Understand the ins and outs of insurance coverage, and ensure that your club is safeguarded against disaster.

Pop quiz: Which of the following stories really happened?

A) A member walked into a health club with a gun, planning to sell it to another member. When the seller showed the firearm, the gun accidentally discharged, shooting him in the foot. The man then sued the health club for his medical bills.

B) A fire broke out at a restaurant next to a gym. In the course of putting out the fire, a firefighter climbed up on the club's roof to gain better access to the restaurant. Unfortunately, the firefighter fell off. He sued the gym for his injuries.

C) An employee secretly set fire to a health club because he wanted to impress his bosses by extinguishing the flames. However, the fire blazed out of control, damaging the building and foiling his plans for heroism. The subsequent investigation revealed that the employee had a history of arson in his workplace.

D) All of the above.

If you answered “D,” then give yourself a big pat on the back. While you're at it, get a massage, because you'll need to relax after staying up all night worrying about the state of the world we live in.

While the above stories (submitted by Sports & Fitness Insurance Corp., of Madison, Mo., and Philadelphia Insurance Co.) are rare examples, that's little consolation if such incidents occur at your fitness facility. After all, any claim — unusual or not — can still cost.

Case in point: the member who shot himself. The club had medical payments coverage that was available to the member, and its insurance company paid $5,000 in medical bills. However, the member claimed that the club was liable for more. The club went to court and won its case — but only after two years of court appearances.

Although health clubs can't shield themselves from every frivolous lawsuit, they can make sure that their insurance carriers provide adequate protection. Clubs should have an independent appraiser do a risk-management review of their coverage, in order to determine if there are any weak spots, advises Sean Sweeney, executive vice president of Philadelphia Insurance Co.

Ignoring some weak spots may be tempting, but scrimping on coverage will only hurt a club in the long run. “Don't cut coverage just to save money,” warns Andrea Pugliese of Andrea Pugliese Insurance Services in Warrington, Pa.

Pugliese claims that clubs require coverage for liability, property, workman's compensation, bonding (if applicable), flood/earthquake (if applicable) and employment practices liability. Additionally, clubs will most likely need to budget more money for coverage than they have in the past, as many insurance experts predict a rate increase in the next year or two.

“It's happening now,” Pugliese says. “It's just the industry. All types of insurance companies are paying out a lot for claims” and are increasing their coverage rates anywhere from 10 to 25 percent as such.

“All the commercials on lawyers doesn't help,” she adds.

Jankeith Gatewood, the title program manager for Brown & Brown Insurance Inc. (the company that carries Amerifit), Daytona Beach, Fla., agrees that insurance rates are on the rise. He estimates a cost increase of 20 to 150 percent for clubs over the course of the next five years.

With insurance rates on the rise, club operators have all the more reason to understand how to report accidents and file claims. When something goes awry in a club — whether it be a knee scrape or a broken bone — operators must put together incident and witness reports (see sidebar at end of article for sample forms).

Operators should submit these forms immediately — even if an accident isn't serious. In most states, people have up to two years to file a claim. This means that a member could trip on the wet floor in the locker room and, feeling embarrassed for his clumsiness, make nothing of the incident to the employees. Then, a year and a half later, the member has some financial difficulty, and, remembering his slip, decides to sue.

If this happens and the club never filed a form, it could be open to any and all allegations.

In addition to submitting the appropriate paperwork, operators should keep anything that insurance investigators may want to inspect. “In the event of a broken cable or some other issue, save the cable because we want to look at it and try to deflect the blame to the manufacturer and see if they were responsible for manufacturing a poor product,” says Sweeney as an example.

Filling out forms and setting aside potential evidence are just some of the things operators should be prepared to do in the case of an emergency. To give operators even more advice, Club Industry has come up with a survival manual of sorts — a “How to Avoid the Worst” guide to disasters and insurance coverage.

Some of the scenarios listed below are rare, others are all too common.

CASE NO. 1: Fire damages the club


WHAT TO DO:

First of all, make sure you have proper preventive measures in place to prevent a fire. Your sprinkler and alarm systems should be inspected often and be in good working condition.

Clubs should be mindful of such obvious fire hazards as bad wiring (proper yearly inspection and documented maintenance are key). Other hazards are subtler. For example, a club once filed a claim report after children lit firecrackers outside the facility; one of the firecrackers started a fire in the landscaping, which in turn set the building aflame.

“We'd like to see landscaping at least 30 yards from the building,” Sweeney says.

Most of the time, an attentive club staff will prevent a disaster. “The biggest fire we ever had was due to poor monitoring of the dry sauna,” Sweeney says. “A health club member left a wet bathing suit on the dry sauna and it caught on fire.”

But sometimes all the caution in the world won't stop a fire. And once such a disaster does occur, club staff should not throw away any damaged items, as insurance agents will need to assess the scene.

To protect your club, make sure that you have an inclusive commercial property insurance policy as well as business income coverage, which would pay you in the event that you are unable to open for business for an extended period of time. It may also pay for extra expenses such as rent or a temporary space.

As an extra measure of security, clubs can carry fire insurance coverage on all of their equipment. “And I can tell you right now a lot of people opt not to buy it, especially if it's a small club, and I personally can't understand that,” says Joan Watson, the senior underwriter at Sports & Fitness. “I always tell people to buy fire insurance on their equipment…and they should insure 100 percent of value.”

CASE NO. 2: A member hurts herself while exercising in the club


WHAT TO DO:

You should have all members sign a waiver when they join the club. Make sure prospective members who come in for a free workout sign waivers as well. These people are most likely to sue because they are nonmembers with no loyalty to the club, according to Watson.

Usually when accidents do occur, they happen to either new members or nonmembers trying out the club. “That's 90 percent of where your claims come from,” says Glynn Simpson, president of Sports & Fitness.

New members and nonmembers may file most of the claims, but what accidents occur the most?

“The most common claims are slips and falls by members, slip/falls off of treadmills, slip/falls in step class, hit in head by bar from the pulldown machine, drop weight on foot, too much weight on the Smith machines — most of the liability claims are not the fault of health club owners,” answers Gatewood. “Unfortunately we are in a litigious society and all the waivers in the world can not prevent someone from suing.”

Still, clubs can at least avoid potential lawsuits through proper maintenance. “Check the equipment weekly if you can and keep documentation for each piece,” advises Pugliese.

This documentation is imperative. If paperwork proves that certified technicians properly serviced the equipment, yet the equipment still broke, then the club can show that it isn't at fault.

Club staff should look over equipment daily — but untrained employees shouldn't handle repairs. Rely on professional contractors for serious maintenance services. Otherwise, you could leave yourself open to litigation.

Consider this example: A member once filed a lawsuit claiming that the bench he was using “moved” while he was pressing 400 pounds. As a result, the weight injured him.

“It turns out the bench had had some maintenance work done recently by the health club and it was missing one bolt,” Sweeney says. “Because it was missing one bolt, the health club may have some liability.”

In the event of an injury, have the person transported to the emergency room immediately, no matter how minor the incident seems. Otherwise, the person may not realize the extent of her injuries until a later date, and medical bills may become more costly.

To avoid injuries in the first place, make sure that your staff has properly trained every single health club member on the use of the equipment. Also, have an employee on the floor at all times for supervision. And since an injury may still occur, consider a general liability policy, which will provide payment for bodily injury to others, as well as provide coverage for medical bills even when the club is not at fault.

CASE NO. 3: An ex-employee files a lawsuit against the club


WHAT TO DO:

You can avoid, or at least cut down the likelihood of, employee suits by implementing the following procedures, according to Sports & Fitness.

  • Have written policies for all aspects of employment

  • Enforce a zero tolerance sexual harassment policy

  • Have an attendance policy

  • Implement a corrective action policy to follow in the event of poor performance

Your attorney should review these procedures. Once he approves, new employees should read and sign off on the policies during their orientation.

Strictly adhere to these policies. Do not tolerate any type of harassment or discrimination, as club owners can be sued for the manner in which they allow other employees or customers to treat employees or customers.

While it's good to educate employees about your enforceable policies, you should conduct background checks on all potential workers — long before they read your procedures. Background checks can help prevent future negative incidents. (Remember Mr. Pyro from the pop quiz?)

In the event of a lawsuit, an employment practices liability policy may protect your club. “It's a separate policy which covers wrongful termination, sexual harassment and discrimination,” Sweeney says.

One word of caution, though. According to Sports & Fitness, these policies are often expensive and are not available through all insurance companies. Some of these policies will only pay for the cost to defend you in a case, but will not pay if a judgment is made against you.

CASE NO. 4: A natural disaster strikes the club


WHAT TO DO:

Since many general insurance policies don't cover certain disasters — namely hurricanes and floods — you need to make sure your club is protected. While a club in Boston may not require hurricane insurance, one in Florida will. Likewise, if you know your club is in a flood or earthquake zone, insure appropriately.

If your location makes it difficult to get coverage, check to see if your state has programs allowing you to purchase insurance to protect you in the case of a hurricane (or flood, or earthquake, etc.). Just keep in mind that clubs in a specific disaster-prone area may have to pay a higher deductible for damage caused by that disaster.

Also, keep in mind that most property policies exclude certain disasters, such as flooding, so you'll have to pay extra to have this protection included. “Certain carriers will provide [flood or earthquake insurance], but if you don't ask for it, they're not going to give it to you,” Gatewood says.

And, if you live in a high-risk area, your insurance providers won't cover you at all. For example, clubs located in a flood zone (or what is called a “National Flood Plane”) will have to get coverage through the National Flood Protection Plan, Gatewood says.

Specific insurance coverage isn't the only way that clubs can defend themselves against potential disasters. Clubs should stay on top of weather conditions and take adequate precautions — whether it is placing sandbags in front of the building or boarding up windows.

CASE NO. 5: Lightning shorts out the electrical equipment


WHAT TO DO:

Make sure your club has equipment breakdown coverage. “This is not an automatic coverage and must be endorsed on your current policy or you can take out a separate policy,” Gatewood explains.

In addition, sign a contract with a reputable electrician, who will be able to advise your club on precautions. Have contact numbers for maintenance and repair services in the employee manual, and make arrangements with these services prior to the emergency so that you will not have to scramble for a vendor or settle for someone who is less dependable, according to Sports & Fitness.

Once you've found a professional you can trust, make sure all the electrical wiring is maintained on a regular basis. “We'd like the components of the wiring checked by a competent electrician at least once a year,” Sweeney says. “Most of the fires we've seen, the culprit is poor electrical wiring.”

CASE NO. 6: Theft


WHAT TO DO:

You can make your facility a less likely target by installing an alarm system and adequate nighttime lighting. You can also move expensive (and easily portable) equipment like computers out of view, or out of easy reach.

Another tip: Only give building keys to trusted, long-term employees. Additionally, your club can take out a “special property form,” a broad policy form that includes theft, says Gatewood.

“Make sure that your property is insured to value,” he maintains. “Avoid underinsuring your equipment to save a few dollars. Keep all receipts for purchases and upgrades.”


Claim Control

The following is a sample claims procedure checklist, courtesy of Brown & Brown Insurance Inc. Be sure to contact your own insurance provider for detailed instructions on how to react in case of emergency.

CLAIMS PROCEDURE CHECKLIST
Complete and follow the checklist procedures for any and all incidents. The checklist can be completed for both property and general liability incidents. Report all incidents even if they seem inconsequential. Complete and detailed information greatly increases the time and accuracy in which a claim can be investigated. Immediate notification will allow the claim department to prepare adequate defense and may help avoid future lawsuits.
  • Document the incident on an incident report form. Click here for a sample. You must have Adobe Acrobat Reader to access this file.
  • If there are any witnesses, have each one complete a witness report form. click here for a sample. You must have Adobe Acrobat Reader to access this file.
  • Make a copy of the member's signed contract and any applicable signed waivers of liability.
  • Take photos of locations of equipment involved in the incident.
  • If equipment breakage is the result (or cause) of the incident, do not discard the broken pieces until an adjuster can inspect it.
  • Call your insurance provider to report the incident.
  • If you receive a summons in the mail or are served, forward a copy of the summons immediately to your insurance provider. Confirm receipt of the document with the provider.
  • If you receive a letter from an attorney, forward a copy immediately to your insurance provider and confirm receipt of the document.
  • Fax or mail the following items to your insurance provider:
  1. Completed incident report form
  2. Completed witness report form
  3. Copy of member's signed contract
  4. Copy of signed waiver of liability
  5. Photographs
  6. Copy of summons or notice from an attorney

Got Protection?

Give us an example of an incident where your insurance came in handy. We'll publish the responses in an upcoming issue. Write us at: Club Industry, One Plymouth Meeting, Suite 501, Plymouth Meeting, PA 19462. E-mail: jjanda@primediabusiness.com. Fax: (610) 238-0992.