Navigating Insurance and Liability Issues as a Restaurateur in the Time of COVID-19

April 30, 2020Article

Due to the fallout from COVID-19, restaurant industry groups estimate that U.S. restaurant revenue is down more than 40 percent since the pandemic began.[1] The losses have been particularly significant for restaurants that did not traditionally offer to-go or drive-thru service prior to the social distancing measures and stay-at-home orders which became commonplace across the country in March of 2020.[2] Complicating matters is that the rollout of the Paycheck Protection Program (“PPP”) – meant to provide loans to small businesses – ran out of money shortly after its initiation due to high demand.[3] The PPP program has since received additional funding, but it is unclear how long the new funding will last or how many businesses it will help.

In order to stay afloat until life returns to normal – whatever that may look like in the future – many restaurants have relied upon their business interruption insurance in order to sustain revenues.[4] The problem, as many restaurateurs are finding out, is that these policies often do not cover losses related to pandemics such as COVID-19 due to explicit exclusions in their policies.[5] Even when there is not an explicit pandemic or epidemic exclusion, “insurers are denying claims using the argument that the virus does not constitute physical damages to the property.”[6]

The exclusions in policies are, in many cases, a lesson learned by the insurance industry from the SARS outbreak in 2002-2003. SARS led to millions of dollars being paid out in business interruption claims, so insurers began to exclude damages caused by “losses caused by viruses or bacteria.”[7] Further complicating matters, the policies often explicitly require some physical event to trigger coverage such as a fire or a tornado.[8] Although some companies have offered insurance that specifically covers losses from pandemics, the policies are expensive and have not commonly been purchased.[9]

The denial of business interruption coverage by insurers has sparked litigation across the country. For example, in Pittsburgh, one restaurant group is seeking coverage under its business interruption policy due to its being forced to close following Governor Tom Wolf’s March 19, 2020, shelter-in-place order.[10] Chicago restaurateurs have followed suit and are also seeking compensation related to having to shut down due to an order from the Illinois state government.[11]

The battle over what should be covered by the insurance policies has spilled out from the restaurants into the halls of Congress. Restaurateurs have asked that their insurance policies be retroactively re-written to cover losses that were excluded in their policies.[12] The restaurateurs have created the Business Interruption Group (BIG) as its lobbying arm and have pointed out that restaurants contribute more than $1 trillion to the economy, as well as 15 million jobs, in support of their request that insurance policies be required to pay out.[13]

The stakes for restaurants extend beyond merely staying afloat and paying their employees during this time. With nearly one million confirmed cases of COVID-19 in the United States and more than 50,000 deaths as of April 24, 2020[14], it is certain that litigation is coming for business owners of all sizes. According to Newsweek, a “tsunami” of COVID-19 class actions are on the horizon.[15] A class action has already been filed against Norwegian Cruise Lines on behalf of its shareholders claiming that the company continued to put forth “positive outlooks for the company in spite of the COVID-19 outbreak.”[16]

The litigation, of course, also extends to the restaurant industry and its related branches. UberEats, DoorDash, and other delivery services have been sued for charging “exorbitant” delivery fees during the outbreak in violation of anti-trust laws. [17]

Where restaurants may have to be vigilant in the coming days and weeks – and where the insurance exclusions may become particularly relevant – is in regard to lawsuits brought by customers and employees who become infected with the virus. Wal-Mart, for instance, has already been sued by the families of two different employees who died as a result of contracting COVID-19.[18] The lawsuit alleges that the nation’s largest retailer “had a duty to exercise reasonable care in keeping the store in a safe and healthy environment and, in particular, to protect employees, customers and other individuals within the store from contracting COVID-19 when it knew or should have known that individuals at the store were at a very high risk of infection and exposure.”[19] Although the Wal-Mart litigation is the most high-profile case to date, there will undoubtedly be more cases like it filed in the future.

As states begin to open back up and allow restaurants to begin in-person service, it will be imperative for restaurateurs to take adequate safety precautions to ensure (as best possible) the safety of their employees and patrons alike. Georgia became one of the first states to re-open on April 27, 2020, and it has issued guidelines that restaurants must follow in order to have in-person dining again. Among the requirements:

  • No more than 10 customers per 500 square feet.
  • Employees are required to wear masks at all times.
  • Employers must screen and evaluate workers who exhibit signs of illness, such as a fever over 100.4 degrees and a cough or shortness of breath.
  • Restaurants must post signs that say no one with symptoms of COVID-19 can enter.
  • Party size is limited to no more than six per table.
  • Salad bars and buffets are not allowed.
  • Restaurants must use pre-rolled silverware.
  • Items must be removed from self-service drink, condiment, utensil and tableware stations and workers must provide those items to patrons.
  • Patrons must be kept separated through floor markings or waiting in cars while waiting to be seated.
  • Workers who show signs of illness may not work.[20]

At this point, restaurants find themselves as potential plaintiffs (against their insurers) and as potential defendants (against their employees and clientele). What can restaurants do to navigate these uncertain waters?

First, review your business interruption policy carefully. Seek the advice of a firm that handles insurance coverage work to determine what your rights and responsibilities are under your business interruption policy. Be prepared to assert your rights under the policy – through litigation, such as a declaratory judgment action, if necessary – in order to have your claim paid out because it may well save your business. Going forward, consider what coverage you need and price out pandemic coverage in the future. Getting pandemic coverage now will not help with the COVID-19 outbreak, but it could save your business in the future if your business can afford the coverage.

Second, it is imperative that you exercise ordinary care to keep your employees and customers safe during this time of uncertainty. Ensure that you can meet the guidelines from your state or local government and seek the advice of a firm handling these issues or consult with other experts in the field. 

Based on the guidance from Georgia, it is clear that the restaurant business will look much different in the near future – servers with masks, tables farther apart, lower guest counts, and social distancing enforced for customers waiting to be seated. Although a customer or employee may have difficulty proving where exactly she became infected with COVID-19, the potential damages are great when many people infected have required hospitalization and when thousands of people have died from the disease. Following your state’s guidelines and posting notices across the restaurant with warnings regarding the potential for infection may well insulate business owners from liability in the future. Remember: business owners are generally not considered insurers of their invitees’ safety, but when inviting people into your establishment, the business owner must take reasonable steps to protect invitees while also warning them of known dangers.

We do not know when the restaurant business will return to normal nor do we know whether a “new normal” is permanently on the horizon. Now is the time to review your insurance coverage to protect your income, and it is also the time to take the necessary steps to protect your business from potential litigation.

Author: Bryan M. Grantham (Partner, Atlanta) Editor: S. Christopher Collier (Senior Partner, Atlanta)

Hawkins Parnell & Young's national litigation team is helping businesses across the United States navigate unprecedented legal challenges arising from the COVID-19 pandemic. Visit our COVID-19 Resource Center for the latest insights and guidance.

[1] Rosenberg, Joyce M. and Durbin, Dee-Ann. “Gov't relief loans to restaurant chains draw complaints”;

[2] Id.

[3] Mercado, Darla. “The Paycheck Protection Program has run out of money – meet the entrepreneurs left in the cold.”;

[4] Mullins, Brody and Mann, Ted. “Restaurants vs. Insurers Shapes Up as Main Event in D.C. Lobbying Fight.”

[5] Id.

[6] Luca, Amella. “Insurers are denying coronavirus claims. Restaurants are fighting back.”

[7] Frankel, Todd C. “Insurers knew the damage a viral pandemic could wreak on businesses. So they excluded coverage.”

[8] Id.

[9] Id.

[11] Selvam, Ashok. “River West’s Maillard Tavern Is the Latest Restaurant to Take on the Insurance Industry Over COVID-19 Losses”.

[13] Id.

[15] Stockler, Asher. “Class Action Lawsuits Related to Coronavirus Spike Across the Country.”

[16] Id.

[18] Burke, Minyvonne. “Walmart sued by family of worker killed by coronavirus.”

[19] Id.

[20] “Providing guidance for reviving a healthy Georgia in response to COVID-19.”