Restaurants/Taverns
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Potentially a Real E&O Headache
by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department
In reviewing E&O claims, it seems that restaurants and taverns cause more than their fair share. This somewhat surprises me, as you wouldn't think that insuring these types of risks is that difficult. However, not only are claims common, they can be very costly.
Here is a recent claim, which is certainly not very common:
The claim against the agency was for failure to provide a client's tavern with adequate liability coverage. The underlying claim involved a fatal shooting at the client's bar and grill. A 14-year old girl came into the bar and attempted an armed robbery. An intoxicated patron tried to disarm the girl and was killed in the struggle. The patron's estate then sued the tavern with allegations of failure to maintain a safe premises, inadequate security, failure to exercise reasonable care or prevent the assault and allowing or creating a potentially dangerous condition on the property.
The agent submitted the lawsuit to the general liability carrier who denied coverage based on an assault and battery exclusion. Notice was also given to the liquor liability carrier who denied coverage, as there were no liquor liability allegations in the complaint. The E&O claim was then made against the agency on the basis that the client was told that the assault and battery coverage was included. The quote that the agent provided was for general and liquor liability, but did not include the assault and battery even though the carrier did offer the coverage. To add to the problem, the carrier had gone insolvent. End result of this E&O claim was payment by Utica with the insured paying the deductible.
How could this claim have been avoided? The agency owed the client a duty of care to train the agency employees to evaluate the client's insurance needs as they advertised, to explain the extent and nature of coverages sold, to remain current on insurance issues and to determine the coverage necessary to meet the client's need and requests.
In this case, the agent had not put in writing to the client that the assault & battery coverage was not obtained. All aspects of the application, written through surplus lines, had not been completed nor did the proposal match the policy. Had the agent documented advice to the client as to the lack of the assault & battery coverage and followed the surplus lines requirements, this would have been a defensible claim.
It is interesting to add that in the underlying claim, it is reasoned the patron's estate did not plead intoxication under liquor liability as there was state law holding the bar owner not liable if the patron's own intoxication causes harm unless the owner was grossly negligent or acted with reckless disregard.
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If you are currently writing, or desire to write, this class of business, here are some tips that hopefully will alleviate an E&O hangover down the road:
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Hopefully, some of these tips will enable you to write this class of
business properly, professionally and profitably.
Communique is published for our agent-customers for informational purposes only and is not intended to be, nor should it be relied upon as legal advice. Legal questions should be directed to your legal advisor.