I want it all! And I want it now! That was the theme song for the Grub Hub commercials a couple of years back. Covid has redefined the food service industry causing restaurants to rely less on dine in patrons and more on takeout meals. Those restaurants which were able to maintain a strong online presence were able survive the shutdowns during the pandemic. Along with that, food delivery has become a greater portion of their sales. Services like Grub Hub, Door Dash, and UberEATS provide both local and chain restaurants with both instant delivery capabilities and an increased online presence.
Food delivery has changed. It is not just about hiring high school and college kids to deliver food anymore. In recent years, independent restaurant food delivery services such as Grub Hub, Door Dash, and UberEATS have appeared. They appear to be becoming a larger and larger factor in hospitality industry today.
But the question which needs to be raised and answered is how it affects the potential liability exposures created by these food delivery services. How does it affect the food service establishment’s commercial automobile liability exposure? In addition, how should those services impact how they should be underwritten. This blog explores some of those questions.
The first issue which needs to be clarified is the relationship services like Grub Hub and Door Dash create with both their venders and the delivery people. All three of the entities publish their user agreements online. The user agreements are the contract which governs and defines the relationship between the venders, delivery personnel, and the services themselves.
The Door Dash agreement defines Door Dash as follows, “the DoorDash Marketplace and the Caviar Marketplace using web-based technology that connects Merchants, Dashers and Customers, as described in these Terms for DoorDash Platform.” Furthermore, the agreement goes on to stipulate “DoorDash is not a merchant, seller of goods, or delivery service; it is an online connection platform.”
In my mind, stipulating they are neither a merchant nor a delivery service attempts to put potential auto liability exposures back on the merchant’s shoulders. Furthermore, they describe their operations as providing a web-based technology connecting merchants, dashers, and customers. It is clear the agreement is attempting to remove themselves from potential auto liability exposures revolving around the delivery of goods.
This relationship is further reinforced by the Users Agreement of the Dasher (delivery contractor). The agreement defines DOORDASH is a company that provides an online marketplace platform using web-based technology that connects contractors, restaurants and/or other businesses, and consumers (“DOORDASH platform” or “platform”). DOORDASH’s software permits registered users to place orders for food and/or other goods from various restaurants and businesses. Once such orders are made, DOORDASH software notifies contractors that a delivery opportunity is available and the DOORDASH software facilitates completion of the delivery. DOORDASH is not a restaurant, food delivery service, or food preparation business. As I see it, if the agreements are enforced as written, the merchant is directly contracting with the Dasher, creating a hired and non-owned auto exposure for the merchant. It is notable the agreement language also specifies a placed order as a delivery opportunity and permits the Dasher to voluntarily accept the opportunity and DoorDash does not specifically assign any opportunity to a Dasher.
In reviewing the user agreements for both Grub Hub and UberEATS, I found similar language defining them as technology providers, and a connection service, not as a delivery service. At the very least, the agreements create a fuzzy gray area which needs to be addressed before a claim happens. Maybe, fuzzy or gray areas are never good terms when designing an insurance program.
So, what do we do with this information? First as agents and brokers, we need to advise our food service clients that using one of these services do not remove them of the need to purchase Auto liability coverage at some level. At the very least, they will still need hired and non-owned auto liability.
But it goes further than that. The food service operator needs to understand other issues related to risk management and balance those issues with the marketing advantages the services provide. This technology is redefining the whole food delivery industry. By using the technology, food service businesses relinquish some control over the delivery of their products.
Think about it. In the past, a local restaurant or pizza parlor would hire the local high school or college students to use their own cars to deliver in and around the neighborhood. In doing so, they knew who was driving. They perhaps knew quite a bit about the kid. What were they like? Were they responsible? Using Door Dash, they have no idea who is going to be delivering their meals. They have no idea if the person is responsible or even what their driving record is like.
Furthermore, they have virtually no control over the process. If they hire the local high school or college student, they can make sure the driver knows policies about driving safely and following established safe driving procedures. Or perhaps limit the delivery area to exclude unsafe areas. Utilizing the technology eliminates any chance to be able to affect their behavior in any meaningful way, which potentially increases loss potential.
One final comment regarding using these services is a consideration of potential premium charges. Almost nobody pays attention to how hired auto liability is written. It is written on an “if any” basis with a specific rate per $1,000 rental costs with a minimum premium charged. Furthermore, few people stop to think that commercial auto coverage as an auditable coverage as stipulated in the General Conditions portion of the Business Auto Coverage Form (CA 00 01). Service charges or commission for use of these platforms is usually in the 30% range. It is quite possible the delivery contractors may be deemed as hired autos by the insurance company, not unlike independent owner-operators of trucks hauling for a trucking company. Depending upon the level of sales generated by the service, it could develop a significant premium base. Consider a restaurant with $3,000,000 in sales of which a third are derived from using one of the platforms. This develops a premium base of $300,000 ($1,000,000 x 30% = $300,000) below. Depending upon the rate it could develop a significant premium charge at audit. So, it is probably advisable to check that rate and plan for the potential premium audit.
Agents and brokers need to council their clients to understand the potential risks, so they can make an informed decision to whether ease of using them and the higher online presence is worth it the issues they create.
Underwriters need to understand using services like Door Dash, Grub Hub, or UberEATS does not remove the exposure created through food delivery. In fact, their use may create significant coverage or risk acceptability issues. If you think using these technology platforms puts a layer between the driver and the insured, you might find the truth is entirely opposite. In fact, with the insured losing control over the process may create a higher loss exposure.
Before I leave you to think about the topic, I want to state unequivocally, I am an underwriter and not a lawyer. I am not holding myself out as a legal professional. Rather, I am simply pointing out these potential issues for insurance professionals to keep in mind when they consult with clients to design business insurance programs and when they underwrite food service operators who utilize these services.