By: Lars Kristiansen, VP of Business Development at KEL Insurance Services, LLC

Okay….so you are an Owner of a Nightclub or Bar and your lease requires you to carry certain insurance coverages in order to operate your establishment. You should understand what insurance coverages you need and/or have a better understanding of what those coverages actually insure your establishment against.  Here, at KEL Insurance, we are happy to help you understand insurance coverages associated with owning and operating a Bar, Restaurant and/or Nightclub.

My observation of many Agents in this industry is that they are quick to hand off quotes without actually outlining the limits of the essential coverages in the policy.  The Nightlife & Hospitality Industry still remains a tough industry in which to find quality insurance coverage from a financially sound insurance carrier.  In lieu of jumping through multiple articles and websites trying to find information and answers to underwriting guidelines in this “niche” market, I am going to give you the essential information needed in order to get clarification of what your establishment is paying for with regard to Insurance.

Before I describe a range of coverages you will need for your Nightclub or Bar, it is important for you to understand two things: Excess & Surplus Lines Insurance and Limits of Liability.

Most Nightclubs and Bars are written on Excess & Surplus Lines paper which is also referred to as “non-admitted.”  What does this mean?  Non-admitted carriers do not have the protection of the Insurance Guaranty Associations.  Bars, Nightclubs and Adult Clubs are typically written on “non-admitted” policies because they offer entertainment, dance floors and security personnel.  If you want a clearer and deeper dive into understanding the difference between Non-admitted vs Admitted markets in insurance, follow this link to a great post by Laura Zaroski on the Insurance Thought Leadership blog: 

https://www.insurancethoughtleadership.com/admitted-v-non-admitted-whats-the-difference/

Moving forward, you must also understand Limits of Liability.  Insurance policies are written on an Annual Basis meaning there is a maximum amount that an insurance carrier will pay out on all claims during the course of the annual policy period.  This is better known as the “Aggregate Limit.” There is also a limit to the amount an insurance carrier will pay on any one single claim (“Per occurrence”).  This limit is known as the Occurrence Limit. 

Further along in this blog I will provide what industry standards offer for these Limits of Liability.  

Please note that insurance policies are not “one-size fits all.”  In the Nightlife & Hospitality Industry, our insurance carriers tailor commercial policies with a personalized approach because each and every business is unique. 

Let’s begin breaking down these coverages for you:

General Liability - If you are operating any sort of business, you will need General Liability Insurance. General Liability Insurance policies cover the insured for damages due to bodily injury or property damage on insured’s premise. This typically includes defense cost. The most common claims we see are a slip-n-fall on the insured’s premises. This would be covered under your General Liability Policy. 

The Standard Limits for General Liability on a Commercial Policy are:

 $1,000,000 Per Occurrence / $2,000,000 Aggregate

Liquor Liability - Currently 43 states including D.C. have Dram Shop Laws. These laws require a business or entity that sells or serves alcoholic beverages, including beer and wine, to carry Liquor Liability Insurance. Liquor Liability is similar to General Liability and is defined as coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the insured. This coverage is vital to the Nightlife & Hospitality Industry and without this coverage your establishment is at an incredible risk. Insurance Carriers have put in safeguards to reduce the risk of alcohol related incidents as they are the second most preventable cause of death in the U.S. Most Insurance Carriers will require your bartenders and servers to be certified through a Responsible Vendor Program such as TiPS. To learn more about this certification or if you are opening a new Nightclub, Bar or Restaurant and need to get your employees certified, please follow this link to our Website: https://www.kelinsurance.com/tips-certification

An example of a Liquor Liability claim can look like this:

A patron is drinking at a bar, leaves the bar, gets in his car and injures someone. The bar could be held liable for serving alcohol to that patron.

Standard Limits of Liability for Liquor Liability Insurance (how about that for an alliteration?)

$1,000,000 Per Occurrence / $1,000,000 Aggregate

Assault & Battery - The largest influx of claims that we see in the Nightlife & Hospitality Industry fall under Assault & Battery. This covers third party liability arising out of any assault & battery. Coverage is patron to patron or employee to patron. For example, a claim under A&B could be if two patrons get in a fist fight at your bar or a patron could say that a bouncer used excessive force to remove him/her from the bar. Unfortunately, it happens more often than you would suspect.

One way to reduce risk is by having all security personnel complete Security Compliance Training. If you want more information on how to get your employee/securities trained, follow this link: https://www.kelinsurance.com/security-compliance

It is also important to understand the difference between having A&B coverage Inside the Limit vs Outside the Limit. 

Defense Inside the Limit means that all defense costs (attorney’s fees, court costs, investigation and filing legal papers) are deducted first from the policy limit, which cuts into the overall limit of dollars available to pay for monetary damages awarded by a ruling.

In Defense Outside the Limit there are separate limits available for legal defense costs and court-awarded damages. Therefore, the defense costs outside the limits do not erode your policy limits available to pay settlements resulting from a suit.

It is extremely important to understand what limits you have on your A&B Policy. The market standard will write Assault & Battery as a Sub-Limit to the Policy, however; we suggest considering all options when it comes to this coverage. There are higher limits available in the market. Consider the type of business you are running and consult with your Agent if you feel that you may need higher A&B limits on your policy. 

Limits of Liability for Assault & Battery Coverage

$100,000 Per Occurrence / $100,000 Aggregate -- Sub-Limit 

$1,000,000 Per Occurrence / $1,000,000 Aggregate -- Full-Limit

Commercial Property Insurance - Property coverage is also important to any business so we want to break down the three (3) most common Coverages we see in the Commercial Insurance Industry. Property Limits are written on the Value of the Property itself also referred to Total Insurable Value (TIV). Property policies are written on Replacement Cost or Actual Cash Value (Replacement Cost minus Depreciation). 

The first Property coverage to understand is Building Coverage. This covers the physical shell of the building. If you own the building that your business operates in, you will need this coverage. If you lease the building that you operate in, you will want to make sure your landlord does not require you to cover Building coverage. Sometimes businesses will be in a Triple-Net Lease where they are required to carry limits on the building. The best way to review this is by reading the Insurance Clause in your Lease Agreement and/or reviewing the clause with your Commercial Insurance Agent. Here is an example of how this coverage takes effect: The building catches fire and burns to the ground. Let’s say the building is valued at $750,000 and is written on Replacement Cost. The Insurance Carrier will pay out up to the Replacement Cost of $750,000 once the deductible has been met. On Commercial Property policies we often see deductibles range from $1,000 - 2,500, but I have seen larger and less common deductibles of $5,000. 

The next and most common Commercial Property coverage are your Contents also known as Business Personal Property (BPP). This covers everything inside of the building that can be physically taken out. (i.e. a Restaurant’s Chairs and Tables or a Nightclub’s DJ Booth). Once again this is based on the actual value of all the Contents inside the business. It is important for Business owners to know the value of their contents so that they can be adequately insured. 

The third common Commercial Property coverage is Loss of Income also known as Business Income (BI). Loss of Income will provide coverage to an insured if they need to relocate their business temporarily after a covered property loss. This will help pay for specific continuing expenses that are covered under the policy which could include payroll, taxes or mortgage payments. Limits for this vary depending upon the Insured’s Annual Gross Revenue. Unfortunately after the SARS outbreak, Insurance Carriers decided to exclude losses due to bacteria or communicable diseases. This means it will not help during the COVID-19 pandemic. 

I hope by now you have an understanding of the important coverages available and/or required to operate a Nightclub and Bar.  As mentioned, insurance policies are tailored to each individual business so that you may have additional coverages as needed.  If you would like to review additional coverages available in the Nightclub and Bar Industry, please follow this link from my other article titled “Other Insurance Coverages for Business Owners to Consider.”  

If you would like a competitive insurance proposal for your Nightclub, Bar, Adult Club or Restaurant, please visit this link that will direct you to an “easy-to-fill” application and KEL Insurance will get the process started!