Chances are just about every town in the United States has a restaurant, tavern or pizza parlor. Pursuing this type of risk, then, is common. Yet before taking that first step, do your homework to help you understand that these risks have some unique exposures that must be properly addressed. History has shown that failing to do this has been a significant reason why this class of business generates as many errors and omissions (E&O) claims as it does.
One thing is certain: no two of these risks are alike. Each present somewhat similar, yet often different, and unique, exposures. Whether looking at a five-star restaurant, a café or diner, coffeehouse, sports bar, martini bar, pizza parlor, sub shop or even your neighborhood tavern, understanding the exposures each present helps ensure the proper job has been done from an E&O standpoint.
In many situations, the market/carrier-to-be you use will depend largely upon the risk, its exposures and its experience. Based on the characteristics of each risk within this class, the excess and surplus Lines market could be your only choice. If that’s the case, there are a host of additional issues to keep in mind.
As with most commercial risks, a great place to start to truly understand the “ins and outs” of a risk is by accessing the information within your exposure analysis checklists. These checklists provide solid information and insight, along with a questionnaire detailing the pertinent questions to ask by line of business, including
- Does the risk make deliveries?
- If so, do the employees use their own vehicles?
- Do they provide valet service?
- What is the level of their security?
- What is the liquor liability exposure?
Being prepared for the meeting with your prospect will help make it more productive and help you understand the exposures much clearer.
Most agents will have carriers willing to entertain these more upscale/family-oriented risks. However, it is best to try to identify markets that include these types of risks among their specialties. Typically, based on a carrier’s experience and appetite, the product offering will be more comprehensive — including coverages such as guests’ property, fine arts, off-premises sign coverage, accounts receivable and a broad crime offering. In addition, because business interruption is an important issue for these risks, this exposure should be reviewed and underwritten.
Assault & Battery
For risks, such as a tavern exposure, whose only option is the E&S market, coverage will usually be more basic, without the same degree of “bells and whistles.” A common E&O claim with taverns involves assault and battery coverage or, more precisely, the lack of it. Physical fights have been known to occur with some risks within this class, and without this coverage your client could be on the hook.
Typically, assault and battery coverage is included in the general liability form, but may potentially be excluded by endorsement. Even if assault and battery coverage is provided, reviewing the extent of coverage with your client is suggested, so the client can see what protection is provided and any limitations.
A common limitation in the assault and battery form will likely limit the coverage to only “on premises” or “only assault by employees,” etc. When it comes to this coverage — or any others, for that matter — document all discussions with your client.
Pizza parlors have also generated more than their fair share of E&O claims. Two of the more common issues with pizza parlors and sub shops deal with workers’ compensation and the non-owner auto exposure.
The following E&O claim involves the workers’ compensation exposure:
The loss surrounds a question of if a client who owed a pizza shop told the agent whether he wanted workers’ compensation coverage for himself. The agent initially said the client did not want to insure himself. The businessowner was robbed, shot and killed at the shop. The widow made a workers’ compensation claim, which was denied, because coverage for the owner was not requested. It was later determined that the agent, not the client, signed the application. No details or documentation involving whether the shop owner was asked about workers’ compensation coverage were ever discovered. The claim was settled for $145,000.
For most risks, the workers’ compensation issue needs to be discussed with the prospect. Based on the structure of the organization, it would be appropriate to ask if the owner wants coverage for himself or herself — and then be certain that the owner makes the decision. Document these discussions in the agency file and through written communication with the client to ensure there is no misunderstanding.
There have also been many E&O claims involving pizza parlors where the business lacked any non-owned auto coverage. In some instances where an employee was involved in a bad accident and the employee’s limits were insufficient, the business faced a significant uninsured exposure and then sued the agent for this lack of non-owned auto coverage.
As the agent, don’t assume you know the actual exposures — ask the key questions and document the answers. If the specific coverage you are trying to secure is unavailable, which is a possibility, promptly advise the client and then document these discussions.
As with any risk, check the policy when you receive it from the carrier to ensure it reflects the coverages that were requested. Then, when mailing the policy, include a cover letter advising your client to read the policy completely and to contact the agency right away with any questions, concerns or necessary corrections. If delivering the policy personally, it is still best to include the letter and bring it to the client’s attention.
If you need to insure the risk in the E&S market, don’t assume the coverage will be the same as the admitted market. A general liability policy in the E&S market may contain different endorsements or exclusions not typical in the admitted market.
In this class of business, no two risks are alike. Enhancing your knowledge of this industry and your client’s exposures can significantly reduce the potential of your agency facing an E&O headache.
Pearsall, CPCU, ARM, is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. E-mail: firstname.lastname@example.org. Blog: www.agentseotips.com.
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