E&O Insights: Exposures to Watch for When Insuring the Local Neighborhood Tavern Risk

While many towns might not have a hardware store or a dry cleaner, chances are there is a neighborhood tavern. It is estimated there are more than 50,000 bars in the United States. In fact, many of these taverns have been around as long as most other commercial accounts, making these risks accounts worth pursuing. However, a little homework is in order before knocking on their doors.

These accounts have uniqueness to them and, like any other account, could cause problems resulting in an errors and omissions claim if not handled correctly. It’s fair to say not every insurance carrier is interested in this type of risk, but there are carriers that will write this class — and do so successfully. If you end up working with the excess and surplus lines marketplace, understand its distinctness and allow extra time to quote and place each account.

Understanding the Exposures

A key element is understanding the exposures taverns face. While alcohol sales are the norm, you will need to know other issues when marketing the account. Carriers looking to write this class typically have an application designed to identify specific issues.

One deals with food. This can range from something simple like pizza and sandwiches, to a full, multiple-course meal. As a result, you will 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. While many taverns have live music, the carrier will probably want to know what type of music is played to determine the type of crowd that will be present. Non-music entertainment consists of pool tables, dart boards and the like.

If the risk is in an older building, and if the tavern owns the structure, valuation could be a challenge. The coverage will probably be written on a co-insurance basis, so determining the proper value is crucial. The carrier will want to know the condition of the premises and how recently the wiring has been updated. Most will require financials to assess the degree of moral hazard.

Bottom line, provide the carrier with the information they want and be truthful with it. The last thing a carrier wants to find out is that the risk is different than they were told — especially after a loss occurs. Make sure to visit the account personally.

Liability and Common Claims

Liability is a big exposure. Housekeeping and maintenance are important because trip-and-fall claims are common. Personal injury claims are, too, so count on the carrier to ask about them. Oftentimes, these risks sponsor athletic teams in the community, so determine if this exposure exits. Depending on the market you are using, be alert for an assault-and-battery exclusion. This type of claim is somewhat common with taverns, so look to get the coverage without this exclusion, if possible. If it is not available, discuss this with the account and document these discussions.

Liquor Liability

One of the key coverages for any tavern is liquor liability. Give the carrier complete, honest loss information as past loss history is probably indicative of the future. Do not provide any advice or guidance as to the proper limit for this coverage. If you recommend an amount and the account suffers a loss over that amount, they will blame you and probably sue you for the shortfall. Regardless of the size of the tavern, this type of risk can have big claims. Provide options for the account to consider and allow them to make the decision.

Auto and Fidelity Exposures

From an auto perspective, find out whether the account makes deliveries or provides transportation. If so, do employees use their own vehicles? Is there a valet service?

This type of risk also has a significant fidelity exposure. You might find the carrier you are working with unwilling to provide this coverage. As with all discussions you have with this type of risk, documentation of every client interaction is vital. Try to ensure there are no misunderstandings.

Time Element Exposure

Like 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 where a higher liability is necessary. Many time element coverages contain a co-insurance clause. Thus, if the account suffers a loss during a peak time, they could suffer a co-insurance penalty if not properly insured.

Inland Marine Peril

A review of the inland marine peril is also necessary as these accounts may have an exposure dealing with electronic equipment (consideration should be given to a computer policy) as well as signage or fine arts.

While this article discusses some of the issues this class of business can face, other issues must also be addressed. Using one of the various Exposure Analysis Checklists available is a great starting point. The checklists are an effective tool for identifying exposures and determining what questions should be asked.

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, that they must 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 could be one of your more stable accounts.

Topics Carriers