Restaurant Liability Risks
Restaurant Liability Risks
February 2015 | By Indrani Nadarajah
Restaurant insurance is a business insurance policy which provides general liability and property damage cover and coverage for many risks that are unique to restaurant owners. In this trends paper, we review the ins and outs of restaraunt liability risks.
In general, there are four main types of liability coverage options for restaurant insurance:
- General liability: General liability includes operations and premise liability. It also covers customer injuries, like slips and falls (the number one cause of accidents in restaurants). General liability insurance is designed to provide coverage for medical costs and damages.
- Product liability: If customers become sickened by food poisoning or other food-borne illnesses, and it can be shown that this occurred because of food served in the restaurant, the owner may find themselves sued for medical costs and punitive damages.
- Liquor liability: If the restaurant serves alcoholic beverages and allows a customer to become intoxicated, the business may be held liable for the drunk patron’s ensuing actions. The Supreme Court of Canada has handed down several decisions clarifying restaurant and pub owners’ duty of care to patrons who are served alcohol.
- Hired and non-owned vehicles liability: If the restaurant offers food delivery service but employees use their own vehicles, this will provide the owner with coverage against potential liability lawsuits if an employee is involved in an accident while making a delivery.
A properly written and regularly updated operations manual is key to restaurant risk management. Research strongly indicates that properly implemented policies and procedures, written plans outlining staff responsibilities and approved responses if an event were to occur, are crucial in minimizing mistakes for restaurant owners and reducing liability if events were to occur. Staff should be knowledgeable about the information in the manuals, with many experts recommending routine meetings to discuss procedures and to keep staff updated.
Size of market
Canada's restaurant industry generates $68 billion in sales each year, about 4% of GDP. The industry employs more than 1.1 million people, making it the fourth-largest employer in the country. There are 90,000 restaurant locations across Canada According to global consultancy the NPD Group, the quick service restaurant (QSR) segment (or fast food) in Canada, currently accounts for 4.3 billion annual consumer visits and generates $24 billion dollars a year.
Slips and Falls in Restaurants
Slips, trips and falls are the number one cause of accidents in restaurants, public buildings, hotels, and gas stations. An overwhelming 70% of such incidents occur on flat and level surfaces.
Restaurants should have written policies and procedures in place to help maintain safe premises and protect against fall-down incident. There should also be frequent inspections of the dining room and restroom areas to ensure that floors are clean and dry. Washrooms are a particular hazardous area for restaurants because of the high number of slip and fall accidents which happen there.
The National Safety Council in the US says that approximately 25,000 people are victims of slip and fall accidents every day, costing businesses US$3.5 million dollars every hour, 365 days a year. Aviva Canada reports that the number of slips and falls are leading to higher insurance premiums for Canadian businesses.
Restaurant workers are very vulnerable to slips and falls. In a 2011 study, Liberty Mutual Insurance found that simple mistakes, like the improper use of floor cleaning fluids (for example, diluting enzyme floor cleaners with warm water instead of cold, which leave a sticky film on floors,) and inappropriate footwear played big roles. Appropriate slip resistant shoes have been found to slash the rate of falls by 54%.
Insurers and brokers recommend restaurants maintain a housekeeping log of activities done to keep the premises safe such as shovelling snow, salting, sweeping and mopping, and spill response. Employees must be trained to diligently and accurately complete the log.
In addition, restaurant owners/managers should also establish a written procedure for monitoring and cleaning-up spills and promptly fixing hazards like uneven carpeting or rugs.
Food Legislation For Restaurant Owners
Canada’s Food and Drugs Act stipulates that "no person shall sell an article of food that:
- has in or on it any poisonous or harmful substance;
- is unfit for human consumption;
- consists in whole or in part of any filthy, putrid, disgusting, rotten, decomposed or diseased animal or vegetable substance;
- is adulterated; or
- was manufactured, prepared, preserved, packaged or stored under unsanitary conditions."
Restaurant and food service inspection across Canada is carried out by provincial governments, municipalities or regional health authorities.
A person who purchases a restaurant meal and becomes ill can sue directly in contract. A person who ate at the restaurant but who did not pay for the meal, can also sue.
Food operators owe a duty of care to the public and food offered for sale must be fit for human consumption. Food standards are specified by the Canadian Food Inspection Agency and the Uniform Regulations and Code of Practice for Food Retail and Food Services Sector. (See the Food Retail and Food Services Code by the Canadian Food Inspection System Implementation Group.)There is also liability for breaches of the Food and Drugs Act. Health Canada assesses the Canadian Food Inspection Agency's activities related to food safety.
A 2012 CBC News examination of Canada’s food safety record over the past decade revealed mixed results concerning Canadian food safety.
About 10 years ago, nearly 1,200 cases of E.coli per year were reported by the provinces. The number shrank to 428 in 2011, according to the Public Health Agency of Canada. But illnesses from salmonella continue to be much higher. There were 6,200 cases in 2002. In 2010, this number had jumped to 7,200. In 2011, there were 6,800, CBC news reported.
Equally worrying, a 2012 food safety report released by the Conference Board of Canada says rates of food-borne illnesses in Canada are higher than the United States. Canadians suffer more often from salmonella, e. coli, campylobacter and yersinia than Americans, according to the report prepared by the Centre for Food in Canada, part of the Conference Board of Canada. However, the Conference Board was careful to emphasize that most food consumed by Canadians is safe while pointing out that 8.5% of adults have experienced a food-borne illness in the past year severe enough to force them to miss work. The report suggests that half or more of all cases of food-borne illnesses in Canada are picked up in restaurants, cafeterias and other food-service providers.
“The point is Canada does have a good food safety system, but there is room for improvement along the farm to fork continuum, especially in food services and at the household level,” said Daniel Munro, principle research associate of the study.
Most illnesses are caused by mistakes in the final preparation and handling of food including reheating as well as cross contamination. It is estimated there are 6.8 million cases of food-borne illness annually in Canada.
Health Officials Monitor Social Media Reviews
Restaurants should also be actively monitoring their presence on social media especially as patrons frequently post about their experiences and food quality online.
The New York Times reported that New York City health officials are now tapping into Yelp reviews to track down food poisoning cases. There are plans to expand this surveillance to include Twitter, the Times reported.
According to the Canadian Food Inspection Agency website, "any claim or statement that misleads people in any way can be considered deceptive." The agency warns that most cases of misrepresentation in restaurants and food service facilities occur through the way menus are worded.
The Canadian Food Inspection Agency, which administers the fraud provisions of the Food and Drugs Act, is responsible for preventing deceptive practices in restaurants. Section 5(1) of the Act prohibits anyone from labelling, packaging, treating, processing, selling, or advertising any food in a misleading or deceptive manner. It states:
• No person shall label, package, treat, process, sell or advertise any food in a manner that is false, misleading or deceptive or is likely to create an erroneous impression regarding its character, value, quantity, composition, merit or safety.
Menus are a form of advertising but they must be truthful. As an example, Canadian Maple Syrup must be Canadian and maple syrup, and not corn syrup.
It is also false advertising and a breach of duty of care to serve food not meeting religious dietary requirements, if the menu claims that certain items are “kosher” or “halal.” Staff should also strive to provide accurate information regarding the foods being served, when such information is available and is requested by customers, the CFIA warns.
Being Knowledgeable About Food (Allergies)
The Mayo Clinic estimates that approximately 6% to 8% of children under the age of 5 and about 3% to 4% of adults have food allergies. Symptoms can range from itchy rashes to life-threatening conditions like anaphylaxis.
In 2011, a Saskatchewan waitress and the restaurant where she worked were ordered to pay $25,000 after a man with a nut allergy ate cheesecake and suffered a severe reaction.
Brian Martin of Fargo, N.D., was on a hunting trip in Saskatchewan in 2006 when he stopped in at the restaurant at the Travelodge Hotel in Melfort. After confirming with the waitress that the caramel apple cheesecake was nut free, he ordered a slice and took a bite, whereupon Martin went into anaphylactic shock. He was rushed to hospital.
He sued the waitress and the owner of the restaurant. Queen's Bench Justice Grant Currie awarded him $25,000. Justice Currie said the waitress could have checked the cheesecake package and learned it contained walnuts. But she didn't and so breeched her "duty of care," Currie said. They also had to compensate Martin for his hospital bill.
Food temperature and customer safety
Stella Liebeck of Albuquerque, New Mexico, was in the passenger seat of her grandson's car when she was severely burned by McDonalds' coffee in February 1992. Liebeck, 79 at the time, ordered coffee that was served in a styrofoam cup at her local McDonald's drive-through window. Liebeck placed the cup between her knees and attempted to remove the cup’s plastic lid. As she did so, the entire contents of the cup spilled into her lap.
A vascular surgeon determined that Liebeck suffered third-degree burns over 6% of her body. She was hospitalized for eight days, during which time she underwent skin grafting. Liebeck, sought to settle her claim for US$20,000, to cover medical expenses and lost income, but McDonald's refused offering instead, US$800.
At the time, McDonald’s operations manual required their franchisees to hold coffee at 180 to 190 degrees Fahrenheit. At that temperature, coffee, if spilled, causes third-degree burns in three to seven seconds. At trial, documents were produced showing more than 700 claims by people burned by its coffee between 1982 and 1992.
The jury awarded Liebeck US$200,000 in compensatory damages, which was later reduced to US$160,000. Liebeck was also awarded US $2.7 million in punitive damages. The trial court subsequently reduced the punitive award to US$480,000.
In 2014, a Tim Hortons franchise in Quebec was ordered to pay a customer more than $69,000 after the woman was scalded by a hot soup in 1998. According to the Montreal Gazette, city of Montreal employee Lucie Laflamme sued the franchise over the incident in which a single spoon of cream of potato and bacon soup caused severe burns.
Laflamme had claimed $2 million, but was awarded $33,333 for damages, and $36,121 for costs, plus interest.
Tim Hortons’s defence was damaged by the fact it did not record soup temperatures on the day of the incident, as it was supposed to do. But the judge also noted that Laflamme could have minimized the damage by blowing on the soup before eating it.
Commercial Host Liability
Alcohol-related liability is a hot potato issue for restaurant and pub owners.
Stewart v Pettie is a major Supreme Court of Canada decision on the duty of care owed by commercial establishments serving liquor. In December 1985, two couples, Gillian and Keith Stewart and Stuart and Shelley Pettie, went to a dinner theatre in Edmonton. At dinner Stuart was served a number of rum-and-cokes but showed no signs of intoxication. At the end of the evening, the four discussed who should drive. Stuart Pettie insisted he was fit to drive, and so they agreed to let him drive. On the way back the four were involved in an accident, and Gillian Stewart was rendered a quadriplegic. She sued.
At trial the judge found that the dinner theatre could not have been aware of Stuart's degree of intoxication. On appeal the Court of Appeal overturned the decision and allocated 10% liability to the theatre. The court held that the Mayfield investments (owners of the theatre) did not breach the duty that they owed to Gillian Stewart.
The Stewarts appealed to the Supreme Court. In a unanimous decision, the Supreme held that the theatre was not liable. There was no reasonable way that the theatre could foresee that Stuart would be the one to drive since he was accompanied by three individuals, two of them sober, wrote Supreme Court Justice John Major. The theatre was correct in assuming that Stuart would not be the one to drive. Nevertheless, Justice Major confirmed that the theatre must monitor the patron's alcohol consumption based on the amount served and not solely on the patron's visible condition.
In a 1973 decision, Jordan House Hotel v Menow, the Supreme Court of Canada found that the tavern was partially responsible for putting an inebriated patron at risk.
Menow was a frequent patron of the hotel and he had a tendency to drink in excess and then act recklessly although ordinarily he was courteous and mannerly. A year before the events he had been barred from the hotel for a while for annoying the other guests and he was not allowed in the hotel without a reasonable person. On the night in question, he was ejected from the hotel after behaving badly, even though the bar owners knew that he would have to walk along a busy highway to get home. Menow was hit by a car.
The Supreme Court held that Menow was entitled to recover damages. Given the relationship between Menow and the hotel, the operator’s knowledge of his propensity to drink and his instruction to his employees not to serve him unless he was with a reasonable person and the fact he was served until he was drunk means the hotel came under a duty to Menow to see that he got home safe.
Written Manuals and Restaurant Safety
Restaurants benefit when they have properly documented manuals covering a range of topics.
Restaurants are required by law to have a Fire Safety Plan. Owners and managers are required to establish emergency procedures. Fire drills are also to be held annually.
One of the most common restaurant dangers is a kitchen fire, with about 87% of confined fires in restaurants starting there. Kitchen fires can completely shut down operations, leading to significant revenue loss. Many fires are completely avoidable. For example, research shows that 25% of restaurant fires are caused by dirty or misused kitchen equipment. Kitchen staff have to be trained to maintain and properly use every piece of equipment in the kitchen to reduce the risk of fire.
Additionally, ensuring the restaurant is equipped with systems to limit the damage of a fire is critical, experts say. Over half of reported restaurant fires occur in restaurants without fire extinguishing systems, or even working smoke alarms.
Written materials regarding proper training and sanitation practices should also be followed and the restaurant must be compliant with applicable health and sanitation requirements. Restaurant owners/managers should also document how these guidelines are followed. Being careful to control the quality and safety of the food served will minimize liability exposure in these areas. Such documentation is also important in the event of a food poisoning episode. Food temperature requirements should also be prominently posted. Foodborne illness often can be avoided if food had been properly stored and handled.
As the Tim Hortons’ hot soup lawsuit shows, the restaurant was put in a vulnerable position because soup temperatures were apparently not recorded on the day of the incident.
A written policy statement, prepared by employers, must make clear that physical violence, threats, bullying and harassment are against company policy, and will not be tolerated.
Employers must provide information and instruction to workers on the contents of these policies and programs. Workplace violence programs must also set out how the employer will investigate and deal with incidents or complaints of workplace violence.
Policies and procedures must be defined in the employee handbook or manual. The handbook should contain different scenarios to explain how staff members should react in various crises situations. Every employee should be trained in correct and safe procedures and behaviors, and regular safety meetings must be held.
ADVANTAGE Monthly trends papers
This paper is part of an open online library of ADVANTAGE Monthly trends papers, published by the CIP Society for the benefit of its members and of the p&c insurance industry. The trends papers provide a detailed analysis of emerging trends and issues, include context and impact, and commentary from experts in the field.
The CIP Society represents more than 18,000 graduates of the Insurance Institute’s Fellowship (FCIP) and Chartered Insurance Professional (CIP) programs. As the professionals’ division of the Insurance Institute of Canada, the Society’s mission is to advance the education, experience, ethics and excellence of our members. The Society provides a number of programs that promote the CIP and FCIP designations, continuous professional development, professional ethics, mentoring, national leaderships awards, and research on the issues impacting the p&c insurance industry in Canada.