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Insurance technicalities forcing locally owned restaurants to close their doors during COVID crisis

Despite being deemed “essential” and increased demand some locally owned restaurants are closing their doors.


Developing Story


By Omari "The Big-O" Salisbury

Seattle, WA - If you look closely lately, some of our favorite locally-owned restaurants that serve our community have been closing despite being deemed an essential business by Governor Inslee and surging demand for pickup and delivery orders. I thought that it was a bit odd and did some digging and what I found out was that for some locally-owned restaurants that have closed in the last few weeks, the cause of their closure is due to insurance companies forcing restaurant owners to make a hard decision to either keep their doors open and violate the terms of their insurance policy or shutter their doors immediately and wait until after the COVID-19 crisis ends to ensure their insurance payment. As we see national fast food chains like Wendy's, McDonald’s and KFC are very busy you might assume that business is good for some of your favorite locally-owned restaurants as well. However, that is not necessarily the case, you have to remember that the national chains fast food chains business model is based around a fast food and even fast-casual setup, meaning that the profit for them is directly in the food. However, many of our favorite locally-owned restaurants are built around a sit down dining experience and in most cases the actual profit margin is in alcohol sales. (I can't tell you how many times I ordered a $20 entree but had a $100 bill from all the drinks but that is another story but you can see that the profit is in the drinks and not the food). With no cocktails being poured the immediate impact is in some cases very massive.

The State has intervened a few times to support restaurant owners by at first allowing the sale of beer and wine to go with with the take out orders and earlier this week allowing alcohol sales by the bottle, however, the markup that a restaurant charges on bottles of alcohol cannot compete with a local grocery store. The profit is in the cocktails made with the bottle and not the bottle itself.


So when many locally-owned restaurants decided to stay open and serve the community, they knew going into it that only being able to serve food meant that they would see a dramatic reduction in their bottom line but for many restaurant owners it was about two things, providing jobs for the employees and even more importantly serving food to the communities they love. Many restaurants have considered staying open their civic duty, it is how they are playing their part to bring a sense of comfort and normalcy in these very uncertain times. Restaurant owners that I have spoken with said they want to continue to remain open despite the diminished profits, they just want to feed the people. Here is the issue, most restaurants have insurance that covers them for a government type shutdown or catastrophe that prevents them from operating their business during a time of crisis or emergency. In principle this is a very good thing to have as a restaurant owner can use that policy to recover some of the financial losses incurred during the closure. However, by reducing operations significantly and continuing to serve take out and pick up orders only, the restaurant is still technically open and that being the case, insurance companies are telling restaurant owners that they will not honor the policy since the restaurant is still technically operating (although at a small capacity) and is not closed due to the crisis. Faced with the decision of staying open to feed the community and keep employees working or losing the insurance payout once the shutdown is lifted, some restaurants are choosing to shutter their doors until after COVID-19 blows over and hope to reopen at that time. It would seem that in this time of unprecedented national crisis that the insurance industry and the restaurant industry can come together and find a solution that would work for locally-owned restaurants, insurers, and customers. If not by the time COVID-19 is over the only options that we might have are fast food and who knows how many doors that are shuttered now will ever reopen again.

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