A lot may have changed for your fitness center in the past year, and that may affect your insurance needs. Here are some tips to heed when you perform your year-end insurance review.

Most fitness center owners and managers don't give their insurance policies a second thought - until they have a claim and find out they aren't completely covered. No one likes to dwell on the intricate details and fine print of an insurance policy, but, as time goes by and your facility changes, it's important to make sure that your insurance policy reflects the current state of your business. You should review your policies at least once a year, and December is a great time - before the New Year's resolution crowd floods into your facility and takes up all of your time.

It's a good idea to get your risk management director involved in the process. He or she needs to know the limits of your policy and what to do to decrease potential claims. Lisa Dreiling, director of benefits and risk management for Wellbridge, Greenwood Village, Colo., says, "Our insurance claim reviews occur at the corporate level. The executive team and I complete quarterly reviews of all claims above a certain monetary threshold, and discuss the claims with our adjusters. This allows us to make decisions while everyone is in one place, focused on one matter. We review all policies once a year, including casualty and executive liability insurance."

General liability

The industry standard for general liability is a $1 million limit per occurrence, with a $2 million aggregate (the total limit for all liability claims). "However, you should check your lease and franchise paperwork. Some landlords and corporate offices require a higher limit," says Ken Reinig, president of Association Insurance Group, Lakewood, Colo. "Right now, fewer than 10 percent of all leases require $2 million per occurrence and $3 million aggregate. But, we are seeing a trend toward those limits. I think in three to five years, that may be the new standard."

Andrea Pugliese, president of Andrea Pugliese Insurance Services, Warrington, Pa., says, "If you are concerned at all about your coverage amounts, you can always purchase additional umbrella coverage for those unforeseen circumstances. We typically write a $1 million-per-occurrence policy with a $3 million aggregate."

Personnel

How much insurance you carry on your trainers and instructors depends on how you classify them. "Anyone who works for you as an employee is covered by the club's liability policy," Pugliese says. "If you hire your trainers as independent contractors, they must have their own insurance. However, you can run into tax problems with independent contractors. So, double check with your accountant to be sure you are not violating any laws." Federal and state laws also require that you carry worker's compensation insurance on all employees. "It can get confusing because every state is different, but a state law does not negate a federal law, so you need to make sure you are in total compliance," says Pugliese.

Just because you use a 1099 form instead of a W-2 for a staff member does not mean you are in the clear in case of a lawsuit. Many states argue that if the fitness center is setting appointments, schedules and dress codes, it is engaging in an employer/employee relationship. If you wish to avoid covering all of your contractors, you need to have an up-to-date copy of their certificate of insurance, as well as a signed waiver that clearly states that the contractor understands that he/she is not covered by the fitness center for any liability or worker's compensation issues.

Unfortunately, many fitness professionals do not realize how devastating a lawsuit can be. Todd Galati, spokesperson for the American Council on Exercise (ACE), San Diego, Calif., says, "ACE recommends that all fitness professionals carry their own professional liability insurance, even if they are an employee of a club. Often, they may change clubs mid-year, or work in several facilities at once, and it's possible for there to be a gap in coverage. This could be disastrous."

If your staff members question you about the necessity of insurance, tell them that you have their best interests at heart. One lawsuit can destroy their entire life. It's a good idea to renew the contractor waiver each year, just as a reminder that these staff members are not covered by your policy. This also applies to massage therapists, day spa operators and any other contracted personnel working on the premises.

Employment practices

Not only do you need coverage for your employees, you also need coverage from them. Sadly, statistics show that your next lawsuit is most likely to be brought by someone in-house. "Most owners think they are covered by their liability policy if an employee sues for wrongful termination, sexual harassment or discrimination," says Reinig, "but they're not. The health club industry is especially vulnerable to these kinds of suits, so [any facility] can become a target." Employment litigation is gaining momentum in the U.S., so the insurance industry has stepped in to cover the gap with Employment Practices Liability Insurance (EPLI). This coverage is based on the number of employees you have, your history of employment-related claims and the part of the country you are in. In general, both deductibles and premiums run between $1,500 and $5,000. If this is prohibitively expensive, you should still take precautions against employee claims. Talk with your risk management director to be sure your sexual harassment and discrimination policies are clearly outlined, understood and enforced.

Property

Property insurance is relatively inexpensive, but vital to your business in case of a fire or other event resulting in property loss. Make sure you purchase enough coverage to completely replace all fitness equipment, mirrors, flooring, furniture, computers and supplies. You should also cover any improvements or buildouts you made to the interior of the space, such as air conditioning or an interior cubicle to house a juice bar or pro shop, regardless of whether you or your landlord paid for them. "If you have a fire," Reinig says, "your landlord will only be required to repair up to the bare walls. Anything from the walls inward is your responsibility. This includes flooring, mirrors, lockers, front counters, interior walls, everything."

Most property insurance policies contain a coinsurance clause that can spell big trouble if you aren't insured for the proper amount. A coinsurance clause is insurance for the insurance companies. It states that you must insure for at least 90 percent of the full replacement value of the entire building and its contents. If you make a claim and an adjuster finds that you have underinsured, even by a just little bit, you can be severely penalized. "For example," says Reinig, "say you have a water damage claim for $50,000 and you are insured for $200,000. You figure, no problem. But, if the full replacement value of your property is actually $400,000, then, by the coinsurance clause, you are 50 percent underinsured. So, the company penalizes you by agreeing to pay only 50 percent of your claim, and you end up with a check for $25,000. Most property policies are relatively cheap, on average just $300 for $100,000 worth of coverage. It's very important to insure for the full replacement cost, and review those costs every year. Too many people just don't understand coinsurance until it's too late. One bad claim can financially ruin a health club." Replacement costs change constantly with the cost of materials and transportation. Talk with your broker or agent to be absolutely sure your coverage amounts are accurate and up-to-date.

Loss of income

Could your business survive without a few months worth of income? When the unthinkable occurs - a fire, tornado, burst pipe - and you have to close your doors for repairs, your property insurance will only cover the cost of replacing physical objects. Have you thought about all the income you will be losing every day you remain closed? You are still required to pay the bills, and your employees will need checks, too. "Loss of business income insurance pays a club for the actual loss of income (net income plus continuing operating expenses such as payroll) during a period of restoration after a covered direct loss up to the limits of the policy," says Missy Ross, senior underwriter for K&K Insurance Group, Fort Wayne, Ind.

Special circumstances

Any time your fitness center hosts a special event or does anything out of the ordinary, you are at risk of not being covered by your insurance. This includes a group exercise instructor who takes her class outside on a sunny day, a company that comes to your facility to run a body fat testing or blood pressure clinic, and trainers who team up with the local high school for an after-school fitness program. These are all wonderful additions to your fitness center's offerings, and may increase membership or revenues, but there are some precautions to take with each circumstance.

Make sure you have a certificate of insurance from every outside company or contractor who conducts a special event at your facility, from Red Cross blood drives to flu shot clinics. The certificate should name your fitness center as an additional insured. Also, you should provide the same proof of insurance to any outside venue you attend - high schools, civic centers, municipal functions, etc. Most insurance companies do not charge extra to cover general fitness activities off-site - you just need to notify them ahead of time. Never transport anyone to or from an event, and have all participants sign a "special function" waiver any time they step outside the facility for an activity.

Also, check your policy to make sure you don't have a "designated premises endorsement." This requires all covered activities to take place on the designated premises. If someone gets hurt walking to a special outdoor class, you might be denied coverage.

Your insurance carrier

Reinig reminds you to check up on your insurance carrier. A.M. Best Company, Oldwick, N.J., rates insurance companies based on their financial solvency, operating performance and business profile. You can go to www.ambest.com and check your company's score. A rating below an A- means you may want to consider switching carriers.

Read the fine print

Leave room in your budget for increased insurance premiums every year. Additional coverage may not be necessary, but it's better to be safe than sorry. Be sure you understand every single clause in your policy. Things like coinsurance, independent contractors, employment practices and special circumstances have a way of being overlooked until a claim comes along and devastates an otherwise healthy fitness center.