CLASSIFYING RISK–RESTAURANTS

(April 2019)

INTRODUCTION

Industrious entrepreneurs have developed specific types of restaurants to cater to individual needs and tastes. No single restaurant can satisfy everyone's tastes but, because of so many people dining out, restaurants can afford to specialize. The Insurance Services Office (ISO) also recognizes the differences in restaurants and the very different exposures they present. ISO has developed several classifications to respond to the broad range and variety of restaurants, including two that are not even called a restaurant.

The 04 13 classification changes introduced two new restaurant classifications.

CONCESSIONAIRES

The most basic "eat on the run" type of restaurant is not classified as a restaurant at all but is referred to as a concessionaire. Class Code 11168: Concessionaires applies and the accompanying note states that all food and beverages must be sold through hawking or peddling. There can be no location to which customers walk up and purchase the food. This classification includes food sold at sporting events, exhibitions, and parks. Because it does not restrict the type of beverages that can be sold, concessionaires can sell alcoholic beverages as well as soft drinks, water, juices, and other types of drinks. Items that are not food or beverage may be sold but only if they are incidental to the food and beverage sales.

RESTAURANTS OPERATED BY CONCESSIONAIRES

The next two classifications are not what they initially seem to be:

• Class Code 16820: Restaurants–Operated by Concessionaires–Not-For-Profit Only
• Class Code 16819: Restaurants–Operated by Concessionaires–Other Than Not-For-Profit

A concessionaire is an independent contractor that operates on another’s premises. Under this classification, there is a physical restaurant, but its operator is different than the business that provides the restaurant space. The classification notes explain exactly when to use these classifications. The restaurant must meet all three of the following criteria:

• Be in an office building, industrial building, or similar place of business and provide any type of food service. Cafeterias or smorgasbords are common but are not the only options.
• Be used only by employees and guests of the business who contracted with the concessionaire.
• The named insured concessionaire must operate the restaurant.

Many businesses use concessionaires to provide food service to their employees and the premiums these codes develop reflect this exposure.

Two different codes are available because a nonprofit organization may provide the food service.

These classifications should not be used if a business uses its own employees to provide food service to other employees and/or guests. A more appropriate classification from the following must be selected instead.

CATERERS

The code and class for caterers is Class Code 11039: Caterers.

Caterers are very similar to restaurants but with there are important differences. The caterer prepares the meals at its own kitchen or commissary and then transports it to the locations where it will be served. Some final preparation may take place at the final location, but the majority generally takes place at the caterer’s location. The caterer’s employees serve the meals and beverages and oversee the consumption of the food.

Lunch trucks that visit multiple locations on a regular route and are supplied with food prepared at a central location are classified as caterers.

Note: A lunch truck is not the same as a food truck. Food trucks do not follow a regular route and actively prepare the food on the truck although some of the preparation may have taken place at a central location. Based on comments in the PAAS, it would appear that the proper code for food trucks is 16902–Restaurant - with no sales of alcoholic beverages – without seating.

RESTAURANT CATEGORIES

The way restaurants are categorized and classified uses the percentage of alcoholic beverage sales as the first criteria, followed by other features or operations.

A common note to all these categories is that entertainment-oriented venues such as nightclubs, cabarets, dance halls, discotheques, and comedy clubs must be separately classified and rated. This means that the sales that those entertainment activities generate must be broken out and rated separately from the sale or food and drink. Class codes 11274 and 11273 are used with dance halls, ballrooms, or discotheques. Class code 15656 is used with nightclubs, cabarets, and comedy clubs.

No Sale of Alcoholic Beverages

The first category is restaurants that do not serve any alcoholic beverages and do not permit customers to bring their own alcoholic beverages into the restaurant. There are three different classifications:

• Class Code 16900 is used when table service is provided. It is very important to be familiar with this classification's note because it includes buffets, even though the table service is limited. In other words, when any type of table service is provided at a buffet style restaurant the operation falls into the table service classification.
• Class Code 16901 is used where seating is available, but table service is not provided. Most fast food restaurants fall into this classification.
• Class Code 16902 is used when there is neither table service nor seating. Restaurants in a food court in a shopping mall, a sidewalk stand, a food truck and a drive-in or take-out only location would fall into this classification.

Class Codes 16900 and 16901 have notes that relate to children's play areas. Indoor play areas that do not charge a fee for their use are included. However, the ones that charge a fee are separately rated under Class Code 11120–Children's Playcenter–Indoor. Gated outdoor play areas with access only through the restaurant are treated the same as an indoor play area and that note applies. All other outdoor play areas are separately rated under Class Code 46671–Parks or Playgrounds.

Bring Your Own Alcohol

The 04 13 classification changes introduced this category of restaurants. The restaurants in this grouping permit patrons to bring alcohol into their establishments. This type of restaurant may provide set-ups and encourage patrons to consume alcohol but do not actually provide any alcoholic beverages.

• Class Code 16905 is used when table service is provided. It is similar to class code 16900 above in that even limited table service buffet operations fall into it. Restaurants in this classification are not subject to the liquor liability exclusion and the pricing reflects that. However, a 5% credit is applied to the rating when
  CG 21 50–Amendment of Liquor Liability Exclusion is attached to exclude any liquor liability exposure.
• Class Code 16906 is identical to 16905 except that while there is seating, no table service is provided.

This category does not anticipate children-oriented activities being on the premises, As a result, all children play areas are to be separately classified and an appropriate charge made for them. This means that Class Code 11120–Children's Playcenter–Indoor is used for indoor play areas and Class Code 46671–Parks or Playgrounds is used for outdoor play areas.

Limited Sale of Alcoholic Beverages

Restaurants in this category derive less than 30% of their revenue from alcoholic beverage sales. There are two different classifications.

• Class Code 16910 is used when table service is provided. It has the same note as Class Code 16900 above so that even limited table service buffet operations fall into it.

This classification also includes bars, pubs, and taverns that offer entertainment as well as those that do not. It also includes microbreweries that sell their own products for consumption only on the premises. Sales of products consumed off premises, such as carry out operations, are rated under the appropriate beer, ale, or malt liquor manufacturing classification.

• Class Code 16911 is used where seating is available, but table service is not provided.

Note: This category does not have a classification for operations that are without both table service AND seating.

Significant Sale of Alcoholic Beverages

Restaurants in this category derive between 30% and 75% of their revenue from alcoholic beverage sales. Thisese changes how classifications are broken down because these operations present a more adult-orientation accompanied in some cases by entertainment exposures. Also, for the first time there is a note to remind us of the rules that if a more specific classification is available for a risk, then it must be used. Therefore, because discotheques (11273), nightclubs (15656) and cabarets (15656) each have their own classifications, the appropriate classifications must be used instead of the restaurant class, even though there may be a restaurant exposure involved.

Therefore, if there are alcohol receipts that account for between 30 and 75% of the receipts and the operation is not a discotheque, nightclub or cabaret the following classifications are to be used:

• Class Code 16915 is used if there is a dance floor.
• Class Code 16916 is used if there is no dance floor.

Both classifications include bars, pubs, and taverns that offer entertainment as well as those that do not. They include microbreweries that sell their own products for consumption only on the premises. Sales of products consumed off premises, such as carry out operations, are rated under the appropriate beer, ale, or malt liquor manufacturing classification.

Note: Other than the risk having or not having a dance floor, there are no other distinguishing features separating these classifications.

Substantial Sales of Alcoholic Beverages

This restaurant category has the most classifications. The first criterion is that alcoholic beverage sales must represent more than 75% of total receipts. Also, a note under each classification states that if a more specific classification is available for a risk, then it must be used. Therefore, because discotheques (11273), nightclubs (15656) and cabarets (15656) each have their own classifications, the appropriate classifications must be used instead of the restaurant class, even though there may be a restaurant exposure involved.

Each of these classifications also includes bars, pubs, and taverns that offer entertainment as well as those that do not. They also include microbreweries that sell their own products for consumption only on the premises. Sales of products consumed off premises, such as carry out operations, are rated under the appropriate beer, ale, or malt liquor manufacturing classification.

This category divides into two subcategories before classifications are assigned. They are those with tables and those without tables.

The first subcategory involves operations that do not have tables. If there are no tables one the following is to be used:

• Class Code 16940 is used if there is a dance floor.
• Class Code 16941 is used if there is no dance floor.

The second subcategory involves operations that have tables. If there are tables, another subcategory applies, depending on whether or not there is a dance floor.

There are two classifications to consider when there are tables and a dance floor.

• Class Code 16920 is used if there is table service.
• Class Code 16921 is used if there is no table service.

There are two classifications to consider when there are tables but no dance floor.

• Class Code 16930 is used if there is table service.
• Class Code 16931 is used if there is no table service.

Many insurance companies call these last six restaurant classifications bars and taverns, even though ISO refers to them as restaurants.