Welcome to the latest installment of Entrepreneur’s Spotlight at the Health and Fitness Law Blog. In this series, we look at successful startups and ventures in the health and fitness industry and interview the hard-working entrepreneurs behind these companies to discuss how they did it and what they learned along the way.
Today, based on feedback from our readers, we are trying something a bit different. Instead of interviewing a founder of a fitness company or studio, we reached out to an insurance company specializing in health and fitness club insurance to get our readers’ insurance questions answered.
I think it is fair to say that most entrepreneurs do not enjoy buying insurance. Besides the sheer cost of it, buying insurance forces entrepreneurs to acknowledge things may go wrong in their business, and entrepreneurs are generally not wired to think about failure as an option. That said, insurance is required in virtually every lease that is signed by a fitness company (and other contracts may require it, such as bank financing), so entrepreneurs would be well-served to understand the different types of insurance and make an informed decision when choosing between different polies and providers.
I was recently introduced to K&K Insurance at its booth at the Club Industry Show in Chicago, IL on October 12-14, 2015. The K&K employees working the booth were extremely knowledgeable about the pitfalls that club and studio fitness owners routinely experience. While many insurance companies claim to be knowledgeable in the club and studio fitness space, K&K’s website very clearly shows the different types of policies and considerations club and studio owners should be examining.
After the Club Industry Show, I followed up with Lorena Hatfield, Marketing Manager at K&K. Working through Lorena, I was able to interview Mark Beck, Senior Vice President at K&K, and Cheryl Meyers, Underwriting Manager at K&K. Below please find great information regarding insurance in the club and studio fitness space.
H&F Law Blog: Business owners are often confused by the many different types of insurance available to them (general liability, cyber, director/officers, professional, property, workers compensation, etc.). Ultimately, some business owners give up and either purchase the cheapest policy available or do not obtain insurance at all. Can you please break down in simple terms the different types of insurance available to club fitness and studio fitness facilities?
K&K: Working with a licensed insurance agent that can lend their expertise and explain various options available is important. Depending on the activities taking place at the health club, various coverages may or may not be needed, which is why working with an agent is important. A qualified agent can assess and advise a club which specific coverages are needed based on individual risk. Coverage options may include general liability, property, inland marine, crime, commercial auto, sexual abuse and molestation, cyber liability, workers' compensation, and excess liability.
H&F Law Blog: If a business owner obtains a general liability policy with a high coverage maximum, is that “good enough?” What are the pitfalls of this approach by business owners?
K&K: Ultimately, the club owner is responsible for deciding how much coverage is right for them. In today’s litigious society, claims involving serious bodily injury can easily add up to thousands, and sometimes millions of dollars. An agent can work with a health club to help determine the optimal liability limits needed based on risk and exposures and can analyze risk retention capabilities and consider higher deductibles to help reduce premium costs.
H&F Law Blog: What type of insurance is most often overlooked by club fitness and studio fitness facilities?
K&K: Under reporting the value of buildings and business personal property is a problem that can lead to significant co-insurance penalties at the time of loss. This can result in an unhappy owner who receives less than he or she expected when the claim is settled.
H&F Law Blog: Can you give a few examples of the most common claims that you see from your club fitness and studio fitness facility clients?
K&K: Surprisingly, many of the claims we see from health clubs involve slip and falls outside of actual exercise-related activities. Most accidents occur in the shower, restroom and locker areas where water creates a slippery surface. Losses of this nature can be reduced by use of nonskid, slip resistant floor surfaces. Large liability claims can also result from injuries resulting from the use of equipment made or improperly assembled by the club owner, equipment modified by the club owner, and equipment that has not been properly maintained.
H&F Law Blog: What have your club fitness and studio fitness facility clients done to better protect against having claims in the future (i.e. risk mitigation strategies)?
K&K: Preventive maintenance is always important. By walking around the club daily if not more often and looking for standing water, trip and fall hazards, equipment in need of repair, poorly lit areas and other simple safety issues, health club owners can reduce the risk of many common accidents. Maintenance procedures should be documented and implemented.
Additionally, clubs should review their member roster at least annually to ensure waivers and agreements are signed by all members. Waivers should also be secured from “guests” and others using facilities on a temporary basis.
Finally, clubs that conduct activities or events away from their premises, such as 5k runs or fitness competitions, should always contact their insurance agent/company to make sure their general liability policy will protect them for off-site activities.
H&F Law Blog: With respect to club fitness and studio fitness facilities that offer personal training, does the club itself usually pay for that insurance or are the personal trainers generally responsible for obtaining their own insurance? If they both carry insurance, how do the insurance companies decide who is responsible for a claim?
K&K: Employees of the health club are typically covered under the health club’s liability policy, but it is important that the club owner confirm that with their insurance representative. Fitness trainers/instructors who are hired by the health clubs on an independent contractor basis are usually not covered by the health club’s liability policy. Again, it is important for the club owner to know exactly who their policy covers. It is fairly standard in the industry that health clubs require independently contracted fitness trainers purchase their own liability insurance and to name the club as an additional insured. Fitness instructors operating as independent contractor should purchase their own liability coverage so that they are confident that they will be financially protected. Having their own policy will also protect them when they work at several clubs and/or conduct personal training sessions on their own. With respect to whose insurance company will cover the loss, that will always be determined on a case-by-case basis depending on the specifics facts of the case.
The Claims Process
H&F Law Blog: When there is an accident in the gym – for example, someone falls off a treadmill – when should a client get the insurance company involved? The day it happened or only if the person ends up filing a lawsuit?
K&K: It is always best to contact your insurance provider when an incident occurs; the insurer’s claims representative can answer any questions and make sure that appropriate steps are taken to resolve potential issues or prepare for a future claim. Most policies have specific conditions that require the insured to notify the insurance company of all claims as promptly as they can. Failure to a report a claim in a timely manner, in a worst case scenario, could actually lead to a declination by the insurance carrier. All clubs should have a process in place to document any notice of injury and to be proactive in the gathering of facts, evidence and any witness statements at the time of the incident.
H&F Law Blog: In the example above (treadmill slip and fall case), what costs are the insurance company responsible for? Who pays for the attorneys and the damages awarded in the case?
K&K: It depends on the coverage purchased and varies by company. If the policy indicates that defense costs are within the limits of the policy, the cost of defending a lawsuit could potentially reduce the amount of coverage available. If the policy indicates that defense costs are covered by the insurance carrier and are outside of the policy limits then it is up to the insurance provider to pay all defense costs and covered damages would be paid up to the limit of the policy. It’s an important distinction that club owners should consider when purchasing coverage; in the worst case scenario with defense expense included within the policy limits, a complex lawsuit could erode the clubs insurance limit, leaving the club without appropriate coverage to pay damages.
H&F Law Blog: After a claim is made by a client, what effect will that have on the client’s insurance premiums in future years? How long does it take for a claim to be removed or cleared from a client’s record?
K&K: Insurance companies vary on how a single claim may affect an insured’s premiums but generally it depends on the severity of the claim and the frequency of other claims in the recent past. Most insurance companies take the prior five years loss activity into account when pricing coverage. One important consideration for club owners is to purchase insurance from a company that specializes in the health and fitness industry. By doing so, they are less likely to have the company over-react if/when a claim occurs. Companies who specialize in a specific industry often analyze losses on an overall program basis, which will make it less likely for the insurance carrier to non-renew a club simply because they had a single large loss.
H&F Law Blog: How long has K&K Insurance been providing insurance solutions specifically in the health and fitness space?
K&K: We have 23 years of experience insuring health clubs and fitness facilities.
H&F Law Blog: What separates K&K Insurance from other insurance companies that specialize in the health and fitness space?
K&K: K&K Insurance is a leading provider of coverage for the sports and recreation industry and specializes in insurance coverage and claims handling for sports and fitness organizations. Our underwriters work with health and fitness facilities across the United States and can provide quotes for health clubs based on their unique requirements. Claims are managed by a staff of expert litigators with the experience to competently resolve claims. K&K Insurance was founded in 1952 and places fitness coverage with insurance carriers rated A+ by A.M. Best Company.
H&F Law Blog: What is a trend that you are seeing the health and fitness industry? How does that affect the insurance needed by your club fitness and studio fitness facility clients?
K&K: The fitness industry is experiencing tremendous growth in many areas—from large, multipurpose facilities to boutique fitness studios specializing in the latest fitness trends. It is important that fitness facilities temper the need to offer trendy classes and equipment with a concern for safety first. Before adding a unique or trendy class (e.g. aerial yoga, acro/partner yoga, Crossfit or similar training concepts, etc) the club owner should discuss it with their insurance representative to make sure they will be properly covered. Equipment should be manufactured by reputable companies that have tested their products for safety and courses should be offered with the health and safety of clients in mind. K&K offers a variety of programs for fitness facilities and can provide coverage for large health clubs offering a multitude of services to small specialty studios and independent fitness instructors.