Combine a generous amount of
alcohol with exotic enteratinment, shake it up and
what do you get - at least as far as the insurance
industry is concerned? The answer is the
unique risks served up at bars, nightclubs and
some restaurants. While these exposures
might give some standard insurers a headache,
solutions can be found through wholesale brokers
and excess and surplus lines carriers who
specialize in this industry sector.
The average restaurant-whether it's a small
eatery, a family-style establishment or a
fine-dining location-doesn't fall in this
category. Most are still written through the
standard markets. However, when an
establishment adds a dance floor, live
entertainment, a DJ or derives more than 40-to-50
percent of its gross receipts from the sale of
alcohol, then it typically looks to the E&S
industry for coverage.
Those bars, nightclubs and restaurants that
rely on alcohol sales are holding their own,
reporting relatively small declines in sales
despite the poor economy. Fine-dining
restaurants cannot say the same, unfortunately.
They are reporting sales down as much as 30-to-50
percent in some cases, shrinking insurable
exposures for carriers of all stripes.
In addition, restaurants written by the
standard markets are facing double-digit rate
increases for insurance. This has pushed some of
these risks to the E&S market, which is still
reporting relatively low rates, plenty of capacity
and broad terms available.
There are two primary risks that
differentiate bars and nightclubs from
restaurants. The average restaurant finds
its most common claims when patrons slip and fall,
chip a tooth while eating, or became ill after
eating. Bars and nightclubs, on the other
hand, identify assault and battery as well as
liquor as the two biggest liability
concerns. In fact, about 60 percent of
claims against bars and nightclubs result from
assault and battery. These claims involve patrons
who get into fights with one another or who claim
the security people-either staff or contracted
security guards-used unreasonable force in dealing
with them. Such claims can be expensive.
Just one altercation could easily result in a
$50,000 claim.
With the potential for assault and battery
charges, these establishments need to beware of
inexpensive general liability policies that
exclude assault and battery or reduce the limits
available to a small fraction of the typical $1
million policy-perhaps issuing a $25,000 sublimit
for this coverage.
A minimum limit of $1 million for assault and
battery is recommended-or even better, have the GL
carrier include the assault and battery coverage
up to the policy limits. Similar
recommendations apply for liquor liability-as
buyers are cautioned against policies that exclude
this important coverage or contain a sublimit.
Again, a minimum $1 million limit for liquor
liability coverage is suggested.
This coverage protects establishments from
claims that they served liquor to a visibly
intoxicated person or to a minor who subsequently
caused death or injury to third parties-those not
having a relationship to the bar.
In addition to having adequate liquor and
general liability coverage and limits, buyers
should consider an excess or umbrella policy to
further enhance coverage.
RISK
MANAGEMENT
Given the potential for liquor and assault
and battery claims, bars, nightclubs and
restaurants are advised to use surveillance
cameras inside and outside to monitor activity.
This way, for example, when a patron claims that a
security guard used excessive force, the camera
will record the behavior of the patron who
prompted the altercation.
Another risk control tool is an activity log,
which bartenders and other employees can use to
record the date, time and nature of any incident,
as well as a description of the patron
involved. For example, if the bar stopped
serving the patron because he or she was
intoxicated, it can be documented and may be able
to be used as a defense in a liquor liability
claim. Other loss control tools that should
be in place include hand stamps and wristbands,
which help identify those eligible to drink, as
well as beverage service training for both
bartenders and wait staff. In addition,
security practices are understandably important.
Carriers want to know details-such as procedures
for removing a rowdy patron, and whether the bar
or nightclub employs its own security staff. If an
outside agency is hired to provide security, that
contractor should provide a certificate of
insurance naming the establishment as an
additional insured.
Employment practices liability insurance is
another essential coverage that defends or
indemnifies against employment-related suits. Some
of the most common claims are discrimination,
wrongful termination, sexual harassment, or
failure to comply with statutory hiring
requirements or practices. These claims are
more frequent in restaurants, but bars and
nightclubs also have the same
exposures.
With respect to EPLI, more bars, nightclubs
and restaurants are increasingly requesting two
very important components-wage and hour as well as
third-party coverage.
Wage and hour claims involve allegations that
an employer has violated federal or state laws
that govern how employees get paid. Employee
claims vary from a simple miscalculation of
overtime pay, to whether they took all of their
mandated break times. Third-party coverage
protects insureds for claims brought by customers,
clients or vendors in regards to
employment-related
suits.
With the standard markets already showing
some signs of hardening, more business is expected
to move into surplus lines, where there is plenty
of capacity to write these risks, as well as the
industry expertise to provide the best rates and
coverage
available.
