said both restaurants and their contract drivers should have their own insurance policies in place.

In the case of UberEATS, where a driver may be delivering for multiple restaurants in the area at the same time, determination of liability in court could be foggy.

“Could the restaurant owner be drawn into a claim if the delivery driver was happening to deliver their product at that particular time [during] the accident? Sure, I think a creative attorney could argue that,” said George.

Carrying Complex Risks

More restaurants are also using food trucks as a means to bring their culinary creations to events and high traffic areas. “Mobile Cuisine” magazine reports that in 2015, 4,130 food trucks pulled in $1.2 billion in revenues nationwide.

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Food trucks house complex risks because they add all the components of a restaurant to a moving vehicle that often operates on someone else’s property. Denny Christner, consultant and sales manager at Brown & Brown Insurance, operates the company’s affiliate Insure My Food Truck.

Christner said his company started writing these policies specifically for food trucks in the Bay Area in 2012 and has since gone nationwide; with more than 900 accounts.

“I like to use the analogy of, let’s say, a 6-ton truck carrying flammable propane to cook and to get around, and oils for their cooking. It’s definitely a dangerous scenario,” said Christner.

Because food trucks often operate on property that they don’t own, personal injury liability could come down to how an incident occurred and whether there was negligence on the part of the food truck operator.

While a tripping hazard could be the responsibility of the property owner, leaking oil or improper placement of the food truck could change the equation. Christner said most venues are growing aware of the issues and are requiring food trucks to carry their own general liability.

Denny Christner, consultant and sales manager, Brown & Brown Insurance

Insure My Food Truck offers packages that can include commercial auto, general liability, property, loss of business income and workers’ compensation.

“It’s often a mess when they get to us and we have to clean it up and get them the right coverage. Sometimes it’s more expensive and a hard pill to swallow but most savvy business owners understand that,” said Christner.

As mobile food solutions increase, more insurers are entering what has traditionally been considered a high-risk market. George said until recently there have been limited providers in the field due to high turnover of delivery employees; forcing insurers to frequently change their insured parties.

“The bottom line is that it tends to be more of a severity-driven risk versus a frequency risk,” said George. &

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]