A recent post at a prominent club / venue in San Francisco, DNA Lounge:

Several years ago, there was some kind of scuffle and one of our customers who was dancing on the stage fell off and hurt her ankle. She sued us. I’m not sure what exactly her reasoning was, but she did, because this is America, and you can sue anybody for anything. She claimed she had spent $4,000 on medical bills (chiropractors!) and asked for $500,000 in pain and suffering.

We learned in the discovery phase that this woman had also been in three automobile accidents in the previous two years, for which she had been going to chiropractors already. How about that.

We submitted this claim to our insurance company, like you do, and their lawyers handled it. They ended up settling the case by paying her around $11,000. And here’s where it gets fun:

Our deductible was $10,000. So the lawyer, who was working for the insurance company, did right by the insurance company. It only cost them $1,000! But he didn’t try to negotiate anything lower, because that would have been a waste of his time, since he wasn’t working for us, and that was the part we would have to pay. Oh, but it gets better.

It turns out that the fine print on our insurance said, in longwinded, 4-point, incomprehensible legalese, that the rates we had been paying for years were merely "estimates". So after our claim, the insurance company "audited" us, and retroactively raised our rates for the last four years by $20,000 per year. So the fact that we filed a claim at all caused the insurance company to demand an additional $80,000 from us.

At that point, we hired our own lawyer who negotiated that $80,000 down to $40,000, paid out over a year instead of being due immediately. Plus several thousand more for the new lawyer, obviously.

Though the author heaps blame on the plaintiff for what happened here, the outcome would have been exactly the same if the claim had been legitimate: $10,000 out of pocket plus a retroactive bill raising the rates.

There were two causes of this expensive affair: an absurdly high deductible and an unethical, unregulated insurance company.

Every bricks and mortar business which invites customers onto its premises — whether it’s a nightclub, a coffee shop, a computer store, a hair salon, a gym, a jewelry store, a DVD shop, a law firm, whatever — should expect paying its deductible from time to time to defend or to settle claims.

I know, you are perfectly safe, and flawless in your execution of all mundane asks like ensuring walkway cracks are repaired in a timely fashion.

Are your employees? Your customers? The building? The location? In the case above, a fight broke out; not necessarily the club’s fault, but if they had inadequate security and did not react appropriately then indeed their responsibility, at least in part, which in many jurisdictions exposes them to potentially paying the whole judgment.

It’s not like driving a car where you can take a handful of defensive driving steps and dramatically reduce your odds of being at fault. (Even there, you can still expect to cause an accident at some point.) Someone will get hurt, or at least claim they were hurt, at your premises. A nightclub that serves alcohol is continually exposed to liability from multiple sources, like slip and fall, premises security, and dram shop.

A $10,000 deductible sounds cheap when you pay the premium, and it is exactly that: cheap. You’ll pay the deductible more than once. You might pay it every single year.

Moving on to the unethical insurance company, if the insurance company-appointed lawyer "didn’t try to negotiate anything lower, because that would have been a waste of his time," call me. The policyholder’s interests come first. Anything less is bad faith.

As for the "estimated" premium, perhaps this was during the Quackenbush era. That wouldn’t fly in most jurisdictions these days and would form the basis of a fraud, deceptive trade practices, and consumer protection act class action lawsuit and an insurance commissioner investigation.

The post ends:

What’s the lesson here, kids?

I think it’s, "people are scum" and/or "never start a business."

No. A properly-insured business will find a slip and fall soft tissue case to be a minor annoyance for which they will be liable, if at all, a nominal sum.

The lesson is "don’t skimp on your deductible" and/or "regulation of the insurance industry is important."

Did you choose a reasonable deductible? Have you called up your local, state and federal representatives lately to ask what they’re doing to keep insurance companies honest?

And do you know who is trying to protect you right now? Trial lawyers. They’re fighting every day to keep insurance companies from abusing policyholders the way DNA Lounge was abused.

You don’t have to be a lawsuit horror story.