Money and Securities
Golf Club Business Interruption
Download: Broker’s Notes Golf Club Business Interruption March 2005
Using “Cost Plus”
USING “COST PLUS”
For almost 20 years, the PGA of Canada has offered its members a Group Health & Dental Plan. Are you participating ? If so, are you using the plan effectively ?
Here are two concepts that absolutely must be understood in order to take maximum advantage of a Health & Dental Plan:
- Insurance companies DO NOT pay the claims; they merely facilitate the cash transfer process. Your premiums pay the claims and the costs.
- 90% of the benefit provided by a plan is the TAX SAVINGS.
So how does this effect your use of the PGA of Canada plan and its COST PLUS feature ? To demonstrate, let us ignore the small “catastrophe” risk involved in Healthcare and consider only the DentalCare benefits.
Basic Dental Care is NOT INSURANCE. There is “NO UNEXPECTED RISK” and “NO FORTUITOUS EVENT”. In the normal course of your family’s life, each of you is EXPECTED to go to the dentist twice a year and the TREATMENTS that you will receive are KNOWN. You, your dentist and the insurance company easily estimate the annual cost to your family. In order to ensure that there are no “nasty surprises” the dental plan even has an ANNUAL MAXIMUM BENEFIT, usually $1,000. per person.
So, if everyone knows what you are going to claim each year, and if the insurance company expects to be solvent at year-end, obviously the premiums charged must be greater than the Expected Claims. In fact most plans are charged about a 15% “marked up” for the administrative services, so you WILL pay $1.15 in premium for every $1.00 that you receive out of the plan.
This brings up the obvious question. Why would a “self-employed” golf professional want to pay $1.15 to get $1.00 back ?
The answer is TAX SAVINGS.
Let’s assume that a typical family of four is going to spend $1,400. a year in basic dental fees. ($350. each person for two semi-annual cleanings and an annual set of X-rays.)
Assuming that this individual resides in Ontario, is not in a Dental Plan, and is paying the top marginal Income Tax rate of 43% he/she would have to pay themselves a salary or bonus in excess of $2,450. in order to have $1,400. left, after taxes, to pay the dentist.
On the other hand, the annual Dental Plan premium would be about $1,610. ($1,400. plus 15%) and the benefit when received by the individual would be TAX FREE.
The cost to the business (which the professional owns) would be $840. less !
OK, so it does make sense for a self-employed business person to join a Dental Plan and pay $1.15 to get $1.00 back, but what’s “COST PLUS”.
Cost Plus is a feature of the PGA of Canada’s plan that lets you cover ALL of your family’s Health and Dental costs, even if they are not included in the basic plan. Here’s how it works:
We have already seen that it makes sense to join a Dental Plan to cover your EXPECTED annual dental costs, but does it make sense to design a plan for self-employed professionals that includes the cost of “pre-funding” Orthodontic services that you and your family may never use ? All you are doing is subsidizing the costs for those who do need the services.
Cost Plus lets you pay the premium for these “unpredictable services” only IF and WHEN you actually use them. Yes, you pay for the services and yes, you pay the additional administration costs, but you save the taxes.
Let’s take the example of Orthodontics. Your family dentist sends you to an Orthodontist and he advises you that your youngest son needs braces. The cost; $4,500. is not covered by your basic dental plan.
Again, if you pay yourself a salary from your business account, you would have to take out almost $8,000. to be left with $4,500. after taxes
However, Cost Plus lets you buy the coverage under the PGA of Canada’s plan on a “One Time” basis for a lump sum premium of $ 5,200. ($4,500. plus 15% administrative fee.) (plus PST in Ontario). Even with PST, there is a saving in your business account of $2,400. ! (The actual savings will vary province by province.)
As a self-employed PGA of Canada professional you can either pay your family’s dental bills with after-tax personal dollars or pre-tax corporate dollars.
The choice is yours.
Jim Hylands
Simmlands Insurance Services Ltd.
Approaching Retirement
APPROACHING RETIREMENT
Are you within 5 to 10 years of retirement ?
You have been saving for your retirement for years, so now is probably a good time to see how you have done and to start planning accordingly. Here are a few pre-retirement financial tips that could help you.
Tip # 1 – Take inventory of your retirement income
Now that you are close to retirement you can review each of your potential income sources with reasonable accuracy. You will likely be relying on four main sources of income.
Government Benefits – These consist of Canada/Quebec Pension Plan (CQPP) and Old Age Security (OAS).
The current maximum benefit for C/QPP at age 65 is about $9,800. per year., assuming that you have made the maximum contribution each your. You can start taking reduced C/QPP benefits as early as age 60.
OAS is currently about $5,600. per year however the benefit is “means tested” and begins to reduce as your total annual income exceeds $58,000.
Employer Pension Plan &/or RRSP –
If you are covered by an Employer’s Registered Pension Plan it may be one of a number of types. Contact your plan administrators and ask them to provide you with an estimate calculation of your pension entitlements.
If you have funds in a RRSP, take the current total and estimate is growth over the next few years using a fairly conservative interest assumption (ie. 4% or 5%). Once you have calculated the future value of the fund(s) you can estimate your annual income as about 6% to 7% of the total. (For example if your RRSP fund total is $400,000. you could convert this to an annuity or RRIF paying you about $28,000. per year.)
[ Remember that tax sheltered savings will be fully taxed as income as you receive them.]
Non-Registered Savings – These will likely consist of investments outside of your RRSP(s), real estate that you plan to sell shortly and royalties from ongoing business ventures.
Again a conservative estimate of the annual income represented by these assets would be 5% to 7% of the total value. Since the principle sums have already been taxed, only the ongoing investment returns are taxable as income.
Part-Time Employment – As a qualified golf professional you have the benefit of working in an industry that allows for part-time earnings during your retirement. Many PGA of Canada professionals have continued to consult, course design or teach a few days a week long after they retired from an active role.
Tip # 2 – Take inventory of your expenses
You need to review your monthly costs both current actual and future estimated to ensure that you are going to be able to afford the retirement lifestyle that you have planned.
Focusing on debt reduction should now be a priority. It is likely that your income will be lower in retirement than you were earning when you first established the loan’s and interest costs can take a major bite out of your after tax pension.
It is important to be as debt free as possible when you enter retirement.
Tip #3 – Shift your investment allocation
As you approach retirement there is less time to recover from adverse investment fluctuations. Equity investment risk levels that are appropriate for a 35 year old are less so for a 55 year old.
Over the final years of your working career you should shift the asset mix of your portfolios to lower risk and more secure income producing investments that can better meet your cash flow needs.
Tip #4 – Estate Planning
You have spent your entire working life saving for retirement. You want to be sure that in the event of your death your assets transfer to the people that you want to have them, in a tax effective way.
The cornerstone of a good estate plan is a WILL. Make sure that you have a current valid will.
At death you are deemed to have disposed of all of your capital assets and your estate must cover any capital gains tax as part of your final Income Tax return.
Spend some time with a competent Estate Planner. Advance planning allows your to reduce the taxes and maximize the value of the estate passing to your heirs.
Jim Hylands
Simmlands Insurance Services Ltd.
Employee or Self-Employed?
EMPLPOYEE OR SELF-EMPLOYED
Aside from the obvious Income Tax advantages of being “Self-Employed” there are a number of other issues that depend upon your employment status, not the least of which is your Third Party Liability Insurance coverage.
We often get asked; “Am I covered by the golf club’s liability insurance and programs ?” The answer depends upon your employment status. Every common commercial insurance contract in Canada automatically covers EMPLOYEES in the event that they are sued as a result of their employment.
The problem is “Are you an EMPLOYEE and if so, who’s ?”
The simple definition is that; “An employee is employed by an employer for a wage or salary”. Unfortunately tax laws (and various social programs) in Canada often make it advantageous for both employees and employers to try to establish “self employment” status for their golf professional (and his/her associates and assistants). But are you really self-employed? If challenged could you prove it ?
As the traditional role of the Golf Professional changes and individuals assume varied duties at their club’s, it becomes more and more difficult to maintain Independent Contractor status. On the other hand as an employee, does your club’s liability insurance extend to include tournaments and/or junkets away from the club ? What about Employer’s Liability / Workers Compensation, Provincial Health Premiums/Taxes, Unemployment / Disability Insurance, and Canada / Quebec Pension Plan contributions for assistants and/or Associates ?
A WRITTEN CONTRACT does not automatically make you (or your assistant or associates) self-employed. It may just be a written EMPLOYMENT CONTRACT. Just calling yourself INDEPENDENT is not adequate proof either. Courts all over Canada and many other countries have addressed this issue often and the answer is always the TOTAL RELATIONSHIP TESTS. No single test makes you self-employed. You have to pass most, if not all, to qualify.
- Instructions: Employees are required to comply with instructions about when, where and how work is to be performed. (Even if none are actually given.)
- Training: Employees are trained to do the job, independent contractors use their own methods to get the job done.
- Integration: Employee services are usually integral to the employer’s operations.
- Personal Service: Employees are not entitled to sub-contract work out to others.
- Hiring/Firing: Independent contractors are free to hire and fire as many assistants/employees as they deem necessary.
- Set Hours: Employees work when directed; independent contractors are masters of their own time.
- Fulltime Employment: Employees usually work continuously for an employer. Independent contractors work when and for whom they choose including competitors of their principals.
- Work Location: Employees usually work only at a location(s) specified by the employer.
- Order or Sequence: Employees must perform services in the order or sequence directed by the employer. Independent contractors are usually result oriented.
- Payments: Employees are usually paid by the hour, week or month. Independents are usually paid by commission or by the job.
- Expenses: Employee’s business and travel expenses are usually paid for by the employer. Contractors cover their own costs.
- Tools & Materials: Contractors furnish their own significant equipment, tools, materials and inventories.
- Investment: Contractors have a significant investment in the facilities that they use in performing their services.
- Profit or Loss: Contractors can make a profit or suffer a loss. Employees have no financial risk.
- Multiple Clients & Public Services: Contractors work for multiple unrelated persons or firms and usually offer their services to the general public.
- Right to Fire: Employees can be fired. Contractors cannot be fired as long as they produce the results contracted for.
- Right to Quit: Employees can quit at any time without incurring penalties. Independent contractors are usually required to complete the job or incur the expenses of having it completed by someone else.
If you cannot “pass” all or most of the above tests, there is a good chance that you are not self-employed. You should get a legal opinion from a qualified Labour Lawyer and/or a written opinion from Canada Customs and Revenue Agency.
Jim Hylands
Simmlands Insurance Services Ltd.
Employee vs. Self Employed Part 2
EMPLOYEE VS. SELF-EMPLOYED
HOW DOES IT AFFECT INSURANCE?
In the other Best Practices article on this issue, we outlined some of the “Tests” that are applied to determine if an individual is an Employee or a Self-Employed contractor.
So what difference does in make ?
Tax Status: – Obviously there are tax advantages to the individual in the form of business expense deductions that are not available to employees. There is also the administrative and cost savings to the Employer. (Income Tax deductions, CPP/QPP payments, UIC payments, Employer Health Taxes, Worker’s Compensation Premiums, etc.)
But Tax Advantages are not the focus of this article and there are some “downsides” or at least “complications” with regards to insurance. We get a lot of frequently asked questions about “who is covered” by insurance policies or who is responsible in the event of a lawsuit and the answer often depends upon the issue of Employment Status:
Insured: – Liability policies cover the INSURED in the event that a Third Party files a lawsuit against him/her for either Bodily Injury of Property Damage suffered by the Third Party allegedly due to the INSURED’s negligence.
Most modern policies automatically INCLUDE EMPLOYEES as Insureds in the definition of who is covered by the contract, so if a member is injured while driving a golf cart at the club and claims that the injury was due “negligence” resulting from a failure of the “staff” to properly train him on the use of the cart, what insurance policy applies ?
If the “negligent” individual is a club employee, then the club’s liability policy responds to protect (or pay on behalf of) both the club and the employee. If the individual is “self-employed” the club’s policy protects the club, but does not protect the individual. They (as a separate business entity) would require their own liability insurance.
This is not a serious coverage issue for a PGA of Canada Professional as the PGA of Canada currently provides liability coverage for every member, whether self-employed or not, however it is a concern for “non-PGA of Canada” members that you “hire” or “engage”. It is also a “cost issue” if claims are paid by the PGA of Canada’s policy, that should rightly fall to the club’s insurer, the PGA of Canada’s premiums (and therefore annual dues) will increase.
[ It is also extremely important to ensure that your duties at the club do not go beyond the scope of duties covered by the PGA of Canada's policy. Liability resulting from owning (leasing) a cart fleet and/or managing the club are both excluded frm the PGA of Canada's policy.]
Tax Liability: – Businesses and their directors can be held personally responsible for unremitted taxes. In the event that one of your “self-employed” subcontractors fails to remit their Income Tax payments and the courts subsequently decide that the individual did not qualify as “self-employed”, then you, as the employer, are responsible to CCRA, UIC, CPP, etc. for all outstanding taxes.
Director’s & Officer’s Liability policies cover this risk, but most General Liability policies do not.
Employee Injuries: – Most liability policies “exclude” lawsuits brought by employees for injuries sustained on the job. Club’s or ProShop operators must either buy Worker’s Compensation (in the provinces where it is optional) or the employer must buy “Employer’s Liability” insurance to protect him/herself.
Worker’s Compensation: – In some provinces, coverage is mandatory for ALL EMPLOYEES. Failure to enroll and pay premiums can result in “back charges” for up to seven years premiums plus interest and penalties.
Self-employed status does not necessarily relieve the “employer” from responsibility. Most provincial Worker’s Comp. boards have legislation that allows them to hold the “General Contractor” responsible for the premiums of all the sub-contractors. If you don’t pay the premiums you must get “Compliance certificates” confirming that the sub’s are covered or exempt.
[ Most Workers Compensation Boards also have their own “tests” for establishing “Independent” status. Make sure that both you and your subcontractors meet your Provincial plan’s criteria.]
Host Liquor Liability: – A number of clubs claim that their Food & Liquor concessionaire is a self-employed sub-contractor. This may be true; in which case the sub-contractor must hold a Provincial Liquor License and his/her own liability insurance.
Insurance companies are often asked to provide liability insurance to “self-employed” food and beverage people, when the individual does not have a liquor license. They cannot legally write a policy to cover an illegal act. Selling and serving liquor without a license is illegal in all provinces in Canada.
[ Some Provinces allow subcontrctors to operate under the Club’s Liquor license however the “Liquor Host’s” responsibilities and liabilities remain with the license holder.]
Property Insurance: – Our Greenskeeper/Food & Beverage Mgr./Club Mgr./ Club Fitter, is/are “self-employed independent contractors” does our policy cover their property ?
Our Golf Pro is an independent sub-contractor, does our club policy cover his/her proshop inventory ?
Unless special provisions have been made (IN WRITING) the simple answer is NO.
If you rented a store in a shopping mall, would you expect the landlord’s policy to cover your inventory ? Of course not. Proshop inventory at the club is no different.
The point of this is that when an individual decides to declare themselves “self-employed’, there are more issues than just the tax savings, and with the freedom of self-employment comes the responsibility of “looking after yourself”.
Jim Hylands
Simmlands Insurance Services Ltd.
Self-Employed, Part 1
Retirement Planning
RETIREMENT PLANNING
In order to assist members in their Retirement Planning the PGA of Canada sponsors a Group RRSP program for its members.
The program provides all the advantages of a top quality RRSP product (Flexible contribution options, spousal certificates; over 70 investment fund options from over 15 major investment fund managers) with the added bonus of the availability of contributions by the participating sponsor/partners. Information about the program is available from the National Office and the PGA of Canada website.
It is common practice today for individuals to “self-administer” their RRSP’s. Unfortunately this also means that the individual assumes all responsibility for the results.
Why bother ?
It is generally accepted that in order to maintain your lifestyle in retirement you will need an annual income equal to at least 70% of your pre-retirement income.
If you were retiring today and earned just the Canadian national average of $40,000. this year, you would need at least $28,000. per year.
(This assumes that you are in good health. If you have to go into a nursing home, $28,000. wouldn’t even cover half of your rent.)
Canada/Quebec Pension and Old Age Security will provide a maximum (if you qualify) of about $16,000. this mean you need to provide another $18,000. At current interest rates you need to save about $350,000. to $400,000. to provide even this basic amount. (That’s 10 years’ salary before taxes.) Do you have it ?
Make Saving a Priority
There is an old saying that what you earn is not as important as what you save.
One of the biggest mistakes that people make is to save only what’s left at the end of the year. It’s never enough.
Set up a disciplined savings program and deposit regularly. Set a monthly amount that you are going to save and treat it like any regular household expense. You don’t skip the mortgage payment and you shouldn’t skip your RRSP payment either.
One strategy is to borrow your annual deposit from the bank in January and pay it back over the 12 months. Banks like this type of loan and will often give you very preferential rates. The discipline to save is enforced by the loan terms. The bank will likely require you to leave the RRSP in the bank until the loan is paid, but you can transfer it after that.
Use foresight, not hindsight
A common investment mistake is to review annual returns each year and transfer investments to last year’s top performers. This strategy is often referred to as “chasing returns”.
Unfortunately it means that the investor is usually buying stocks at their highest prices. Past returns are not a guarantee of future performance and the strategy often results in reduced long term returns.
Set an investment plan or “mix” based upon your goals, style and risk tolerance and stick to it. Revise the plan from time to time to reflect changes in your age, and lifestyle.
Every major investment study indicates that “asset mix” and diversification has more long term effect on investments returns than individual stock performance.
Do an Annual Investment Check-up
- Make an appointment with yourself: AND KEEP IT ! Pick a time once every 6 or 12 months and review your investments, even if you decide that changes are not required.
- Review Your Investing Style: Your investing style and ideal asset mix will change as you age and as you reach life milestones (marriage, childbirth, etc) Most investment institutions offer a range of “Investment Tools” such as Investment Strategy Worksheets, and Risk Tolerance Guides. At least once a year complete these forms and adjust your portfolio accordingly.
- Review your progress: At least once a year assess where you are in your savings plan. Complete an updated Retirement Planning Worksheet, allowing for changes in income and investment performance to date. Are you still on track ? Should you be saving more ? Are you going to reach your goals. Discovering that you haven’t been saving enough 12 months before you retire is not soon enough.
Jim Hylands
Simmlands Insurance Services Ltd.
Disability & Income Replacement
DISABILITY & INCOME REPLACEMENT
Disability and Income Replacement insurance are two of the “least purchased” insurance coverages. This is partly because they are expensive, (because the risk is high), complex (because insurers are aware of the high values and risk), and most people simply do not believe that they will ever be disabled.
Here are some interesting statistics from the Society of Actuaries:
a.) In a year:
- 1 in 106 people will die
- 1 in 88 homes will catch fire
- 1 in 70 motorists will suffer an accident causing injury
Do you have LIFE, HOUSE and CAR insurance ?
- 1 in 8 people will suffer a disability.
Do you have DISABILITY insurance ?
b.) Asset values:
- Average house = $200,000.
- Average car = $35,000.
- Average personal golf equipment = $4,000.
- Income to age 65 at $60,000. per year, current age 40, and a 5% annual increase = $2,863,626.
Which assets have you insured ?
c.) Loss of the Ability to Earn an Income is the single most financially devastating loss that an individual can suffer. If you could not work, how would your family pay its bills ?
- Savings - How long could your family last on your current savings ? According to the Bank of Canada; 4% of mortgage foreclosures are as a result of death, however 48% are a result of Disability.
- Spouse’s Job - According to Statistics Canada; 90% of marriages that experience a permanent disability, fail.
- Family & Friends – Which current relative or friend could afford to keep you and your family as well as their own. (or would want to ?)
- Bank Loans – Which bank do you know that would loan money to a person “without” an income ?
- Business Sale – If you actually own your own business, what is it worth at “fire sale” prices ? What is your inventory worth at the end of the season or after repayment of your line of credit ?
The PGA of Canada provides all members under the age of 65 with a basic Group Disability Insurance benefit of up to $1,000. per month, payable to age 65 after a 120 day waiting period. For the majority of members this is simply not enough.
Every member should work with their financial advisor and/or life insurance broker to develop a family needs analysis and obtain additional personal DISABILITY INSURANCE coverage.
Members should also ask for information about the new CRITICAL ILLNESS coverages that are available.
Jim Hylands
Simmlands Insurance Services Ltd.
Children & Insurance
CHILDREN & INSURANCE
Children are finally arriving at the golf club. Private clubs looking for young middle and upper income executive members must accommodate their children; programs like Future Links encourage youth to play the game; school boards have realized that golf is an excellent training and athletic activity; and of course the “Tiger” attraction is bringing in its following.
Generally this is a good thing, and PGA of Canada professionals are developing and implementing programs and activities specific to this growing demographic group of new golfers.
HOWEVER, children bring a whole new dynamic to the issues of Golf Liability insurance and responsibility. The largest lawsuit to date, in Canada against a professional resulted from injury to a child in a golf lesson. Practices that are fine for your adult members must be modified for children.
Children do not act “rationally” by adult reasoning. Children are erratic and unpredictable. Children do not exhibit good “common sense”. etc. etc. The courts expect YOU (the adult) to be aware of these facts and to take the necessary precautions to ensure that children are not injured, in spite of their own actions. YOU are expected to “foresee” the dangers and prevent them.
What should you do:
- Understand that children are different from adults and watch their behaviour at your facility carefully. (Use these observations to modify your facility, systems and programs.)
- NEVER ASSUME that children will “understand”, will “realize”, will “consider” or that they will use “common sense”.
- Ensure that you have adequate staff to handle children’s programs. (Staff to student ratios may have to be as low as 3:1 or 4:1, depending upon age)
- Ensure that your staff are trained in the differences between handling adults and children. (Remember that some of your staff are not very old themselves) Staff must watch for signs of dehydration, sun exposure, fatigue, insect nests, etc.
- Develop and enforce stringent behaviour standards and ensure that the children are aware of the rules and regulations.
- Identify and remove or protect dangerous equipment and machinery
- Realize that regular golf course equipment, clubs, balls, bar-b-ques etc. can become “weapons of mass destruction” in the hands of an overactive child. (Access to equipment must be controlled.)
- Recognize that children will “fool around” given even one minute of idle time to fill. (Supervision must be constant.)
- Motorized equipment should NEVER be driven by anyone under the age of 16 years.
- NEVER leave children unattended, until they are physically picked up by their parents. Set up a system to ensure that ONLY recognized parents or their recognized alternatives can pick up children.
- Ensure that your staff are properly trained in First Aid and that supplies are available.
- Ensure that you have adequate co-ed staff to handle appropriate groups.
- Ensure that you have SIGNED permission forms for each child including “waivers” of liability. These will probably not be fully enforceable, but they can help to establish that a certain level of risk was expected and assumed by the family.
- Realize that athletic “outdoors” people (like golf professionals) often tend to allow their own children more freedom and risk assumption than others. Be careful that the standards you impose are the ones that would be expected by “conservative” parents.
Much of the “loss control” that is appropriate to children’s programs is a “mind set” issue. You have to realize that your systems and procedures have to be changed and you have to be aware of the high duty of care that courts will impose upon you. Your actions will be judged in perfect hindsight.
Jim Hylands
Simmlands Insurance Services Ltd.
Children and Liability Insurance
Download: ClubPac News – Children & Liability Insurance, November 2003
Tournament Cart Fleets
Tournament Cart Fleets
TOURNAMENT CART FLEETS
It has become a common and economical practice for golf clubs and independent golf professionals to supplement their power cart fleets with one or two day rental fleets to meet the needs of larger tournaments at their facility.
In response to this demand a significant number of Fleet Rental companies have sprung up. Some have written contracts, some do not, some have insurance, some do not, some have good fleet maintenance programs and some do not.
Unlike the Automobile Rental business, there are very few standards in this “cart rental” industry and virtually no controls. While this is a very convenient service, there are a number of insurance related issues that you should be aware of:
Contracts
Many of the fleet rental companies do not have written contracts. They claim that it is too difficult to get contracts out to the clubs to be signed, either because the request to rent is last minute, or the delivery of the carts takes place overnight when no one is around, but at law, an implied contract may still exist, and you don’t even know its terms.
When renting carts and signing either a delivery receipt or a written contract, make sure it is clear WHO is renting the carts, the Club or the Professional, and make sure that you have the legal authority to sign the contract.
Read and understand the contract. Contract law does not have to follow what is normally considered as reasonable and proper. If you sign a contract accepting unreasonable terms, you cannot usually get out of it. The financial costs can be surprising.
Insurance
No Written Contract
Even in the absence of a written contract, the law will impose upon you a fairly broad duty of care for the property in your custody. You will likely be responsible for most damages to the cart(s) unless you can clearly establish that the damage was completely beyond your ability to control or eliminate it, and the ONUS OF PROOF will be on you.
Make sure that you have responsibility agreements in place with each golfer renting a cart or at least with the Tournament Organizer on behalf of all golfers in the tournament.
Check each cart when you receive them from the Rental Company and note any existing damage and check each cart as it is returned to you by the golfers.
Make sure that you follow the Rental Company’s instructions for drop off and pick up procedures carefully.
Make sure that you have BAILEE’S LIABILITY insurance protection in force. General Liability policies EXCLUDE damage to property of others in your Care, Custody & Control.
Written Contract
Most written contracts will contain two “Insurance Clauses”. One to deal with DAMAGES TO THE CART(S) and the other to cover DAMAGE OR INJURY RESULTING FROM THE USE OF THE CART(S).
Damage to Carts – You would of course expect to be responsible for any damage which you, your employees, or your customers cause to the cart(s) in your care. But beware; the written contract may also make you responsible for ALL damage to the carts including things like; lightning strikes, vandalism & theft, (even when the carts are left unattended overnight waiting for pickup), fire, damage caused during loading and unloading, (even if it is as a result of the supplier’s employees actions ), etc.
As the “customer” did you really intend to assume all of the risks for the supplier when you accepted his offer of services ?
Does your insurance cover these contractual obligations ? Just because you signed a contract with the supplier assuming these responsiblities, does not automatically mean that your insurance policy covers it.
Third Party Injury or Damage – It is only reasonable to expect that you would be responsible for injuries to members, injuries to guests, injuries to other golfers and damage to these people’s property IF you, your staff, or your operations, were somehow responsible. It is even reasonable to expect that your insurance contract should defend the Cart Rental company if they are sued “jointly” with you as a result of your actions or activities, however the written contract may go well beyond that.
Contracts often include very onerous clauses requiring you to assume responsibility for both yourself and the Cart Rental company even if the damage or injury results from OWNERSHIP and/or MAINTENANCE.
Is there some reason why you (or your insurer) should be responsible for injuries to third parties resulting from brake failures because of poor maintenance or servicing ? This is far outside the normal scope of your operations and may not be covered by your policy.
Notice Clauses
It is quite common for the supplier’s contract to call for adding the Cart Rental company as an “additional insured” and for you to provide a “certificate of insurance”. Within reason, and within the scope of your operations these are fair requests and can usually be accommodated by your insurer quite quickly.
However, your insurer will likely refuse to accept “blanket” responsibility for everyone if the coverage requested goes beyond your normal scope of duties and will either refuse or charge additional premium. Your insurer will likely also refuse to accept any demands for notification to the Rental Company of cancellation, termination or lapsing of the contract.
In Summary
Read your contract carefully and ask for advice if you are unsure of contract terms. As the “customer” require that unreasonable clauses be removed from the contract. In fact, even better, if the supplier wants your business, why isn’t he providing the insurance and assuming the responsibilities ?
Get a certificate of insurance from the supplier. If he doesn’t have insurance you could be left paying the full tab, even if the court were to find you only 1% responsible.
Jim Hylands
Simmlands Insurance Services Ltd.
Members’ Clubs in Storage
MEMBERS’ CLUBS IN STORAGE
The issue of responsibility for members’ golf equipment in storage continues to be a problem issue for both golf clubs and independent golf professionals. The situation is made worse by the reliance on “tradition” rather than contracts and current legal attitudes.
Bailee’s Liability
When one party takes property belonging to another party into its care, a legal contract of “Bailment” is formed. The law automatically imposes a very strong duty upon the “Bailee” to return the property to the owner at some future time in essentially the SAME CONDITION as when it was received.
A unique feature of Bailee’s Liability is that the ONUS OF PROOF is actually on the bailee. The owner does not have to prove that the bailee damaged the goods. In fact, to avoid responsibility, the bailee must “prove” that some “force majeure”, completely beyond his control caused the damage. In the absence of clear proof, the Bailee is automatically held responsibility.
So, what are the issues that effect a golf club and/or an independent golf professional.
Insurance
It is important to understand that virtually ALL general liability insurance policies EXCLUDE liability for damage to property in your Care, Custody and/or Control at the time of the loss. Unless you have specifically purchased additional “Bailee’s Liability” insurance, you will not be protected by your liability insurer.
Traditional Service
It is, and always has been, common practice at clubs providing storage facilities, to place members’ clubs on power carts or in holding racks 20 to 30 minutes prior to the members’ scheduled tee-off times and to allow members to simply “drop off” their clubs after playing. Members would object to a “check-in / tag” system and the attendant line-ups.
It is common practice for clubs to provide minimal staff to recover, clean and restore members’ clubs, and members would object to increased fees to provide more staff security.
Despite the “Past Traditions” the current Courts have routinely ruled that while these practices and services are convenient for members, they are inadequate and negligent from a security point of view and that the Clubs/Pros are responsible for the losses.
It has always been traditionally “bad form” to sue one’s own golf club, but most modern golfers and certainly their residential insurers don’t care about “manners” when dealing with a $5,000. loss.
Responsibility
It is important that you clarify, in your contract with the club, WHO is in fact providing the club storage and assuming the Bailee’s Liability.
For example; in a recent fire at a golf club, members’ clubs were destroyed. The fire marshal has declared the fire of “Unknown Origin”. In the absence of clear proof of cause, the Bailee is deemed responsible for the property. But who is the Bailee ?
The club collects $80. per year for “cleaning & storage” from every member as part of the annual dues. The club pays the Independent Pro. $80 per year per set to “look after” the storage, and the contract between them does not mention responsibility.
The third party claims being filed by the members’ residential insurers are in excess of $450,000. in total.
Fortunately for the Professional, the club happened to purchase a small amount ($100,000.) of Bailee’s Liability coverage and the current legal opinion is that this is an admission of responsibility by the club.
Waivers
Waivers come in various forms, some of them not valid.
** Signs stating that the club assumes no responsibility are not valid.
** Statements in the club’s by-laws are not valid, (and they don’t protect the independent Pro. anyway).
** “Members know that we don’t accept responsibility”, is not a defense.
** “Members have their own insurance”. It doesn’t matter, 95% of the claims are from residential insurers recovering their losses.
Properly written storage agreements with specific waivers included, SIGNED by each member, are the only valid protection.
Fraud
What easier way to get a new set of golf clubs than to take them home after a game of golf, and then claim that they “disappeared” from the club storage.
Since the Club/Pro cannot prove how the items disappeared, or even if they were “out of storage” at the time, the members’ residential insurer assumes that their loss will be fully recoverable, so they don’t even investigate the claim.
It is also an incredible fact that the “number of items” in the golf bag and their “value”, increase significantly after they disappear.
Costs
Partly because of their “after loss growth” factor, Clubs and Pros tend to underestimate the total value of the equipment in their care. Even on a depreciated basis, the bag, irons, drivers, putters, shoes, rainsuit, etc. etc. will likely be worth in excess of $3,500. per set.
If your club storage facility holds even just 300 sets you could have a liability exposure of over $ 1 million.
Bailee’s liability insurance for this limit could easily cost in excess of $2,500. per year, and be subject to very high deductibles.
In Summary
If you provide club storage at your facility, ensure that it is clearly defined in your contract, WHO is assuming the legal responsibility for the property in storage and then get SIGNED WAIVERS from members, or purchase the appropriate insurance.
Jim Hylands
Simmlands Insurance Brokers
“Quick” Insurance Tips
“QUICK” INSURANCE TIPS
i.) ProShop Theft
Expensive golf equipment is a priority target for thieves. Very high value with a good resale market and no traceable serial numbers. High end drivers and irons are more profitable to steal than jewelry.
a.) Do not display expensive clubs in easily stolen golf bags or racks.
b.) Keep inventory sets in an interior, locked, and alarmed storage room
c.) Remove #6 & #7 irons from all display sets and post a sign that “due to insurance regulations, display sets are incomplete.”
d.) If staff members notice unusual behaviour by potential customers that might be “casing the shop”, move display sets into storage at closing that evening.
ii.) ProShop Alarms
Due to the relatively “remote” location of most proshops, alarms must be appropriate for the location and supplemented with deterrents. Minimum police response time in most areas is 10 to 15 minutes. Organized thieves have stripped proshops of over $15,000. of inventory in less than 90 seconds.
a.) Alarm systems must cover all access points and should include “motion detectors”.
b.) Alarms systems must be “monitored” by a central station and must have “Line Security”.
c.) Loud sirens and flashing lights go a log way to discouraging thieves. Video cameras do little to prevent break-ins at night.
d.) Install security bars or screens on all window and door openings to slow down the entry. The best are the roll down shutter type used in retail malls.
e.) Install vehicle barriers (metal posts, concrete blocks, large landscape rocks) to keep cars, vans and trucks away from your shop. Thieves do not want to have to carry your inventory 100 feet or more from the shop to their vehicle.
f.) Post signs warning of guard dog(s) on the premises. The dog is not really necessary. No-one wants to check for and/or tangle with, a large vicious dog in the dark.
iii.) Members’ Clubs in Storage
When you accept someone’s property into your care, you become a “BAILEE” at law. There is a VERY high duty of care imposed upon bailees. Basically if you cannot produce the members’ property in the same condition in which you received it, then you are responsible for the loss unless YOU can PROVE that the loss was unavoidable. The onus of proof is on you !
Do not assume that members’ residential insurance will take care of the problem. Over 95% of the claims against ProShops for lost clubs are made by the members’ insurance companies trying to recover their losses.
a.) Have members sign “Storage Agreements” each year, including a WAIVER.
b.) If the club provides the storage and simply “contracts” with you to handle the service, get the club to assume responsibility in your contract.
c.) Do not leave members’ clubs unattended on golf carts before or after their round of golf.
d.) Do not allow members access to the storage are.
e.) Do not leave an open storage area unattended.
f.) Create and use a “tagged” check-in / check –out system.
iv.) Power Cart Rentals
Power carts are a chronic source of claims for injuries to riders, other golfers and damage to other property. Modern carts are so “user friendly” that it is easy to forget that you are renting out a Motorized Vehicle.
a.) Maintain your cart fleet in good operating condition and keep detailed records of the regular maintenance. (You may have to “prove” your good maintenance.)
b.) Do not assume that every golfer knows how to operate a cart. It is your responsibility, as the owner, to ask if they are familiar with cart operation and to provide training.
c.) Require tournament or daily use golfers to sign a “Rental Agreement” including both WAIVERS and INDEMNITY clauses. Have members sign one annual agreement.
d.) Limit use to two golfers per cart. Do not allow “non-playing passengers” and prohibit use by golfers under 16 years of age.
e.) Implement a system (Drivers License) for name and address ID to ensure that you can identify the renters of your carts and find them if they cause damages.
v.) Power Carts Damage
Power carts have an irresistible attraction to children and drunks. Every year dozens of carts are taken, joy ridden, and vandalized. Inevitably the vandals prove to be local “kids” or impaired patrons leaving a local bar. Driving the carts into the sandtraps, into the ponds, or into each other seem to be the favorite games.
a.) Extend your alarm system to the cart fleet. Store the carts indoors, inside a fenced, locked and alarmed compound or run an alarm wire through the bumpers.
b.) Install hidden “kill” switches and/or remove spark plugs.
c.) Install motion detector spotlights around the fleet.
Jim Hylands
Simmlands Insurance Services Ltd.
Workers Compensation
Punitive Damages
Golf Balls and the Neighbour
Download: ClubPac News – Golf Balls and the Neigbour August 2000