E&O EXPOSURES IN INSURING YOUR NEIGHBORHOOD TAVERN
by Curtis Pearsall
Although many towns might not have a hardware store or a dry cleaner, chances are there’s a tavern in your neighborhood; Estimates put the number of bars in the U.S. at more than 50,000. Many of these taverns have been around as long as most other Commercial accounts, which makes these accounts worth pursuing. However, a little homework is in order before you knock on their doors.
Mishandling the unique exposures that taverns face can generate E&O claims all too easily. Although not every carrier wants this class of business, there are companies that will write it — and do so successfully. If you end up placing tavern business in the E&SL marketplace, be aware of its distinctive nature and allow extra time to quote and place each account.
Understanding the Exposures
Although alcohol sales create the major exposure, you’ll need to recognize other potential problems when marketing the account. Carriers looking to write taverns usually have an application that identifies specific issues.
One deals with food. This can range from the basics (pizza and sandwiches) to full, multiple-course meals. You’ll need to know the type of cooking equipment and the degree of fire suppression protection involved.
Another element deals with entertainment. You must identify the type of entertainment. Although many taverns have live music, the carrier will probably want to know the type of music to determine the type of crowd that it will draw. Non-musical entertainment consists of pool, darts, and the like.
If the risk is in an older building, and the tavern owns the structure, valuation could be a challenge. Because you’ll probably write the coverage on a co-insurance basis it’s essential to determine the proper value... The carrier will want to know the condition of the premises and the date of the most recent rewiring. Most insurers require financials to assess the degree of moral hazard.
The bottom line: Provide the carrier with the information it needs and be truthful with it. The last thing an insurer wants to learn is that the risk is different from what they were told — especially after a loss occurs. Make sure to visit the account personally.
Liability and Common Claims
Liability is a major exposure. Housekeeping and maintenance are important because trip-and-fall claims are common, as are personal injury claims, so count on the carrier to ask about them. These businesses often sponsor athletic teams in the community, so determine if this exposure exits. Depending on the market, be alert for an assault-and-battery exclusion. Because this type of claim is not uncommon with taverns, try to get the coverage without the exclusion, if possible. If it’s not available, discuss the matter with the account and document these discussions.
Liquor Liability
Liquor liability is a key coverage for any tavern. Because loss history is probably indicative of the future, give the carrier complete and accurate information. Do not provide any advice or guidance on limits for this coverage. If you recommend an amount and the account suffers a higher loss, they’ll blame you and probably sue you for the shortfall. Bear in mind that taverns of any size can have hefty claims. Provide options for the account to consider and allow them to make the decision.
Auto and Fidelity Exposures
Find out whether the account makes deliveries or provides transportation. If so, do employees use their own vehicles? Is there a valet service?
Taverns also have a significant fidelity exposure. You might find that the carrier you’re working with is unwilling to provide this coverage. As with all discussions with this type of risk, it’s essential that you document every interaction with your client to ensure there are no misunderstandings.
Time Element Exposure
As with most other commercial establishments, taverns have a time element exposure. Determine whether there are any peak times or if the account will conduct any special events that require higher liability. Many time element coverages contain a co-insurance clause, which means that f the account suffers a loss during a peak time, they could suffer a co-insurance penalty for not having the proper coverage.
Inland Marine Peril
It’s also essential to review the Inland Marine peril because the account might have an exposure to the use of electronic equipment (consider recommending a Computer policy), as well as signage or fine arts.
Conclusion
Although this article discusses some of the issues that taverns can face, you should also address other issues. An Exposure Analysis Checklist can provide an effective tool for identifying exposures and determining what questions to ask.
As with any risk, check the policy when you receive it from the carrier to ensure it reflects the requested coverages. Advise clients, verbally and in writing, to review their policy when they receive it to make sure everything is in order.
Don’t hesitate to pursue writing your local neighborhood tavern. With a good understanding of the exposures, it might be one of your more stable accounts.
Curtis Pearsall, CPCU, AIAF, ARM, CPIA, is president of Pearsall Associates, Inc. (Whitesboro, NY), a risk management consulting firm that specializes in helping agents protect themselves against E&O claims. To contact him, call (315) 768-1534; e-mail: [email protected]; visit www.pearsallassociates.com; or blog: www.agentseotips.com.