Lawsuits resulting from swimming pool incidents have judgments that have included $16 million, $14 million and $8 million. In a Good Morning America report on ABC, industry experts estimated that as many as 500 people drown each year in lifeguarded pools. (Please read our “Drowning Prevention Equation” article to better understand why.) These facts lead us to conclude that $20 million insurance limits are necessary for swimming pool management companies that provide lifeguards.
Our lifeguards use the most up-to-date scanning strategies and safety observation techniques. They receive training that is in addition to the industry-standard of American Red Cross Lifeguard certification, and goes far beyond most lifeguard training programs. Our focus is on:
• Identifying a problem early and responding rapidly
• Skilled care, if needed
Aquatic safety experts know that even at the best run pool accidents can happen. That is why liability insurance is such an important part of risk management.
Liability insurance policies for high risk situations, like lifeguard staffing, can be complicated. Below we explain:
• How primary policy and excess policy limits work
• Coverage is per event, not per pool
• The difference in Professional Liability and General Liability
• Punitive Damages coverage
• Excess Coverage “follows form” of the primary policy
Primary Policy and Excess Policy Limits
In a typical swimming pool management liability insurance policy there is a primary Liability policy (GL Policy), that is usually $1 million in coverage per claim, and then there may be an excess policy on top of the primary policy to cover a judgment or settlement that is higher than the primary policy limit. The primary policy is per occurrence, meaning there is $1 million available for each claim up to the policy limit (such as $5 million). The excess policy is a total annual amount that is depleted as it is used. If the primary policy limit is exceeded in any year, then the excess coverage would pick up coverage for any other events.
+ Excess Policy
= TOTAL COVERAGE
So, if a company has a $20 million limit it will likely be a $1 million dollar primary policy and $19 million excess coverage.
Another company may have a $5 million limit, which is likely a $1 million dollar primary policy and $4 million excess coverage.
Here is how it works:
If there is a claim and judgment in the amount of $5 million, then the primary policy pays $1 million, and the excess policy pays $4 million.
In the case of a company with $20 million limits, a $5 million judgment would leave $15 million of excess coverage for that year ($19 million - $4 million), plus another $1 million in primary policy coverage. So, they would still have $16 million available if there is a second claim.
In the case of a company with $5 million limits, $0 of excess coverage would remain for that year ($4 million - $4 million), but there would be $1 million in primary policy coverage. So, they would only have $1 million available if there is a second claim.
And, in the case of a company with less than $5 million limits, there would not be enough insurance coverage to cover the judgment.
Coverage is Per Event, not Per Pool
Liability insurance is to protect against that catastrophic event or events that costs millions of dollars. The policy limits, whether $5 million or $20 million are available per event (subject to the dollar limits we discussed above). The policy limit is not averaged between all of the pools that a company may manage.
Professional Liability and General Liability Coverage
Potential exposures at swimming pools involve some events that would only be covered by Professional Liability Insurance and some events that would only be covered by General Liability Insurance. The distinction between the two policies is not a clear line, but an example may be helpful:
If someone is injured at the pool there may be a claim resulting from that injury. This claim would fall under the General Liability policy. If, however, a lifeguard provided care and as a result of the care provided the person is injured further, this claim would fall under the Professional Liability policy.
The important thing to know is that if a swimming pool management company only has General Liability coverage, and does not have Professional Liability coverage, there are exposures that are not covered by insurance.
Punitive Damages Coverage
Juries may provide for two types of payments for damages (payments from the defendant to the plaintiff): actual damages and punitive damages. Punitive damages judgments are in addition to the judgment for actual damages.
Even when punitive damages are limited by state law, they can be extremely large. For instance, if state law limits punitive damages to two times (2x) actual damages, cases exist where medical bills alone (included in actual damages) were over $2 million. This would provide for the potential of punitive damages of over $4 million and a total judgment of over $6 million.
Liability insurance policies often have an exclusion for punitive damages. When a policy includes coverage for punitive damages the exclusion clause is not in the policy. So, rather than stating in the positive that punitive damages are covered, a policy includes coverage for punitive damages if the policy does not include the exclusion clause.
Excess Policy or Policies Follow the Form of the Primary Policy
The coverage provided by excess policies is determined by the coverage that is provided by the Primary Policy (GL Policy). So, the language of the Primary Policy is what is important in determining what is covered and what is not covered, and the details of the coverage may not be spelled out in the Excess Policies.
Pool owners have many details to sort out, and risk management is an especially important area of concern. Our hope is that this article helps bring clarity to the issue of Liability Insurance.
The facts in this article have been vetted by insurance professionals.