Canadian Underwriter

What brokers need to do to place hospitality coverage

December 16, 2020   by Greg Meckbach

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When it comes to the hospitality sector, insurers’ risk appetites are constantly changing and underwriters are especially concerned about clients who get most of their revenue from alcohol, a managing general agent reports.

“A broker has to spend a lot of time on the phone or on e-mail trying to find out what markets are doing what today and hoping it is still the same on Friday as it was on Monday,” said Nona McCreedy, owner of Aurora Underwriting Services Inc., an Alberta-based Lloyd’s coverholder.

She was commenting on the challenge of finding affordable coverage for motels, hotels, event venues, restaurants and bars.

“Pretty much every underwriter in the country can sympathize with (hospitality clients), but (insurers) are looking at it from their numbers point of view, trying to do what they can and keep the numbers good on the claims side,” McCreedy said Monday in an interview.

“The only thing the broker can do is check every market. It’s a lot of work, but in the end it’s worth it.”

It is particularly difficult to place coverage for establishments making 70% or more of their revenue on alcohol – such as strip clubs, nightclubs and pubs, McCreedy reports.

“If [clients] still have liability coverage, it is premises-only as far as I have heard. Most of them can’t find a general liability policy with full liquor liability for that type of risk, where they [earn] 70% or more of [sales on] liquor.”

For some nightclubs and taverns, a Lloyd’s syndicate may offer a $5-million general liability policy but the sublimit for alcohol liability is $1 million, said McCreedy.

“It seems to change almost weekly,” she reported. “There is the odd policy where the minimum premium is $25,000. That where it starts, no matter if they were just selling liquor and it was only $100,000 in liquor.”

If a customer drinks alcohol at a tavern, drives intoxicated and causes an accident, an injured plaintiff could sue both the at-fault driver and the establishment at which they at-fault driver was served alcohol. That establishment could be found at least partly liable if a judge or jury is convinced the motorist was served to the point of intoxication.

But this is not the only reason underwriters are concerned about pubs and nightclubs, McCreedy suggests.

“I know of one claim – it was not one of mine but it was on a risk I was looking at – where the claimant had left the pub, gone to another one, and was walking, because they had not driven that night, and ended up a paraplegic because they got hit by a train. There are a lot of liability claims like that that can happen.”

She has also heard of patrons suing establishments because they got ejected during the winter and lacked a warm coat, as well as stories of plaintiffs falling down or hitting their heads on low ceilings.

The lack of affordable coverage for some in the hospitality market has caught the attention of the Insurance Bureau of Canada. IBC recently launched its “business insurance action team,” which works directly with insurance brokers and business owners.

“This segment was already showing signs of difficulty going into 2020 and [the COVID-19 pandemic] only exacerbated the problems,” said Jordan Brennan, IBC’s vice president of policy development, during the Insurance Brokers Association of Ontario’s annual convention this past October.

COVID-19 was declared a pandemic Mar. 11 by the World Health Organization. Ontario just started vaccinating healthcare workers this week, with the vaccines not expected to be available to the general population until at least the spring of 2021.

With social distancing precautions still in place, a lot of nightclubs have temporarily converted to serving takeout food. But it can still be difficult to place liability coverage for clients like this.

“The broker can’t say to the underwriter, ‘Well they have switched [to serving food].’ In a lot of cases, if [the broker] sends pictures [to the underwriter] showing the place is full of tables and chairs, and the kitchen is operational, then the underwriter may believe it has become truly food-predominant, and they will write them a general liability policy,” said McCreedy. “But [clients] are having to prove these kind of things if they are making a change [to their risk profile.”

Some clients have curtailed their alcohol service operation because of the pandemic, but underwriters are still wary, suggests McCreedy.

“One of these days, [the pandemic] will all be over, people will be eager to go out, and [restaurants and bars] are going to need [liability] coverage.”

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