Par for the course: golf club premiums

Golf and country clubs are complex risks that make it difficult for agents and brokers to know how premium dollars should be allocated. That task is even more difficult because each club is different. Private clubs are different from semi-private clubs, which are different from public fee clubs. Even within specific categories, subtle changes in a clubhouse or course can change property and liability needs.

What can you do? Get to know the clubs you write. Analyze their specific needs and exposures to make sure that they have the coverages they need. To help you make this assessment, we’ve broken down a club’s coverage to explain the most important risk considerations and how premium dollars may be allocated.

Property

The entire property premium can account for up to 65 percent of a club’s total program. Following are the major elements.

Clubhouse
50 percent of property premium
For most country clubs, the clubhouse is the single largest structure and the largest asset of the club’s portfolio. For that reason, it is essential to properly analyze the property coverage. Make sure you:

• Include Agreed Amount in the program to avoid co-insurance penalties, which would have a serious impact on a partial loss settlement.
• Select a reasonable deductible that the club can afford.
• Value the clubhouse and its contents properly. We suggest you evaluate Building and Contents Limits on an annual basis, with a formal commercial appraisal completed every three years. That will protect against underinsuring the property due to changes in the economy. (Any mid-term renovations or construction projects on the clubhouse may require re-evaluation of limits and coverages.)

Other Structures
5 percent of property premium
A club’s other structures may include a cart barn, refreshment stand, maintenance building and any structure other than the clubhouse. The most significant concern with those structures is fuel, battery chargers, chemicals and other items that offer the potential for fire. That’s why we recommend those structures be located away from the clubhouse.

Personal Property of Others
(Bags and Clubs)
5 percent of property premium
Most clubs offer some type of bag and club storage. Private and semi-private clubs may offer locker rooms and storage rooms where members store their bags for long periods of time. The club now has the additional responsibility of care, custody and control of those items. We address this issue by reviewing the bag storage policies and procedures in place at the clubs:

• Does the club have a locked bag room with minimal access to authorized personnel only?
• How does the club address any policies in the membership bylaws to address the responsibilities of both the club and the member?
• Is the club properly valuing what they may store at any one time?

Most clubs reviewed by the Preferred Club Program have some claim activity in that area. Properly insuring those items and careful evaluation of the policy wording should avoid problems at claim time.

Equipment/Carts
15 percent of property premium
Like bags and clubs, proper valuation is critical to insuring equipment and carts owned and/or leased by the club. They should be insured on a Replacement Cost basis because many of those items are high dollar. Many programs only offer Actual Cost Basis, but Replacement Cost is preferable. Keep in mind that when equipment is older, replacing the item may cost much more than it is actually worth.

For any leased equipment, be sure to verify who is responsible for insuring the piece based on the leasing contract. Your program should also allow for the coverage of short-term rented/leased equipment either through a separate limit or within the blanket. Equipment rented on a short-term basis (month or less) would not need to be endorsed every time — simply taken care of by the provision in the policy. The equipment schedule should always be provided, but make sure the coverage is on a blanket basis.

Business Income
15 percent of property premium
Depending on the club, the premium generated by the Business Income coverage can be significant. When evaluating the club’s program, be sure Business Income coverage extends with full limits to damage on the golf course. A public course can be seriously affected by an unplayable course. On the other hand, private clubs would suffer from a loss to the clubhouse where restaurant/banquet revenue is generated. When a club experiences a claim, the loss to income is not always readily measurable. It is imperative to have the proper limit and recognize that the premium paid for the limit is more than worth the expense.

Golf Course/Trees
5 percent of property premium
The premium for this coverage is not necessarily a significant percentage of the overall property/program premium. The issue here is one of availability, especially in coastal areas prone to wind damage.

The golf course is the most exposed of any club’s assets. It is obviously what makes any club “tick.” A loss represents not only a physical loss, but also the contingent loss of revenue because it may render the course unplayable. That is more critical to a public course where the majority of revenues are generated from play. When evaluating the club’s program, be sure Business Income coverage extends with full limits to damage on the golf course. While the Business Income aspect may not be as critical to a private course where most of the revenue is generated from member dues and fees, damage to the course is certainly an issue of capital with regard to debris removal and repair of any damage.

Most programs offer only set Golf Course limits, so the critical issue here is the definition of golf course or “tee-to-green” coverage. Make sure:

• Coverage for all playing surfaces includes areas that are not maintained, as well as practice facilities.
• There are no “per hole” limitations on the endorsement and adequate limits are purchased. We suggest $1 million.
• You understand how the program handles the cost of debris removal versus the cost to repair any resultant damage. That can be a gray area because often the “damage” is mostly removal of debris.

The secondary aspect to course coverage involves the trees, plants and shrubs. Tree coverage is basically two parts — debris removal from the course and the possible replacement of trees. After the claim activity of 2004 and 2005, it is clear that Mother Nature is not always kind to golf courses. Many programs have limited coverage in this area and only address debris removal — not replacement of the trees. The ultimate goal is to remove all debris, repair surfaces and get the course back to playable condition as soon as possible.

Liability
Depending on the type of club, the liability premium (other than auto and umbrella) represents up to 35 percent of the total account. That may vary and can increase significantly if the club is a public course with more premises exposure.

Pollution
5 percent to 10 percent of liability premium
Pollution coverage has two main parts — Herbicide/Pesticide application and Storage of Fuel in Tanks (above or below ground).

Every club has Herbicide/Pesticide applicator exposure and needs some limited liability coverage. Most programs offer that coverage, but what are the limits and how broad is the form? Most Herbicide/Pesticide is endorsed onto the general liability portion of the Package and the endorsement wording is very limiting. While claims due to Herbicide/ Pesticide application are not common, claims can be severe. In evaluating a club’s program, the Herbicide/Pesticide endorsement wording should be reviewed. Also, check the policy limit to ensure it is adequate — that should at least equal the General Liability Occurrence limit.

Storage tanks are critical because they fall under the scrutiny of local and Environmental Protection Agency regulations and need to be covered for seepage and leakage, as well as sudden and accidental discharge. Tanks can be above or below ground, and coverage should include offsite cleanup. Most programs include sudden and accidental discharge with a sub-limit within the package policy, but do not include offsite cleanup or third-party liability. The offsite cleanup is the most costly portion of the claim, and a full pollution policy may need to be purchased.

Coverage will only be 5 percent (or lower) of total liability premium if it only covers Herbicide/Pesticide, but a $1 million full pollution policy will be significantly more of a club’s liability coverage depending on the actual location of the club, the number and location of fuel storage tanks, their age, and the containment in place. These days, increased environmental awareness and government regulations mean significant costs are incurred when an incident happens and cleanup is required. Those costs make the initial premium output well worth it. The percentages above may increase considerably for a club that may be located near or in an environmentally protected or residential area.

General Liability
85 percent to 90 percent of liability
When evaluating a club’s liability, the majority of exposure lies in the premises. Clubs have pools, restaurants, bars, tennis courts, fitness rooms and other facilities that all pose their own hazards.

The pool has its obvious exposures normal to swimming, diving and recreational activities, especially because most clubs are adding high dives and water slides.

Due to the height of high dives from the concrete and water, unattended children using the diving board are an accident waiting to happen. Many carriers are requiring clubs to remove the high dive or will not offer terms and conditions if the club refuses.

More clubs are installing the new and popular tubular slides. Carriers are concerned but not necessarily denying offers of coverage. They are requiring additional underwriting information, which normally includes a full set of pictures from all angles.

Restaurants present both premises and products liability exposures. Most clubs have a dance floor and rent out the banquet facilities for weddings, parties and private functions. That increases the exposure of individuals other than members on the premises who may put in claims for slips and falls. Food is a product liability.Thus, restaurant operations should be run according to full industry standards.

The grounds and golf course themselves present a premises hazard. The cart paths should be well-maintained, and carts used by golfers kept in good operating condition. The course should be properly marked to avoid golfers running into hidden hazards.

The Bar
5 percent of liability premium
Liquor liability is the club’s exposure in the event that a patron is over-served alcohol and causes injury or damage either to him/herself, another individual or to property. The issue is one of limit versus premium. The premium for that exposure is not significant in many cases, but if a loss occurs, it is normally catastrophic. Many times, those claims pierce the umbrella, so it is critical to ensure that the umbrella coverage extends over the primary liquor liability. Most carriers require some sort of alcohol server training such as TIPS.

Robert Mulhern is director of underwriting and Mary Teter is director of national accounts for the Preferred Club Program, a club insurance program administered by Venture Programs (www.ventureprograms.com).

Topics Profit Loss Property Pollution