Gentlemen’s Clubs Can Be a Better Risk than the Local Watering-Hole

“I’ve had carriers walk away from a lot of the adult stuff…even though it was a good class of business, they just didn’t want to be associated with it.”

As patrons continue to spend their entertainment dollars in gentlemen’s clubs, the industry shows no signs of slowing. In fact, gentlemen’s clubs, including upscale cabaret/restaurants, make up a $4-billion a year business (excluding income from entertainers). And with more than 2,500 gentlemen’s clubs scattered across the United States, some insurers are finding it a profitable niche.

John Upchurch, a broker with Los Angeles-based Brown & Riding, describes it as “a pretty good risk.” He put together a national program for gentlemen’s clubs after extensive research.

“I went through the loss runs and found that there was much less exposure [than in a typical bar or tavern],” Upchurch said. “You don’t tend to see as many assault and battery claims [as you would in a regular bar], because a married guy is not going to get into a fight with another guy and then call his wife to explain what happened.”

Today, more and more gentlemen’s clubs are catering to an upscale clientele. The focus is typically on business and professional male patrons ages 25 to 65. Similar to a country-club setting, these clubs might have limousine service, provide five-star dining, and have a “champagne room” for private parties. Some may even have a VIP lounge and/or an exclusive environment to smoke fine cigars and sip port wine.

In fact, most of today’s upscale clubs have a complete business center, offering guests the use of fax machines and photo copiers, full Internet access and a quiet area in which to conduct business calls.

Laurie Houle, manager of Cascade-Amstar’s Inland Empire office, said that she would consider liquor liability a good risk for gentlemen’s clubs in California, because the laws in the state protect the insured. “However, I would underwrite each risk on an individual basis with concentration on training for bartenders and bouncers, [as well as] where the risk is located and the age of clientele,” she said.

Paying the price
If underwritten and priced accordingly for the exposures involved, Kim Cassell, account executive for Bailey Special Risks Inc., a wholesale broker based in Tennessee, feels that gentlemen’s clubs can be profitable for insurers.

The premium for this class of business “varies per risk, based upon prior experience and gross liquor receipts,” Cassell said. Underwriters should inquire about sales from all sources-from a historical perspective as well as a future projection.

“Premium can be also based on admissions [into the club], but typically, it’s based on the bill,” Upchurch said.

Every account with a liquor exposure that Upchurch has worked on has purchased the liquor liability coverage from him or had it through somebody else. “And if [the latter] is the case, I’ll quote an excess over them,” he said. “But I’ve never seen a client that serves liquor that doesn’t have coverage.”

The average limits for a gentlemen’s club program are $1 million to $2 million in general liability and $1 million in liquor liability.

Upchurch recommends that his clients purchase at least $1 million in liquor liability coverage. “Liquor liability is so cheap when combined with a GL…on a monoline basis…so cheap that the difference between $1 million and $500,000 is relatively pennies,” he said.

Houle agreed that the cost difference is minimal and said that she would sell the clubs on higher limits for better protection. “Minimum premium for a monoline policy would start at $1,500,” she added.

Knocking out claims
According to Upchurch, most of the gentlemen’s clubs in business today are interested in assault and battery coverage-one of the main exposures for this class of business. “In comparing carrier’s coverages I found that [assault and battery] coverage differs from carrier to carrier,” he said. “Some can limit the coverage and some can give you more.”

Regardless, the typical claim occurs after somebody gets into an altercation with somebody else in the club. “The only other claim-which is very hard to get coverage for-is on harassment types of claims where somebody is harassing a dancer,” Upchurch added.

But most clubs have very few claims. “You just don’t see that many claims now from liquor liability…at least from these types of clubs,” Upchurch said. “Once in a while, you get a slip-and-fall, but it’s rare, because, again, the guy doesn’t want people to know that he was there.”

Basically, losses for gentlemen’s clubs are minimal and most would be under the general liability, not the liquor liability, Houle said. Both she and Cassell agreed that even though they might be few and far between, the typical claims from gentlemen’s clubs stem from either assault and battery incidents or drunk driving incidents.

“[The number of losses] depends on the risk, and this is often reflected in the quality of the management,” Cassell said.

In addition to the quality of the management, well-trained bartenders are another reason for fewer claims. In fact, many of today’s establishments that serve alcohol have implemented Responsible Beverage Service (RBS) programs such as Training for Intervention Procedures (TIPS).

As one of the bigger programs of its kind, TIPS certifies nearly 1 million servers nationwide. Not only does this type of training reduce liquor liability losses and associated risks, but it is also used as a “reasonable efforts” defense in liquor liability lawsuits.

“Basically, I think the drinking and driving laws have changed [people’s actions],” Upchurch said. “If you get picked up for two DUIs, you go to jail…it’s just not worth it.”

Changing with the times
Patrons of certain gentlemen’s clubs now have the option of visiting a club’s website-adding a new angle to potential liability claims. “You can actually become a member of Déjá Vu’s website and log on and see girls performing at the club-through your computer,” Upchurch said. “So that’s probably a big exposure for somebody to hack into your system, and we offer cyberliability coverage for these types of exposures.”

Upchurch said that he expects to see both Déjá Vu and Spearmint Rhino-two upscale clubs-branching into the Internet more and more in the near future.

For the marketplace in general, Upchurch said that over the last few months he has seen prices increasing for this class of business. “Zurich [is] requesting a mandatory 10 percent increase on the book of business-not on each individual account, but on the book as a whole for each underwriter,” he said. “And I’m hearing that from all carriers. They’re trying to get an increase, or at best, they’re trying not to decrease their price.” Regardless, there are still a handful of markets out there that will continue to decrease their rates, according to Upchurch.

In order to stay informed about the market, Upchurch attends the annual convention for owners of gentlemen’s clubs. Held in Las Vegas, the convention is attended by owners throughout the country. “I’m there every year,” he said. “Basically, it’s a good way to keep up with the club owners and keep up with what’s going on in the industry.”

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Topics Carriers Training Development