Mick Kroll, CPCU, ASLI, senior vice president and binding authority manager at AmWINS Insurance Brokers of California, LLC, provides an important starting point. He explains, ”It’s important to distinguish the ‘nightclub’ class from the ‘bar/tavern’ class. The line between the two can often be fuzzy and many carriers will write a nightclub by classifying it as a ‘bar/tavern’ with entertainment.” This Cybercast concentrates on nightclubs and the brokers and carriers actively writing them. Mr. Kroll says that Arch Specialty, Colony National, Crusader, First Mercury Insurance Company, Liberty Surplus, Nautilus, Steadfast, and United National are all markets for nightclubs.
Dan Djordjevic, president and CEO of AXIOM Insurance Managers Agency, manages a book of business on behalf of Capitol Specialty Insurance Co. Patricia Roth, executive vice president of S. H. Smith & Co., Inc., lists Admiral, Naxos, Aspen, Capital, Scottsdale and Great American E&S as some of the markets they use.
The marketplace for nightclubs is limited and is almost exclusively nonadmitted, according to our experts. Gregory Gold, CIC, CISR, field underwriting/marketing for Atlantic Specialty Lines of Florida, Inc., adds, “The complex nature of these multi-peril enterprises requires detailed underwriting.”
Seth Amendola, assistant vice president of S.H. Smith & Co., Inc., explains that typical GL premises exposures and life safety issues are key exposures and adds, “Insureds in this class of business need to address their liquor liability as well as their assault and battery exposures.”
Mr. Kroll expands on these exposures. Concerning liquor liability, he comments, “Having formal liquor training is a key underwriting qualification for most carriers.” On assault and battery, he cautions, “Remember, security personnel are entrusted with the public’s welfare. If they are not skilled at handling a nightclub's customer base, the insured will be on the wrong end of many ugly lawsuits.”
Additional exposures, according to Mr. Gold, are theft and vandalism. He adds, “Most important, however, may be the professional liability coverages, such as EPLI for HR issues, and crime for employee acts of dishonesty.”
Property coverages can often be overlooked in the exposure analysis but are also very important. Mr. Kroll explains, “The biggest issue is that the business income limits are not adequate and are generally misunderstood. Obtaining the correct business income limits involves significant input from the insured, and this information is sometimes difficult to obtain.”
According to Mr. Djordjevic, frequency-type liability claims tend to be from slips and falls and assault and battery incidents, with liquor liability contributing to severe claims. Our other experts agree but tend to put assault and battery claims into both severity and frequency categories. Mr. Kroll states, “Assault and battery claims tend to be the primary issues for nightclubs.”
A major claim with impact on the nightclub market was The Station fire in Warwick, Rhode Island. Although the fire occurred in 2003, it still affects the industry. Mr. Djordjevic states that two major changes have occurred as a result of the fire. “For general liability, carriers now exclude the use of pyrotechnics and require each club to have at least two or more means of egress. For property, that loss caused a hardening in both rates and underwriting guidelines on nightclub accounts. Prudent insurers are looking to focus more on life safety concerns by having well-trained security.”
According to Ryan Kelly, assistant vice president at S.H. Smith & Co., Inc., The Station fire caused another change. “The marketplace has carefully evaluated the life safety exposures on risks in this class. Underwriters require details of pyrotechnicians and fireworks that may be used during any entertainment, with most carriers requiring a pyrotechnics exclusion.”
All of our experts agree that the soft market is affecting this class and, according to Mr. Kroll, ”Since the softening of the market over the last five years, underwriting that hardened immediately after the fire has become less stringent, even though almost all policies use the pyrotechnic exclusion.”
According to our experts, the essential coverages for every nightclub are general liability, liquor liability, and umbrella. General liability must include coverage for assault and battery. According to Ms. Roth, “Coverage can be purchased for any limit desired. There is plenty of excess capacity.”
In addition, Mr. Djordjevic says, “Every risk should purchase employment practices liability, property, workers compensation, and auto, if applicable." However, workers compensation and EPLI coverage can be difficult to place.
Assault and battery coverage is vital but also difficult to place. Our experts agree that it should never be excluded and that markets are available, although sub-limits may be necessary in certain cases. As stated above, this is a primary liability exposure that produces both frequency and severity.
Mr. Gold points out a concern regarding the property exposure. “Since many nightclub risks are located in coastal resort cities such as Miami or Virginia Beach, this can present a unique set of underwriting issues relating to seasonal fluctuations of inventory, coverage for disruption caused by civil authority, and, of course, wind coverage on the property.”
A number of policy enhancements might be considered. These include employee dishonesty, credit card invoices, spoilage/off-premises power failure, signs, money and securities, and backup of sewers and drains. Patron-on-patron assault and battery coverage, EPLI, elimination of the pyrotechnic exclusion, and electronic equipment coverages are available in certain markets.
The marketplace for nightclubs is competitive, and some markets may entertain this exposure without fully understanding it. Mr. Djordjevic says, “The key to successfully writing nightclub business is for retailers to partner themselves with experienced intermediaries that specialize in this class.”