Operators ignore delivery insurance at their peril
Even if a delivery driver has auto insurance, restaurant owners can be held responsible for accidents that happen to drivers delivering their product.
Many in the industry remember when Domino's scrapped its "30-Minute Guarantee" in the 1980s. The move came about in part because of lawsuits from people who had been struck by delivery drivers allegedly speeding in order to meet the time limit. In 1992, the company paid $2.8 million to the family of an Indiana woman who was killed by a delivery driver working for Domino's. The next year, a jury awarded $80 million in damages to a woman who had been rendered a quadriplegic after being struck by a Domino's delivery driver who had run a red light. Domino's later settled the suit for a reported seven-figure sum.
And shortly after the company introduced its "You've Got 30 Minutes" campaign in 2008, a Texas teenager was left brain damaged after being struck by a delivery driver. The teen's family has filed suit against the company.
Delivery insurance, typically known as excess non-owned auto insurance, is a niche market available from just a few insurance carriers. Many carriers don't offer this type of coverage because while delivery accidents don't occur frequently, the claims associated with them are usually complicated and costly. (*Click here to download a copy of the special report, "Protecting Delivery: Insurance for Restaurants that Deliver.")
"If a driver is delivering your product, you, the business owner, are liable for any damage caused by the delivery driver's automobile," said Georgianna Stump, senior director with insurance provider Risk Services Corp.
Risk Services specializes in insurance products for the restaurant industry, with an emphasis on pizza-delivery restaurants. Stump recommends that pizzeria operators who offer delivery include non-owned auto insurance as part of their coverage.
Though an operator may have to do some searching, finding a carrier who offers such coverage is a wise investment.
"Sometimes these types of claims are valued in the millions," Stump said. "One claim without the proper insurance limit could shut your business down."
Employees' policies not always sufficient
Often, pizzeria operators believe the employee's insurance policy will protect them in the event the employee gets into an accident during a delivery. They may be in for a shock, though, when the employee's insurance company refuses to pay a claim for an accident that happened while the employee was working.
Most policies don't cover any sort of delivery of goods or transport of people for a fee. This includes taxi service, as well as many types of delivery, including pizza delivery, newspaper delivery and mail delivery.
"How will a pizza shop owner know if there is coverage on a delivery driver unless he or she actually reads the policy?" Stump asked. "Why should you become an insurance expert to review drivers' insurance policies?"
The cost of a policy is determined by a number of factors, said P.J. Giannini, an author, consultant and insurance expert.
"Definitely, there are geographic factors involved, so if you are delivering in New York City, the cost is going to be different than if you were delivering in rural Tennessee ," Giannini said. "A key factor is the amount of delivery receipts. If I have a business that's doing $500,000 a year in delivery and you have a business doing $50,000, there is going to be a difference in cost."
With excess non-owned auto coverage on their business policy, the operator is covered for its portion of the liability judgment if a driver causes an accident and the claimant sues both the driver and the pizzeria.
"The nightmare scenario I think of is that is a traffic fatality and one of my drivers is involved," said David Paventi, owner of Paventi's Pizzeria in Charlotte , N.C. "Based on conversations I've had with my attorney and others, I'm the first one they are going to sue. Hired non-owned insurance would cover that claim."
Stump also recommends that business owners request an endorsement to the non-owned policy stating "employees are insured."
When considering a non-owned auto policy, look for coverage with proper limits, Stump said.
"At least $1 million, but I would recommend $2 million with an umbrella as excess," she said
Coping with the cost
While the outcome of delivery-related lawsuits can be painful for a company the size of Domino's, for a mom-and-pop outfit it could be catastrophic.
Paying for such a policy, though, is always a concern to operators.
"Any expense, necessary or otherwise, that doesn't directly generate sales puts me at a competitive disadvantage," Paventi said. "I have to compete with the chains, whose unlimited ad budgets give them a gigantic leg up. Every dollar I have to spend on insurance, rent, common area maintenance and so forth is a dollar I can't spend on advertising." 
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Adam Goldberg, cofounder of Manhattan Beach , Calif.-based pizzeria Fresh Brothers, pays about $8,000 per year for a $1 million non-owned auto policy.
"It shows our community that we are responsible and that all my cars driving around town are properly insured," he said.
The company defrays the cost of the policy by charging a $2.50 delivery fee. Half of the fee goes to the driver and the other half goes into a fund to pay for the policy.
"We explain this to any customer that asks if there is a delivery fee," he said. "We always get positive feedback about the insurance."
Although many operators may balk at buying a non-owned auto policy, Giannini recommended an easy way to determine if such a policy is necessary.
"Call your lawyer, tell him you deliver pizza and ask him if you need this insurance," he said. "If the lawyer will say no, in writing, then you don't need it."

Recommended precautions

  • In the event of an auto accident where a driver is at fault, business owners who employ delivery drivers must prove that they took every precaution to protect the public.
  • The owner must obtain a copy of the employee's motor vehicle report at the time of hire and again on a regular basis to make sure that the MVR does not show any new violations. If operators can't prove that they ordered those MVRs, they can be found liable and forced to pay punitive damages.
  • Most non-owned auto policies specify standards related to the number of moving violations and at-fault accidents a driver is allowed to have and still be eligible for coverage.
  • The business owner must always inspect the vehicle to make sure it is safe: the horn is working, the mirrors are in place and the brakes and windshield wipers work well. The vehicle should be in good working order so that disrepair does not cause an accident.
  • The business owner or manager must never require a delivery driver to rush or hurry on a delivery.
  • Operators should hold regular safety classes for drivers. Some non-owned auto policies outline training programs that must take place in order to maintain coverage.

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