Food Trucks: New Trend Equals New Risk

Popping up in metro areas across the country, popular food trucks have triggered festivals, a reality show, even lawsuits.

Food truck operators have filed lawsuits in Georgia, New York and California protesting bans on mobile eateries, while brick and by mortar establishments have also sued, complaining of competition and reduced sales.

Despite the challenges of dealing with a new market and its potential risks, Chartis, along with Matthew Carlson, vice president of Risk Strategies Co., a national retail brokerage firm, recently developed a food truck program that includes insurance coverage for general liability, automobile, business interruption, crime, mobile equipment and food spoilage losses.

Nicolette Pohl, a Chartis regional underwriter, explained the concept of a food truck.

“These are trucks that you typically see in the large metro areas. They come into the city, they set up; it could be breakfast, lunch – some are even doing dinner,” Pohl said. “They put out a specific type of food and they really develop a loyal type of following.”

Carlson, who first came across a food truck in Los Angeles, loved the convenience of it and set about trying to find carriers willing to insure the risk. It was easier said than done.

“I realized there was no product for this industry. Everyone was scared of it. No one really understood the exposure. It was a nightmare,” he said.

Yet he managed to pieced together something, which he admits “wasn’t the finest of products.”

He soon realized he would need to work with carriers to develop a program to cover all of the risks a food truck might have.

“At about the fifth truck, I decided to pursue some other alternatives. It didn’t get any easier. I spent a lot of time educating the carriers because the reality is they kept on falling back that this is a roach coach and they have 10 to 25 stops,” Carlson said.

It was a struggle to find a national carrier willing to put together a program because of the variety of exposures.

According to Pohl, tailoring coverage to fit the needs of food trucks meant understanding the business and where losses could occur.

“One of the things you are going to see when you have a fixed location business, the biggest concern is a loss of business income. The building burns down, they can’t do business, if they have the business interruption coverage they are going to get a claim paid for it,” Pohl said. “Food trucks don’t have a specific location, they go to two to three locations a day.”

“So what we had to do was tailor a form that would meet these food truck needs because they are going to have damage to their truck, it could be while they are at one of their sites, or it could be while they are driving or in the evening when they go back to the commissary to clean the truck and restock. They have a moving location. That was one of the biggest areas that we had to tailor coverage to for these food trucks,” Pohl said.

In addition to business interruption, property and auto claims, a food truck may experience a spoilage loss due to the food exposure, and a crime loss because of the transactions with money. In terms of general liability, Pohl said there is an exposure while a food truck is parked.

“Insuring food trucks is a highly specialized operation, due to the difficulty in verifying and tracking claims,” according to Melissa Meserve, vice president and chief underwriting officer for the Chartis division involved with this program.

Though multiple exposures exist, Pohl considers the food truck industry to be a reliable risk.

“The nice thing about this particular industry is that this vehicle is their bread and butter,” Pohl said. “They are very conscientious about setting up these vehicles and taking care of them. This program is so new we don’t have a loss or claims history yet.”

Because the industry is so new and loss experience unknown, the biggest indicator of future losses may be whether the city or county in which the food truck is operated in has specific regulations governing safety. Los Angeles, Philadelphia and Houston all have food safety regulations geared specifically to mobile food operations.

According to Dr. Anderson, a chef and director of the Hawaii Foodservice Academy certified in food safety management, Hawaii doesn’t have specific regulations governing food trucks. As a result, he said there is risk of a foodborne illness outbreak.

Despite spotty regulation currently, Carlson thinks most claims will be limited to the auto coverage. Since a food truck might be considered a mobile restaurant, according to Carlson, other claims might reflect what a fixed restaurant location may experience.

He expects the growth of mobile food trucks to ramp up along the coasts and in major cities like Atlanta, Miami and Chicago.

“We’re going to see pretty significant growth going east and in California, San Francisco, Oregon and Washington states,” Carlson said.

Despite their mobility, Chartis doesn’t foresee adjusters having difficulties handling food truck claims.

“Because they have a cell phone, they are easily accessible,” Pohl said. “Primarily everything is done either via the Internet or phone calls now-a-days, so I don’t see the fact that they are mobile really having an impact on claims handling at all.”

As far as coverage limitations for food truck festivals, Pohl said that is a common exposure that is expected and is already built into the program.

“That is a typical exposure for them. They want the location owner to be an additional insured,” said Pohl.

Chartis is already considering expanding coverage lines. The insurer is looking at offering employment practices liability insurance because some of the trucks are operated by owners while others are worked by employees.