Relaxed liquor laws in Ontario point to additional exposures for the hospitality industry
More recently, relaxed Ontario liquor laws allow people to walk freely with drinks at festivals and events instead of being restricted to a beer tent. The new laws also allow restaurant and bar servers to carry drinks on public sidewalks to licensed areas such as patios, special events such as weddings or charity fundraisers to serve alcohol until 2:00am, and owners to give a complimentary drink to customers celebrating a special event including a birthday or wedding.
The changes came into effect June 1. While they might put Ontario in line with other provinces that have liberal liquor laws such as Quebec and Alberta, each of these new laws is an added risk for hospitality owners.
“The good news is that it is a revenue generator for hospitality clients across Ontario,” says Marcus Morson manager, hospitality at Totten Group Insurance. “The bad news is that it creates a higher exposure for those owners who are not careful.”
Gita Kinstlers, national special risk casualty senior manager at Aviva Canada, agrees that the relaxed liquor laws could result in liability being increased.
“If you’re an event organizer, there will be more chances of over consumption and risk of injury where alcohol is being served,” she said.
Kinstlers suggests making sure establishment owners operate in a safe manner by having policies and procedures on how to deal with situations, adequate staff training, and protocols to ensure if an incident happens it is well documented and evidence is maintained.
Aside from over serving, other risk concerns of hotel, bar, restaurant and pub owners, as well as event organizers include all types of liability exposures such as slip and falls and forcible ejection.
There are also property exposures including damage caused by fire and water, according to David D’Arcy, national manager, commercial lines, Aviva Canada.
“Large losses on this class come from everywhere,” he says. “It’s impossible to figure out how to prevent all of them.”
D’Arcy provides an example of a fire claim that involved some kids smoking by a garbage dumpster located beside a restaurant.
“Next thing you know there’s a fire in the dumpster and it burned down the entire restaurant,” he says. “These are things you don’t foresee but they happen.”
Another example of a costly claims situation was caused in part by the broker. One of Morson’s previous hospitality clients experienced an employment dispute. The broker had moved this client to another market and when the claim occurred the customer was no longer covered for legal expenses.
“We are the only market in Canada that offers [Legal Expense] coverage, and unbeknownst to the owner, the cover was no longer available to him,” says Morson. “The irony is that the broker moved the account for a little less premium but it is now costing the brokerage and client much more.”
The owner incurred substantial legal costs to dispute the employment claim, and is subsequently going after the broker for E&O.
This type of situation proves how important it is for brokers to have conversations with their hospitality clients and ensure all risks are covered.
Coverages and Rates
Like most businesses, hospitality owners are benefiting from the use of technology. Restaurant servers no longer send customer orders on slips of paper to the kitchen. Instead, orders are electronically entered into computer systems. Also, customers can pay for their meal through wireless debit and credit machines.
And while technology may have eased the way owners do business, it has also increased risk and created a need for additional insurance products.
“There’s concerns if there’s network or equipment breakdown because it can lead to business interruption losses,” says D’Arcy. “We have an entire department that’s designed to provide equipment breakdown coverages.”
Further, Morson suggests having adequate commercial general liability (CGL) cover. CGL includes cover for bodily injury and property damage, personal injury liability, medical and tenants legal liability. However, limits should be increased for this class of business, he warns.
According to Kinstlers, CGL in Canada also includes liquor liability, but it is usually a standard exclusion in the US so brokers should be wary of where their clients are doing business.
There are a few areas where hospitality owners have concerns that fall outside of typical CGL and this includes property contract and employment disputes, Morson says, and these areas require additional coverage.
Also, legal expense coverage is important, as demonstrated in the case of Morson’s former client. At Totten Insurance, this coverage includes legal advice and fees up to $50,000 with 24-7 access to a lawyer.
Aside from liability coverages, property coverage is also required. D’Arcy says the wording on policies for property coverage is expansive and usually covers all risks.
Restaurant owners in particular, however, may be subject to limiting endorsements called “warranties.”
“Our rates presume that they maintain items such as security systems, fixed extinguishing systems in the kitchen, and clean vents,” says D’Arcy. “If a business owner decides not to maintain this type of equipment, then it might limit coverage.”
For rates in general, Kinstlers says the better the experience of the individual or establishment, the better rates will be.
“If there are frequent or severe claims, the premium may not be sustainable,” she says. “[We’re] looking for risks that will be able to sustain a premium. Good procedures and practices tend to result in fewer and smaller claims, which result in a better rate.”
Rates can also depend on a number of other factors including type of establishment, dance floor size, entertainment, security, events and staff training.
Challenges and Trends
For brokers placing hospitality business, the current challenge is finding a capable market because many insurers have removed hospitality business from their books due to high losses, says Morson. And if you find a market that will write the business, they may not accommodate higher property or liability limits, he adds.
D’Arcy agrees, stating that most mainline carriers will not write high level liquor exposures. At Aviva Canada, this means 40% of the establishment’s income is from liquor sales.
“But you use common sense as well,” adds Kinstlers. “It makes a difference if you’re talking expensive wines, or beer and wings.”
She advises that there are specialty markets for this type of liability, so brokers should be knowledgeable in whom the industry players are.
Q&A with Luke Horcica, partner and hospitality practice leader at Lloyd Sadd
Q. You launched Lloyd Sadd’s hospitality program almost 11 years ago and have a current portfolio of over 250 clients. How do you overcome challenges in placing this product?
A. Most hospitality clients aren’t interested in switching insurers to get a hot rate for a year and then potentially having that market lose their program the next year. These are sophisticated insurance buyers. They understand risk and expect more out of a broker than just completing a five-page application for an insurance company and then picking up the cheque at the end of the process. There’s always a balance between finding the right premium and coverage and an insurer that can bring some additional value. The key is to build long term partnerships with insurers.
Q. What have been the trends with pricing and limits?
A. On the liability front we’re seeing flat pricing, and on property we have seen some slight increases on rates. Most of our clients have seen some reduction in rates over the past few years but this is flattening out now.
Q. What are some of the major risk concerns of these clients?
A. The focus is on liability. For bar and nightclub owners, many claims centre around forcible ejection. There used to be a number of insurers that excluded this coverage. Motor vehicle accidents are also a major concern. When you have a 1,000-person plus nightclub it’s next to impossible to determine who’s going to be driving once someone leaves. There’s a Canadian case right now where a single injured party was awarded just under $20 million. A client’s involvement in a claim of that kind of magnitude can be a scary thing.
Q. What kinds of coverages and limits do you recommend?
A. Most of the discussion with owners is around liability and recommended limit. Bar owners know the types of risks they incur and they understand the quantum of the claims that are occurring, but at the same time costs are always a consideration. We recommend our clients carry a minimum $5 million in liability. Adequacy of property and business interruption limits are also a topic of discussion.
Q. What are the keys to Lloyd Sadd’s success with this market?
A. Our strength is that we specialize in the hospitality industry and offer in-house resources to support our clients—our Client Claims Advocacy Department is a great example. Lloyd Sadd has a committed team that works exclusively on hospitality business. We understand the issues and we want our clients to see us as their outsourced risk manager. We’ve held focus groups, annual liability seminars, issued claims bulletins and quarterly newsletters for our clients in the hospitality industry. Further to that, a lot our success comes from the relationships we have built with our valued clients and insurance partners.
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the September 2011 edition of Canadian Insurance Top Broker magazine.