The recent nightclub tragedies in Chicago and Rhode Island, which all told killed 120 people, will lead to stricter underwriting and discourage new carriers from entering that volatile market, according to a broker who has placed entertainment risks for 10 years.
Premiums for nightclubs and taverns have gone up between 30 and 150 percent in the last year, even before the stampede at Chicago’s E2 and the fire that burned The Station in Rhode Island, according to James Chippendale, president of Dallas-based CSI Entertainment Insurance.
“Carriers come and go, programs come and go, clients come and go,” Chippendale said. “So, it is a very high service-oriented business. You almost have to change carriers on an annual basis.”
How the carriers who are already in the market will react is an open question, according to Chippendale, whose CSI produces insurance for 600 nightclubs, taverns and bars in 25 states, with half of that business in Texas.
“Carriers that are in it and that have been for a while will view these events as kind of a bump in the road, while acknowledging the need to be more proactive,” Chippendale said. “A lot of carriers are going to ask about pyrotechnics, for example. What’s going to happen is it’s going to be excluded on all these policies. With regard to the Chicago claims, we’re going to see more questions about code violations, and companies will start checking if there’s any public record of code violations. They’ll use that as part of their underwriting criteria.”
The bottom line, Chippendale said, is that “carriers will be less willing to jump into it or probably put it on the back burner because of what’s happened.”
According to Steve Riedl, executive director of the Illinois Licensed Beverage Association (ILBA), insurance companies have called members to check compliance, either through a visit to the insured establishment or “through direct communications with owners to ascertain they do have certain measures in place.”
Most of CSI’s risks are placed in the surplus lines market through specialty carriers such as Scottsdale Insurance Co. (Nationwide), Interstate (Fireman’s Fund) and Lexington Insurance Co. (AIG). While these have been in the marketplace for some time, many other carriers are not committed in the long-term to covering nightclub and entertainment risks.
For example, most mutual insurance companies won’t cover these types of risks at all. “It’s a business decision,” said Richard J. Saulen, manager of the Mutual Fire Insurance Association of New England’s loss control department. “They all have reasons why. A lot of these small companies don’t want to get involved in high-loss risk occupancy.”
On the loss control side, it’s unclear whether the reported dangerous conditions at The Station—the soundproofing material was highly flammable and the entire club burned down within three minutes of first catching fire—could have been detected by an insurance company loss control inspector, according to Saulen.
“In reference to loss control people surveying a building, there’s a variation,” Saulen said. “It depends on the training of individuals on whether they pick up the presence of certain materials or exposures. Each company has its field staff trained in a different way.”
Another area insurers are likely to give much closer attention is the training of security personnel, Chippendale said. It is alleged that the E2 stampede in which 21 people were trampled to death in a narrow stairway was set off by the indiscriminate use of pepper spray by members of the security detail present.
“Up until now, I think [security] was kind of an afterthought on the questionnaire,” he said. “It was glazed over on the questionnaire and asked about more because of assault and battery exposure. But now the questions will be: Who handles security? How is security trained? Do you have outsourced security? How are they trained?”
There is very little standardization or certification process in the bouncer/security field, which may make it difficult for insurance company underwriters to develop a set of minimums that insureds will have to meet in order to qualify for coverage. But nightclub and tavern owners are taking the initiative, Chippendale said, to make sure they have adequately lighted exits, panic bars, etc.
The crackdown on nightclubs around the country following these tragedies has not hurt matters. Along with more frequent building and fire code inspections, officials in Chicago have begun checking in on nights and weekends, which they had refused to do before the E2 tragedy.
Tavern and nightclub owners are taking action at the legislative level too. The ILBA, which has 2,700 members, is leading a lobbying effort to pass legislation in Illinois to crack down on liquor establishments and require them to carry liquor liability coverage. The bill requiring all liquor establishments to carry liquor liability coverage has already passed the Illinois Senate 56-0 and is currently in the House, according to Riedl.
Senate Bill 1493 makes it a felony for any public establishment selling alcohol to use mace or pepper spray, impede any person leaving the building during an emergency, requires panic bars on all exits for locations with a fire marshal rating of 250 occupancy or greater, and requires a public announcement stating where all the exits are before a live entertainment act at a location with a fire marshal rating of 500 occupancy or greater.
The bill also requires local fire department personnel to review safety practices with any liquor establishment that requests it. Riedl predicts easy passage for both bills.
“I’m hearing companies out there saying they will not insure a nightclub,” Riedl said. “Historically, given the infrequency with which tragedies have taken place at nightclubs, I don’t believe that’s the appropriate means with which to address this.
“Any tragedy can be precluded or avoided if proper measures are put in place,” Riedl added. “I imagine that our recommendations are things that insurers will take a good hard look at to make sure they’re insureds are doing and say, ‘Coverage is exempted if you don’t do the following.’ It’ll either force [nightclub and bar owners] to get their act in order or rethink whether they should be in business. … We’re a hospitality industry. Our whole job is to invite a lot of people into our businesses, but to do so in a safe manner. We have to set the parameters to do that.”
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