In September 2022, 97 people across six Midwestern states became infected with E. coli. More than 40 were hospitalized and 10 were diagnosed with a serious kidney condition.
What did they all have in common? They had all eaten at the same popular fast-food chain restaurant at some point during the previous two weeks (source 1).
Fast food restaurants aren’t the only restaurants to suffer food-borne illness outbreaks. In 2018, an E. coli outbreak in New Jersey that sent eight people to the hospital was traced back to six popular fast-casual dine-in restaurants.2 More recently, a listeria outbreak that stretched across 11 states was traced back to ice cream from a well-known creamery brand.3 No restaurant is immune to the risk of foodborne illness. In fact, every year, more than 48 million people get sick due to a foodborne illness. Of that number, more than 128,000 people are hospitalized and 3,000 die.4
For the restaurant, the consequences of an outbreak can also be devastating. Restaurants can suffer reputational damage, loss of business, loss of inventory, and much more. Fortunately, there are steps restaurants can take to reduce foodborne illness risk. Much like other common risks, foodborne illness loss risks can be minimized with appropriate insurance coverage. Foodborne illness insurance is an effective tool to protect a restaurant’s reputation and its bottom line. For insurance agents, it also offers an opportunity to connect with new restaurants and add value for current restaurant clients.
THE CAUSES OF FOODBORNE ILLNESS
There is a wide range of reasons why foodborne illness occurs. One of the most common is the presence of dangerous pathogens in restaurant ingredients. According to the CDC, the pathogens that most frequently cause illness include norovirus, salmonella, clostridium perfringens, campylobacter spp, and staphylococcus aureus. Less common, but dangerous pathogens include E. colli, listeria, and toxoplasma.4 These pathogens are common in cases where there is a known cause of the illness, which is true in only about 20% of reported outbreaks. In the remaining 80%, the illness agent is never identified but the cluster of illnesses is still traced back to the restaurant.4 The cause could be the pathogens listed above, chemicals used in the kitchen, unsanitary food-handling practices, or any number of other issues.
Foodborne illness can also be caused by a lack of proper controls in the restaurant. A recent study showed that 65% of restaurants don’t check the temperature of beef before accepting the meat for delivery. Another study indicated that only 7.5% of restaurant managers rejected leafy green shipments even though up to 50% of leafy greens are shipped at an inappropriate temperature.5 Maintaining proper temperature is vital to deter the growth of harmful pathogens that cause illness.
The acceptance of poorly shipped food isn’t the only issue restaurants need to be aware of. Research illustrates that only 40% of kitchens use separate cutting boards for the cutting of raw chicken. A study also found that more than 60% of kitchens handle raw beef with bare hands and only 12% of restaurants use a thermometer to verify the temperature of cooked beef.5 Of course, the overlooking of these practices usually isn’t intentional. Rather, they’re the result of another challenge common to the restaurant industry - a lack of staff. A 2021 survey by the National Restaurant Association revealed that 78% of restaurants did not have enough staff to meet customer demand.6 That lack of personnel directly contributes to an increased risk for foodborne illness. With many short-staffed, employees may feel obligated to come to work even if they’re feeling sick. They may cut corners, or normal processes may be skipped for the sake of getting food to customers in a timely manner. When you consider all of these risks and associated factors, it’s easy to see why foodborne illness is a prevalent risk for the restaurant business.
THE COST OF FOODBORNE ILLNESS
An outbreak of foodborne illness can be devastating for single-location restaurants as well as franchises or chain restaurants, resulting in temporary shut-downs and loss of income. In addition, they may have to discard thousands of dollars-worth of inventory, if not more. The restaurant could also suffer reputational harm in the media or through online reviews that lead to a substantial loss of business.
These costs can add up quickly. According to a recent study, the average cost to a restaurant for an outbreak can vary depending on the scope of the outbreak and the type of restaurant.7
For even the most successful restaurants, the expenses related to an outbreak can be damaging as they may be forced to layoff staff, reduce hours, or close temporarily. Fortunately, insurance coverage is available to protect against a loss of business income resulting from an illness outbreak.
HOW FOODBORNE ILLNESS INSURANCE MINIMIZES THE RISK
A foodborne illness insurance policy can’t eliminate the threat of an outbreak, but it can cover the financial damage related to the outbreak for single-location restaurants, chains, and franchises. The policy provides business interruption coverage which encompasses loss of profits as well as reimbursement of other related costs/expenses, which can include:
Loss of Inventory. This is a major cost for any restaurant that suffers an outbreak. The restaurant may be forced to discard significant amounts of meat, produce, and more, which can create a sizable loss.
Product Recalls. A restaurant could utilize products recalled by a distributor. While the restaurant may not have to pay for the products in this case, it could face other costs. For instance, the restaurant may have to pull items from the menu and suffer a loss of revenue.
Reputational Rehabilitation. An outbreak can cause harm to a restaurant’s reputation, especially if it makes its way into the media or online reviews. Most foodborne illness policies cover not only the loss of revenue but also costs related to restoring the restaurant’s reputation with the public.
Consultant Fees. A restaurant may need to hire a consultant to help improve its processes and practices in the wake of an outbreak. Many policies will cover this expense in an effort to help prevent future outbreaks.
Trade Name Costs. For franchises, chains, and other restaurants with multiple locations, coverage would apply for an insured location that suffered a loss of revenue because an uninsured location with the same trade name experienced a foodborne illness incident.
Foodborne illness insurance minimizes the fallout of an outbreak and helps restaurants get their business back to normal. Insurance funds can be used to replace inventory, cover lost revenue, or recover a restaurant’s damaged reputation. Generally, foodborne illness insurance has a simple underwriting process. The application asks questions about the restaurant’s revenue, locations, and types of food that are offered. In most cases, there aren’t any additional underwriting steps beyond the submission of an application.
Foodborne illness is a widespread risk for the restaurant industry, but even if a restaurant takes all the right steps – illness can still occur. However, many restaurants don’t carry insurance to protect themselves like they do for other risks. Restaurants that forego foodborne illness insurance are needlessly exposing themselves to a significant and costly threat. This coverage gap creates an opportunity for agents to establish relationships with new restaurants and add value to existing restaurant client relationships. CRC Group is home to wholesale specialists with the industry knowledge and market access you need to help new and established restaurant clients protect themselves in the event of a foodborne illness outbreak. Contact your local CRC Group producer today to learn more.
- Jonathan O’Malley is an Associate Broker with CRC Group's Minneapolis office where he specializes in Product Recall exposures.
- E. Eoli Outbreak Associated with Wendy's Restaurants has Now Sickened 97 People in 6 States: CDC, ABC, September 4, 2022. https://abc7chicago.com/e-coli-outbreak-2022-wendys-cdc/12198124/
- E. Coli Outbreak in New Jersey Could be Tied to Panera Bread, Report Says, CNBC, April 6, 2018. https://www.cnbc.com/2018/04/06/e-coli-outbreak-in-new-jersey-could-be-tied-to-panera-bread-report-says.html
- Investigation Details, Centers for Disease Control and Prevention, November 2, 2022. https://www.cdc.gov/listeria/outbreaks/monocytogenes-06-22/details.html#:~:text=Since%20the%20last%20update%20on,11%20states%20(see%20map).
- Burden of Foodborne Illness: Findings, Centers for Disease Control and Prevention, November 5, 2018. https://www.cdc.gov/foodborneburden/2011-foodborne-estimates.html
- Explaining the Risk of Foodborne Illness Associated with Restaurants: The Environmental Health Specialists Network, Journal of Food Protection 2013. https://www.cdc.gov/nceh/ehs/ehsnet/docs/jfp-explaining-risk-foodborne-illness.pdf
- Understaffing Restaurants and the Risk of Foodborne Illness, Food Safety News, October 9, 2022. https://www.foodsafetynews.com/2022/10/understaffing-restaurants-and-the-risk-of-foodborne-illness/
- Estimated Cost to a Restaurant of a Foodborne Illness Outbreak, National Library of Medicine, April 15, 2018. https://www.ncbi.nlm.nih.gov/ pmc/articles/PMC5958383/#!po=27.3585