The seller's policies were built for the seller's restaurant, not yours, and the holes often show up in the same few places. Liquor coverage may not match what you pour. A dead walk-in may not be covered for the food inside. Business income may not pay if the health department closes you. Pay claims from staff may not be covered at all. Delivery, card data and cash often sit outside the package. This guide is for buyers of a restaurant who want to know where to look first and what to ask the carrier to fix. The core policy list is in our guide to insurance after you buy a restaurant, so this one stays on the holes.
The short answer
- A liquor liability policy written on the seller's alcohol mix may not fit your menu, hours or entertainment, and general liability policies commonly exclude liquor claims for businesses that serve alcohol.
- Spoilage, utility interruption and equipment breakdown are described differently by different carriers. Read the wording, the sublimits (smaller caps inside the policy limit) and the waiting periods before a compressor fails.
- Business income usually needs direct physical loss or damage. A closure for inspection violations alone may not trigger it.
- Employment practices coverage may exclude or limit wage and hour and tip claims, so do not assume it responds to a pay dispute.
- Staff using personal cars, delivery, card data and cash each need a specific answer, because a business owner's policy does not include auto, and cyber and crime are separate lines.
Which holes should I look for first in the seller's package?
Use the table as a review sheet. Each row names a gap, how it tends to surface in a restaurant, how to spot it in the paperwork and what to ask for. It describes how policies generally work. Your forms and endorsements control.
| Gap | How it shows up | How to spot it | What to ask your broker |
|---|---|---|---|
| Liquor liability does not fit what you sell | Alcohol grows, hours extend or entertainment starts after closing | Compare the alcohol share on the application with your sales mix | Ask whether the reported share can be updated, and confirm liquor liability is written for the new format |
| Spoilage and utility interruption unclear | A walk-in cooler or power loss ruins inventory | Look for spoilage, utility services and equipment breakdown wording and sublimits | Ask whether spoilage coverage can be added or raised, and about the deductible and waiting period |
| Food illness and contamination claims | A guest says a meal made them ill, or a supplier recall forces you to discard stock | Read how the general liability form treats food you serve, and look for any contamination or recall wording | Ask which part of the policy responds, what limit applies, and whether any recall or contamination coverage is available |
| Business income needs physical damage | A health department closure for repeated food-temperature violations, or a supplier problem, with no damage on site | Read the trigger in the business income form | Ask which extensions exist and set realistic expectations |
| Employment and pay claims may be excluded or limited | A server alleges shorted tips or unpaid overtime | Read the exclusions on the employment practices policy | Fix payroll practices with counsel and confirm what, if anything, is covered |
| Staff drive their own cars for the restaurant | A supply run or delivery ends in a crash | Check whether hired and non-owned auto is on the package | Ask whether hired and non-owned auto can be added, and set a driver rule |
| Card data and cash | A terminal is compromised or a deposit goes missing | Look for cyber and crime lines and their retentions (the amount you pay first, like a deductible) | Ask whether they can be added or raised, and what each excludes |
| Retroactive dates reset | A new claims-made policy (one that pays only for claims made while it is in force) may start clean on the day it begins | Compare the retroactive date (the earliest date of acts it covers) with the seller's old one | Ask for the earlier date, or a tail (extra time to report claims after a policy ends) on the old policy |
| Customer contracts ask for coverage you do not carry | A catering client or venue wants additional insured status or a liquor liability limit | Read each contract's insurance clause before you sign | Match the clause to the policy, and ask whether the carrier will add the endorsement |
Does my liquor coverage match what I actually sell?
Restaurants that serve alcohol need a separate look at liquor liability. Carrier materials list it as its own coverage tied to liquor sales, and general liability policies commonly exclude it for businesses that serve alcohol. Exact wording varies by form, so ask your broker to show you where your policy treats liquor claims.
Then check the inputs. The class depends on the alcohol share the seller reported, which what drives insurance cost for a restaurant explains. A buyer who adds late-night hours, a cocktail program or live entertainment may move the restaurant into a different class. Some carriers may not write a heavy-alcohol or entertainment format inside a standard package, and the buyer may need a specialty program. Ask whether the policy has exclusions or sublimits for injuries caused by fights, and whether liquor liability limits sit under any umbrella. Dram shop laws (state rules on when a business that served alcohol can be sued for what a guest does afterward) differ by state: Texas, New York and Florida each treat serving alcohol differently, as our guide to restaurant insurance after you buy summarizes. If the bar is the main business, read coverage gaps for new bar owners.
What happens if the walk-in cooler fails or the power goes out?
Equipment breakdown insurance, as the International Risk Management Institute (IRMI) defines it, covers loss from mechanical or electrical breakdown of nearly any type of equipment, including repair or replacement cost, damage to other property and often resulting business income. IRMI's definition does not mention refrigeration or spoiled food. Carrier pages describe separate food-related options: a utility services coverage that helps with ruined inventory when services are interrupted, and a coverage that pays lost income if contaminated water forces a shutdown. How each is written, and whether the sublimits are meaningful, varies by carrier.
A hypothetical example. A compressor on a walk-in cooler fails over a weekend at a 60-seat restaurant that carries a $2,500 deductible. On Monday the kitchen finds about $4,000 of meat and dairy spoiled, and lunch service is lost while the unit is replaced. Three questions decide the outcome. Does equipment breakdown pay for the compressor, and is the walk-in included? Does anything pay for the spoiled food, and what are its limit and deductible? Does income coverage pay for the lost lunch, or does a waiting period swallow a short outage? A $4,000 loss against a $2,500 deductible and a sublimit is a very different claim from the same loss with no spoilage wording at all.
For the property side, see reviewing commercial property coverage.
Will business income pay if the health department closes me?
Usually not, unless something at your premises was physically damaged. The standard business income form pays the actual loss of income from a necessary suspension of operations, and the suspension must be caused by direct physical loss of or damage to property at the described premises from a covered cause. A closure for repeated food-temperature violations, with nothing physically damaged, may therefore fall outside it. Civil authority coverage is narrower than it sounds. In the 2012 edition of the Insurance Services Office (ISO) business income form it applies when a covered cause of loss damages other property, authorities prohibit access to the area and your premises are within one mile of the damage, and its business income benefit starts 72 hours after the order and lasts up to four consecutive weeks, so ask your broker how extra expense is handled under it. Older editions and carrier forms differ, so read yours.
Plan around that. Keep inspection records clean, since the food safety rules are set locally using the model Food Code from the U.S. Food and Drug Administration (FDA). Ask your broker whether any contamination or regulatory closure extension is available and how it is worded. If you own an older building, ask about ordinance or law coverage, which pays for rebuilding to current codes after a covered loss, because standard property forms exclude that cost. Tenants should check the lease to see who carries it. If the alcohol license is not yet in your name, see contracts, licenses and bonds for a restaurant. For the income side, see reviewing business income coverage.
Who pays when staff say they were shorted on tips or pay?
Do not assume insurance does. IRMI describes employment practices liability insurance (EPLI) as covering wrongful acts in the employment process, with discrimination, harassment, wrongful termination and retaliation the most frequent claims, and it lists bodily injury, property damage and intentional or dishonest acts as common exclusions. IRMI says nothing about wage and hour claims. Some policies exclude them or limit what they pay, and others may differ, so read the exclusions and endorsements on your policy. See inherited wage and hour exposure.
Restaurants have a specific version of this risk. Under the federal Fair Labor Standards Act, an employer may not keep employees' tips for any purpose, and managers and supervisors may not keep any portion of the tips that employees receive, although they can keep tips a customer gives them directly for services they alone provide. Tip pooling is allowed among employees who customarily and regularly receive tips. A new owner inherits the seller's payroll habits, and whether old liabilities follow you in an asset deal is a question for deal counsel. Also check the retroactive date on any claims-made employment policy, because a new policy whose retroactive date (the earliest date of acts the policy covers) is its own start date may not reach earlier acts, so ask for the earlier date or a tail (extra time to report claims after a policy ends) on the old policy. Our guide to reviewing employment practices liability covers the form.
What about delivery, card payments and cash?
A business owner's policy does not include auto coverage. Carrier pages describe business auto for an employee's accident in a company vehicle, ISO's business owner's form is reported to allow hired and non-owned auto by endorsement, and carrier forms vary. That matters when a cook drives to a supplier in a personal car. How a policy treats drivers who work for a delivery platform rather than for you depends on the policy and on the platform's contract, so put that question to your broker in writing. See reviewing commercial auto coverage.
Card terminals and daily cash are the other two. Carriers list data compromise, identity recovery and cyber protection, and employee dishonesty coverage for theft by staff, as restaurant coverages. Read the retentions and exclusions, then see reviewing cyber coverage and reviewing crime coverage. If you want help running this review, Morrow can review the inherited policies and flag gaps. Carriers decide terms.
Keep reading
- Just Bought a Restaurant? The Insurance to Check First
- What Makes a Restaurant's Insurance Cost More or Less?
- Wage and Hour Exposure You Inherit From the Seller
- New Owner Review: Business Income and Extra Expense
- New Owner Review: Employment Practices Liability (EPLI)
- All guides for new business owners
Frequently asked questions
My walk-in died and I lost $4,000 of food. Does insurance pay?
Not necessarily. IRMI's definition of equipment breakdown covers repair or replacement and often resulting business income, and does not mention spoiled food. Spoilage and utility services coverage vary by carrier, so read the wording, limits and deductible.
The health department shut me down. Does my insurance pay for the lost days?
Usually business income requires direct physical loss or damage at the premises, so a closure for inspection violations alone may not qualify. Ask whether any extension applies and how it is worded.
A server says I shorted her tips. Is that covered?
Do not assume so. Employment practices policies differ on wage and hour and tip claims, and some exclude them or limit what they pay. Read the exclusions and fix payroll practices with employment counsel.
My cooks drive their own cars to the supplier. Am I covered if one crashes?
A business owner's policy does not include auto coverage. Hired and non-owned auto can be added by endorsement on some forms, and company vehicles need business auto. Ask how your coverage treats drivers who are not your employees.
Does my general liability policy cover liquor claims at my restaurant?
Do not assume it does. General liability policies commonly exclude liquor liability for businesses that serve alcohol, and carriers list liquor liability as a separate coverage. Ask your broker to show you the exclusion and the separate liquor policy.
References
- IRMI: Equipment Breakdown Insurance
- IRMI: Business Income Coverage
- IRMI: Ordinance or Law Coverage
- IRMI: Employment Practices Liability Insurance
- Insurance Information Institute: What does a business owners policy (BOP) cover?
- U.S. Department of Labor Wage and Hour Division: Tip regulations
- Cornell Law School Legal Information Institute: 29 U.S.C. 203 (definitions, tip rules)
- U.S. Food and Drug Administration: FDA Food Code
Just bought a business? Get your insurance reviewed.
Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.
Morrow · 25 New Chardon Street, 4th Floor, Boston, MA 02114
This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.