The Centers for Disease Control and Prevention (CDC) estimates that one-in-six Americans gets sick every year from contaminated food or beverages. Those in the restaurant industry cannot ignore the risks. The recent chain of events that roiled Chipotle Mexican Grill has given one insurance broker the perfect opportunity to talk about needed coverage options with clients.
In this interview with Insurance Journal‘s Andrea Wells, Amy W. Vitarelli, senior vice president and practice leader for San Francisco-based Heffernan Insurance Brokers’ hospitality division, talks about how Chipotle’s November 2015 E. coli and norovirus outbreaks led to lessons learned for many of her clients.
Did the Chipotle outbreak heighten concerns of foodborne illness in the hospitality and restaurant segment?
Amy Vitarelli: Yes, watching what Chipotle has gone through has really alarmed many restaurateurs, especially when you consider the fact that their story is a long and varied one. There wasn’t necessarily one thing that went wrong for them. There were multiple things, and there are some lessons to be learned, for sure.
Some of those have to do with the important role that your employees play in the serving and preparation of your food. One of the things that happened to Chipotle was the outbreak resulted just from people being sick. They had employees who came in ill, and that is how the norovirus contamination happened.
A lot of times, people in the restaurant industry get focused on supply chain issues. We hear about the tomatoes that are bad or the spinach or whatever, and we focus on that contaminated product getting people sick.
The data actually shows that that’s a pretty small percentage of the actual cases. More often it’s an employee-caused issue as to why someone gets sick from a restaurant’s food. That was a real eye-opener and lesson to be learned on this case.
What coverages should restaurants have to protect against issues arising from foodborne illness?
Vitarelli: There are a couple of things. We always try to look at just basic risk management first. Insurance is there to be the backstop, but what can they do first to prevent something from happening? …
In the wake of the Chipotle situation, making sure that employees have sick days, paid sick time off, really could have been crucial in this situation. … Chipotle had an employee come in who was sick who otherwise didn’t have paid sick time and came in probably because he or she didn’t want to lose out on wages. It ended up getting a lot of people sick. …
I’ve been telling my employers that now is the time to really send the message home through the managers, to the employees, that if you’re sick, don’t come in. It’s about them getting healthy, about their safety. It’s about other employees’ safety. It’s about their customers’ safety. …
Then of course if they actually do have an outbreak, like norovirus, or even supply chain E. coli, etc., there is insurance. Then talk to restaurant clients about what they do and don’t have.
Pretty much everyone carries the basic general liability policy, which will cover the restaurant if they get a customer sick and the customer sues them. They get sick off your food, have doctor’s bills, take off work, etc., and then sue you for those damages and doctor’s bills. The general liability policy is set up to respond to that type of claim.
What it’s not set up to respond to is a decrease in sales as a result of that outbreak. Chipotle had huge decreases in their sales. A standard general liability policy does not respond to that. You have to buy a separate policy in order to get that kind of coverage. A business income policy, but specifically to cover a food outbreak.
What kind of policy?
Vitarelli: There is a standalone policy that historically has been commonplace for franchises, but not restauranteurs. Many franchise operators purchase because their exposure is so much greater, but for smaller operations, standalone hasn’t been something that they commonly have purchased. Every single restaurant client of mine right now is buying it.
It’s a standalone foodborne illness (policy), also commonly called “trade name restoration for foodborne illness.”
The policy first and foremost covers that loss of income due to the foodborne illness outbreak, but it also includes components of coverage that are going to pay for things like those first party costs — dealing with health departments and some public relations to help get people coming back in your doors. It really is aiming to restore your trade name.
The policy first and foremost covers that loss of income due to foodborne illness.
The other really key component of it, which is why it’s historically been something that franchisees have purchased, is that it includes coverage for non-owned locations.
What that means is, if I’m the McDonald’s here in San Francisco, and there is a McDonald’s either down the street that I don’t own, or there’s a McDonald’s, frankly, in another state that I don’t own, and there’s a bad foodborne illness, all of a sudden, people aren’t going to McDonald’s. But nothing was found at my location, but I’m seeing a drop in sales because of that outbreak; this policy will also trigger coverage for that type of situation.
My clients absolutely are buying it now even if they are not multi-location. They’re realizing it’s pretty affordable, and I think they’ve just been really scared by what’s been happening to Chipotle.
Are there any other areas where you’ve seen more interest in purchasing coverage in the restaurant industry?
Vitarelli: The other big thing that everyone now is purchasing is cyber.
I call 2015 the tipping point for cyber insurance. Before 2015, nobody wanted to talk about it. We as insurance experts got so excited probably five-plus years ago, when carriers first came out with cyber coverage. We thought, “Oh, this is great. This is so important. Every client needs this. This is really going to help protect our clients.”
We’d go out and talk to clients about it and hear crickets, nobody cared. …
It’s shocking the number of clients who were calling and saying, “We’ve had a breach,” and scrambling and wondering what to do about it.
I speak about the risks very differently now to clients. There are certain types of breaches that are happening more often than others, but for restaurants, it’s huge with respect to the swiping of credit cards. …
With cyber, it’s the first party costs that the policy pays for. This is why it’s absolutely worth it. I’m seeing most of my clients buy cyber this year.
Do you use the Chipotle example as a case study to help people understand why they might need to buy the added coverage?
Vitarelli: Yes, absolutely.
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