What exactly is restaurant recovery insurance?

Does anyone remember Chi Chi’s? Chi-Chi’s was a popular Mexican restaurant chain from 1975 to 2004. It ceased to exist within the United States following a 2003 Hepatitis A outbreak that began at one of its locations in suburban Pittsburgh, Pennsylvania. The “revenue hit” that Chi Chi’s took after this event led to their eventual bankruptcy.

What if…… Chi Chi’s carried “Restaurant Recovery Insurance”, would they still be in business today? While they carried general liability to cover the food contamination bodily injury liability claims they didn’t have the availability of Restaurant Recovery Insurance. Restaurant Recovery Insurance provides reimbursement of the insured’s loss in the event of product contamination, malicious product tampering, product extortion or adverse publicity for up to one year from the onset of an insured event.

Let me explain further. In a loss such as the one with Chi Chi’s, there would be a number of expenses that they would incur such as:

  • Hiring of consultants or advisors
  • Recall and disposal costs of contaminated food.
  • Physical examination and chemical analysis to determine the extent of the product contamination
  • Rehabilitation expenses
  • Extra Expense

They would also have to deal with adverse publicity.

All this would likely result in a loss of gross revenue.

These are all uncovered exposures in the insured’s property and liability insurance program. Restaurant Recovery Insurance provides coverage for this “gap” in the restaurants insurance program and assists them in surviving this type of traumatic loss.
This program is targeted to the Small to medium-size single location or multi-location enterprises, including individual groups of franchisees.

Minimum premiums are in the range of $500 per location

Last year, over 36,000 new restaurants opened in the United States – and nearly three-fourths of them were independent units, not chain restaurants. The commonplace restaurant industry “statistic”, that nine out of ten new restaurants will fail within the first year, turned out to be completely false (according to a study conducted by Ohio State University – which demonstrated that the restaurant failure rate is closer to one out of four, or 26 percent, in the first year, with lower failure rates in subsequent years); and among franchised chains, the cumulative failure rate was 57 percent during the first three years and 61 percent for independent restaurants, only a four percent difference. While these statistics are good news, the numbers of restaurants going out of business due to product contamination is increasing. You could do “everything right” and due to one event you could quickly be put out of business. Even if a contamination event did not occur you could be put out of business because of the adverse publicity. With the rise in the use of mobile technology and the internet, a “scare” could spread like wildfire. The resulting “clean bill of health” might never make it to press or be relegated to page 80 in your local newspaper.

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