Liability insurance crisis: prompt action required – restaurants

Liability insurance crisis: prompt action required – restaurants – column

Charles Bernstein

Liability insurance crisis: prompt action required

Restaurants throughout the country face serious challenges on many fronts, but nowhere as much as with escalating insurance liability premiums. More than any other threat, the massive premium rises make restaurants particularly vulnerable.

Some places simply can’t afford to pay the premiums, which generally range from $30,000 to $75,000 annually. The restaurant operators are left without any coverage. Still others can’t get the insurance no matter what they are willing to pay, because of the reluctance of insurance companies to provide it.

Premiums, skyrocketing by more than 100% a year, are bleeding the industry horribly. As a dramatic example, McFaddin Ventures was socked with an insurance premium rise from $150,000 in 1985 to $500,000 in 1986.

What’s happening is that many restaurateurs– particularly beleaguered independents that can’t spread costs among multi-units–are throwing up their hands in distress, stoically accepting astronomical premiums as “just another high cost of doing business.’ They simply have built the charges into their 1987 budgets and may be forced to further raise menu prices to pay for the insurance “extravagance.’

Ostensibly at the root of the problem is third-party liquor liability in at least 35 states. That means a restaurant, tavern or individual serving alcoholic beverages can still be held legally responsible for injuries subsequently suffered by a customer or by others in a customer-related automobile accident. Topping it off is the rising flood of civil suits being filed in an increasingly litigious society, and the awards often climb into the millions of dollars. This results in higher premiums and insurance company policy cancellations just when protection is most needed.

Can this overwhelming problem be solved? Yes, through a concerted industry effort in a number of ways.

One basic step that a number of operators and organizations have taken involves stepped-up alcohol awareness programs where employees are trained to cope with potential drivers who are on the verge of drinking one (or two) too many. Unfortunately, the theory of handling such complex situations doesn’t always translate into measurable results in actual practice.

A vital point for the industry to continue to press is getting states to repeal or reform third-party liability laws. Some 15 states have already taken this positive action.

A major improvement would occur if more states put maximum caps on jury awards. Rhode Island, North Carolina and Maryland have adopted, respectively, $200 million, $300 million and $350 million caps on jury damage awards in injury cases. But even those seem excessive.

One bright spot was a Reagan administration task force study last year, suggesting a $100,000 maximum on jury awards for pain and suffering incurred in injuries. Yet it is not clear whether the recommendation resulted in any specific action on federal or state levels.

A simple way to cut excessive premiums on insurance liability policies is to sharply raise the deductibility amount. But that often defeats its own purpose in leaving a restaurant unprotected against a myriad of common basic losses.

Perhaps the most effective solution has been advanced by new “pooling of interests’ insurance protection plans, which group restaurants in a state or association in one joint policy to reduce the premiums and provide adequate coverage.

The Massachusetts Liability Joint Underwriting Association is now handling liability insurance for the 95% of the state’s restaurants that have signed up for it.

Missouri has launched a similar plan, Colorado and Wyoming are preparing a joint one and Illinois and Michigan are considering it.

Still, much of the inflated insurance premium picture is pegged to the insurance industry’s own pronouncements that it is losing more than $5 billion annually on casualty and property liability insurance (premiums minus claims paid–much of which is due to excessive jury awards). Other sources claim, however, that the figures are “deliberately fudged’ and that the insurance industry is actually making a profit “at the expense of restaurants in particular.’

Whatever the details may be, it is incumbent on the restaurant industry to fully come to grips with these issues and to focus on some of the solutions suggested here. No easy single way out of the insurance liability trap exists, but united action could provide the necessary escape hatches.

COPYRIGHT 1987 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

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