Risks Affecting Restaurants – Chapter 5

As a restaurateur, in many ways you are an artist —you take ingredients and, using your tools, put together a unique experience for each patron, which is enjoyed by both the individual for whom it is made and for those who walk in the door and see, touch, and smell it. You put your creativity, ingenuity, and drive into each item on your menu, and into the walls of the structure itself.

But what happens when the ingredients for your masterpieces are bad? For a painter, it is not that big of a deal — paint may fade or chip. It may be frustrating, but it does not cause bodily harm to others. At a restaurant, tainted food supplies could make hundreds of people sick, a poor job installing drywall may cause a ceiling to fall on a patron’s head, or a valet you’ve hired may paralyze a pedestrian. As a restaurateur, you may be liable for the actions of others you hire or for the food you serve to a patron at your restaurant. You may be liable EVEN IF it was the supplier who provided tainted the food or the contractor who screwed up. And you may be liable for TENS OF MILLIONS of dollars.(1)

This puts you in an unenviable position, as you have little to no control over where and how ingredients are processed nor over how they arrive to you. The only thing you do have control over is with whom and how you contract; and how you store, handle and cook the food. This is why it is important that your restaurant consider implementing both hold harmless and indemnification agreements in many of its operations.

Black’s Law Dictionary defines hold harmless as follows:

 “To absolve (another party) from any responsibility for damage or other liability arising from the transaction; INDEMNIFY.” (2)

Black’s Law Dictionary defines indemnify as follows: 

“To reimburse (another) for a loss suffered because of a third party’s or one’s own act or default. 2. To promise to reimburse (another) for such a loss. 3. To give (another) security against such a loss.” (3)

While the words have substantially similar meanings, many read the former to mean to protect against the risk of loss and the latter to pay for a loss once it has occurred.

Why are these words and clauses important for a restaurateur? It is because implementing both of these contractual obligations is one way to control and manage the risk of loss in the event you have an issue with one of your partners. Where another party has all of the control over the services and goods you provide to a third party, you should not bear the responsibility for a loss resulting from their negligence.

For this reason, many insurance carriers and providers now require you to, where you can, receive a hold harmless and indemnification agreement with favorable wording to you from all suppliers, valet companies, contractors, and the like (and in many cases require the contractual partner to have insurance and name you as an additional insured!). These contracts protect you and the carrier in the event that someone else’s work causes a patron to make a claim against YOU. Though you may still have to bear the brunt of a lawsuit or claim, having the contract in place helps to protect you and may make the difference between paying out of pocket and recouping the losses caused by that third party.

I personally recommend that restaurateurs speak to an attorney who can discuss whether they, specifically, need such clauses, and who can help the restaurant to implement such contracts in their day to day operations.

(1) http://redding.legalexaminer.com/defective-dangerous-products/multimillion-dollar-settlement-in-ecoli-death-of-child/

(2) http://www.adamsdrafting.com/hold-harmless-and-indemnify/

(3) http://www.adamsdrafting.com/hold-harmless-and-indemnify/


McGowan offers a specialized umbrella product for restaurants. If you have any questions, please do not hesitate to contact an underwriter or your regional manager at the McGowan Companies, who will be more than happy to discuss the ins and out of our specialty coverages with you.

Neil Patrick McGowan Esq, M.B.A. • Regional Sales Manager
800.545.1538 x3651 • npmcgowan@mcgowancompanies.com

Alison Gates • National Program Manager
800.545.1538 x2254 • agates@mcgowanprograms.com


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