Eateries lean on reputation covers.

The E. coli outbreak linked to Taco Bell restaurants has left approximately 70 people sick in five states, creating a major damage-control crisis for the fast-food chain.

As with many restaurants or food-service providers that have been linked to food-borne illnesses in the past, the costliest aspect of this crisis is not Taco Bell's removal of potentially tainted green onions from its 5,800 restaurants nationwide, or the temporary closure of 18 stores, or expenses related to decontamination and cleanup of restaurants; it is the long-term damage to the company's trade name.

However, only a few insurers offer insurance protection for this common and costly risk, experts say.

The typical commercial general liability policy would pay for the bodily-injury cases resulting from this event, although it may not cover a restaurant's business-interruption losses because of the absence of physical damage and recall liability exclusions in most policies. Product recall or contamination insurance would be required for loss of business income to be covered, but deciding who among the various implicated entities would foot the bill presents a challenge in itself, said Bill Harrison, a managing director with Aon Crisis Management Practice.

"When a contamination occurs, business interruption is suffered by the restaurant company, the franchise owner of the location, and the ingredient supplier who may lose other contracts as a result of the bad publicity. The issue is who is going take responsibility for the business interruption of all these entities. Is each one going to take care of its own business interruption, or is the party found to be the cause going to be responsible? It tends to be a very sticky issue."

But what about insurance to help restore damaged reputation?

Pam Ritz, president of Specialty Risk Management, a crisis manager for Lloyd's underwriters based in Austin, Texas, said traditional insurance, conceptually, tends be triggered based on an event at a location. Product-recall coverage, for example, isn't very useful to the restaurant owner because it focuses on the manufacturing side. "What we're really talking about here is a concept where the mere mention of your trade name in an adverse setting is causing foot traffic to drop," she said.

Lloyd's is only one of a few carriers that write coverage specifically aimed at helping restaurants and food chains regain reputation in the event of a food-contamination crisis. The program, which has been on the market for eight years, has a strong emphasis on crisis management. Lloyd's underwriters contribute capacity of $79 million per trade name through this program. There's also excess coverage available that could increase the limit to $125 million.

David Hanley, president of Professional Liability Insurance Services, which underwrites the food borne-illness/trade name restoration insurance product written through Lloyd's, said in the event of an outbreak, the commercial general-liability carrier normally doesn't come online until the claim comes through the front door in the form of a lawsuit. That may be too late, he said.

Under the Lloyd's-backed trade name restoration program, however, crisis management begins immediately, providing assistance with the media, handling phone calls, dealing with health officials and at the same time putting together a game plan for recovery. "Sometimes, you have clients that get very upset because an employee caused this problem; maybe the employee had some sort of viral infection that they passed along to the customer coming in to eat. So you have employment practices that could come into play as well," he said.

Significant Product Contamination
And Product Recall Events

Brand       Year   Bodily Injury              Recall Cost

Perrier     1990   7 deaths                   $100 Million+
Pepsi       1993   No injuries, 53 arrests,   $35 Million in lost
                   several convictions        revenue, marketing, and
                                              increased coupon costs
Jack in     1993   700 people fell ill,       $160 Million in incurred
the Box            4 child deaths             costs and reduced sales
Coca-Cola   1999   100 children fell ill      $100 Million

Source: Frank Crystal & Co.