Submitted by Kenny Robinson of Batemans Insurance. 01926 405040 www.thebatemangroup.co.uk email firstname.lastname@example.org
“The peace of mind that comes from having the right insurance cover is something that is worth a lot to most people. If it is easy to arrange and competitively priced, the feeling is even better!”
When buying a pub or a pub lease, or even taking on a tenancy, there are many issues for the licensee/ proprietor to deal with. All are important, but some are more imperative because they are a legal requirement. Certain aspects of insurance fall into this category. The legal requirements aside, you may need to provide proof of your insurance to the vendor’s solicitor before the deal is able to complete. Placing the right cover for your circumstances does not need to be time consuming or onerous if you are armed with the right information and consider your insurance from a ‘what is best for my business in the event of a loss/ disruption’ point of view, rather than just another inconvenient expense. The right cover does not have to cost a lot of money! The editorial below is aimed at providing you with enough information to discuss your needs with a broker or insurance company, and to ensure that protect your business as best suits your needs. Every business will have some needs in common, but not all will be exactly the same. What follows is meant only as a guide to assist you in considering your needs.
(General Background Info)
The need for cover
Individuals, companies and organisations who have insurable risks – property, legal liabilities and pecuniary interests all need insurance as a result of two things, either:
1) statutory requirements, for example employers’ liability insurance; and
2) business requirements.
Picking a Broker rather than a Direct Insurer should give you added piece
of mind as the Offices are generally smaller, ensuring that you are dealt
with as an individual rather than just a number.
The smallest businesses are sole traders (for example, an individual who runs their own business and may employ staff) and partnerships of two or more individuals.
These businesses require insurance that is specially developed for their business and the particular problems they experience. Many licensees fall into this sector.
Commercial insurers have responded by developing ‘package’ policies to meet the insurance need os such businesses. A commercial ‘package’ policy is a single contract incorporating a combination of insurance covers, with limited scope for change, usually at a rate of premium less than if the covers were purchased separately. However, some packages are more adaptable than others in ensuring that the cover is right for you and a Taylor Made package is always best to ensure that you are not over or under insuring.
Small and medium enterprises
These are the next step up in terms of size of business. The type of cover most suited to meeting the majority of the requirements of this type of risk is usually referred to as a combined policy. A commercial ‘combined’ policy is a single contract policy incorporating a combination of optional covers, usually at a rate of premium that represents a discount for placing the covers under a single contract. For larger businesses individual policies are often more appropriate.
Benefits of commercial packages – to customers
The advantages to customers of commercial packages are:
1) simple to understand – all covers are in one policy with one set of
administration and claims arrangements
2) often they have been tailored to their specific trade
3) cover is often wider and may include other extra non-insurance services
4) the premium is usually lower as a result of cover standardisation and
economies of scale.
Common policy cover
The common covers provided in any commercial package are:
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Fire and additional perils (aircraft, lightning, explosion, storm tempest and flood, burst pipes and impact), or all risks
Sums Insured – These should represent the full replacement costs – Buildings Insurance should include a sum for demolition, architects fees and full re-build costs.
Material damage cover should be arranged to cover fire and the full range of perils including accidental damage if available and affordable.
NB It is imperative that you know the terms of your lease and insure everything that is your responsibility. Special attention should be paid to those items that are fixed or part of the building and that are your responsibility e.g. bar counters, internal staircases, roof coverings etc. Whilst the main fabric of the building may be covered by the ‘landlord’ for fire and storm damage, you may be liable for an excess of £1,000 or even £2,500 in some cases. You should consider this when placing your own trade and liability cover and assess your options with your insurer on this front.
Damage caused by leakage of beer or other drinks from pumped containers is covered under some policies automatically.
Terrorism cover will be excluded but is usually available as a buy back.
Subsidence cover should be included.
If the premises have sprinkler systems it will be necessary to specifically include accidental leakage of the sprinkler system.
Under the contents section a separate sum insured will be required for stocks of wines, spirits and tobacco and possibly for audio / lighting equipment if there is dancing on the premises.
Some policies automatically include the proprietors and employees living on the premises own household goods and personal belongings. Others require such property to be specifically added. Inner limits are likely to apply in respect of valuables.
Debris removal costs need to be carefully considered in order to ensure that the overall sums insured are adequate to comply with increasing environmental legislation controlling the disposal of waste.
Theft cover will be subject to violent and forcible entry to or exit from the premises in many cases and will exclude theft involving the collusion of staff. Theft of property in the open is likely to be excluded.
Some policies may be adaptable to extending theft cover to include persons unlawfully on the premises, but this may have additional cost implications.
Money insurance generally has separate limits for losses in and out of business hours and at the home of the policyholder and other authorized personnel. It is important to be clear how the policy interprets ‘home’ if the pub or bar is also the home of the policyholder or any employees.
Where there is living accommodation on the insured premises only the business premises limits may apply. The home or private residence cover limits would not therefore necessarily apply in addition.
The cover on any vending or gaming machines needs to be checked. Whilst some policies will automatically provide very limited cover for money and / or stock in vending machines this is not always the case. Gaming and amusement machines may not be covered by the definition of vending machines.
Automated teller machines (ATMs) are becoming more common in pubs, bars and clubs. They will be excluded unless specific cover is arranged as they remain a significant attraction to thieves. Insurers do have market agreements with the ATM suppliers governing the installation and security of the machines.
All fixed glass is usually included in a package policy and is often stipulated by a pub company or brewery as needing to be co-insured by the licensee.
Goods in Transit
Most stock is usually delivered and as such would be protected under the carriers insurance. It is useful to have this cover if you transport any stock in your own vehicles.
Assault (PA Assault)
Part of the money cover, this protects you and your employees against injury as a result of assault in the event of a malicious attack by persons stealing or attempting to steal money or trade contents.
Organisations in competitive fast moving industries need to get their businesses back up and running as soon as possible as their competitors will quickly seek to attack their customer base.
Licensed premises, particularly if the establishment is a ‘trendy nightspot’, should therefore consider additional (or uneconomic) increased costs of working cover in addition to the standard increased costs cover provided under the ‘gross profit’ item of the business interruption section.
Additional increased cost of working cover is not subject to the economic limit applied to the standard cover under the gross profit item, that is, a sum equal to the gross profit saved as a result of incurring those additional costs.
This allows the policyholder to recover all reasonable costs incurred, with the insurers’ consent, in getting the business back up and running as soon as possible.
The licensed trade is almost universally a seasonal business and therefore should have business interruption cover for a maximum indemnity period of at least 18 months, in practice, usually 24 months.
Whilst it is accepted that a minimum of 18 months is required policies are usually sold on a 12, 24 or 36 months basis.
The policy should include business interruption following:
• denial of access to the premises as a result of damage by the insured perils to neighbouring property
• failure of the public utilities, gas, electricity, water and telephones, due to the insured perils at their premises
• murder and / or suicide at or in the vicinity of the insured premises, usually limited to a specified radius
• outbreaks of infectious diseases (excluding Aids) in the vicinity of the business premises, usually limited to a specified radius.
Careful consideration needs to be given to the policyholder’s reliance on individual suppliers. Some policies will automatically include cover for unspecified suppliers up to say 15% of the gross profit sum insured.
If the dependence on any supplier or customer exceeds this figure, or there is no automatic unspecified cover, then a specific extension will have to be arranged. This could be a significant factor if the establishment is ‘tied’ to one brewery.
Often included under the business interruption section is cover against loss arising out of the loss of a liquor licence from causes beyond the policyholder’s control. The policy would, up to the agreed sum insured or limit, cover:
• depreciation in the value of the business
• subsequent loss of profit.
Particularly if the establishment is a ‘trendy nightspot’ additional (or uneconomic) increased costs of working cover should be considered under the business interruption section.
This avoids the standard economic limit to additional costs insured under gross profit insurance and allows the policyholder to recover all reasonable costs incurred in getting the business back up and running as soon as possible.
The standard economic limit would otherwise restrict the additional costs insured to a sum equal to the gross profit saved as a result of incurring those additional costs.
Many licenced premises have modern point of sale technology (tills) that assist stock control and management. Computer breakdown business interruption cover should be considered for such systems. Larger computers may need to be insured under a separate engineering policy.
This is a statutory requirement and the standard cover is set at £10 million. Your Employers Liability Insurance Certificate should be displayed at all times in a prominent position.
Products Liability (if applicable)
The public liability indemnity limit will generally be at least £2 million any one claim but should certainly not be less than £1 million. The products liability indemnity will be the same as the public liability indemnity limit but aggregated in the insurance period, that means the indemnity limit will apply to the period of insurance rather than any one claim.
The critical factor for pubs, bars and clubs in assessing an adequate indemnity limit is typically the public liability accumulation risk. This is based on how many people can be on the premises at any one time, allowing for special functions and events.
If there is a car park on the premises it may be a condition precedent to liability that a notice is displayed stating that vehicles are parked at the owners’ risks and that the proprietor does not accept liability for damage to the vehicles or their contents.
The public liability section should cover wrongful arrest or eviction and nuisance as well as negligence and trespass and both the employers and public liability sections should extend to cover the Health and Safety at Work Act defence costs.
Where a club keeps membership records cover for legal defence costs arising out of data protection law would be advantageous.
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Additional Fringe covers and Legal Expenses
Others which are frequently included as standard (either according to the needs of the trade or the quality of the insurance product the insurer wishes to provide) or available as options, are:
Primarily this is protection for businesses who have numerous clients paying on account.
Often a separate policy is required to provide any engineering cover required for example, a statutory inspection service, or deterioration of freezer contents if the sum insured is too high for the combined package. Steam vessels and passenger lifts could fall into this category.
Provides public liability and stock extensions for business that exhibit their wares away from the primary business address.
Deterioration of freezer contents cover is provisional upon the freezer, chiller or cold store being the subject of a regular maintenance agreement and often has a limitation in respect of any of the equipment insured.
Commercial legal expenses insurance should be considered, in particular for:-
• defence of statutory licences
• employment disputes
• criminal defence costs
• property disputes, particularly if the brewery is the landlord
• representation costs for tax investigations and VAT disputes will be more attractive to the smaller businesses, most typically, freehouses.
Never before have businesses had to comply with so much red tape with regards the employment of staff. This comes at a time when most businesses are also suffering with the gloomy economic outlook; in short it’s a tough time for business owners.
The statistics in relation to employment disputes are worth close consideration; they show a startling rise in litigation. What makes employment disputes such an issue for employers is that almost all claims against them fall under the jurisdiction of an Employment Tribunal, where, in the vast majority of cases, they have to pay their own legal fees, regardless of whether they have acted correctly or not. Because of this fact, and the considerable management time it takes to oversee such issues, many SME’s are now buying protection from such costs in the form of commercial legal expenses insurance.
Theft by employees (fidelity) cover may be available but is rarely purchased by smaller businesses. The loss of money cover will usually cover theft by employees as long as the loss is discovered within a specified time, 7, 14 or 30 days. Theft of stock is not covered.
Important Points that may affect your cover in the event of a claim
Ensure that you read your documents, including any clauses, exclusions and
warranties, as if some are not adhered to your policy could be invalid
Ensure that all facts are disclosed, ie previous claims, financial
problems, ie CCJ’s or bankruptcy. Quotations can still be given, however
non-disclosure could invalidate the policy
Under insurance will cause concern as policies are subject to the “Average Clause”, ie if you insure for £250,000 and in fact you should have insured for £500,000 and you have a small or large claim, only 50% of the total amount of the claim will be paid as you were only insuring 50% of the sum insured
Picking your insurer can be a tough decision, do you pick the cheapest or
go in the middle? Provided you have checked the sums insured, cover
provided, warranties, endorsements and exclusions the price should not have a bearing on the cover.
Conditions precedent to liability or warranties may require the proprietor to take specific precautions when using deep fat frying equipment and / or comply with any minimum security requirements, important in respect of both the fire (arson) and theft covers.
A stillage warranty is likely to apply to any premises with a basement or cellar requiring all stock to be stored at least 150mm off the groun