Understanding Insurance for Party Rental Businesses: Key Insights from Alex Cossio

In a recent interview, Matthew from Big and Bright Inflatables sat down with Alex Cossio, Area Vice President of Replacement Services and a seasoned insurance broker with extensive experience in the party rental industry. Alex shared valuable insights on the essential insurance policies for party rental businesses, focusing on bounce house operations, and offered practical advice for business owners. Below is an outline of the key points discussed, providing a comprehensive guide to navigating insurance in this high-risk industry.

 

1. Introduction to Alex Cossio’s Expertise

• Background: Alex has spent his career in the insurance industry, working on both the carrier and retail agent sides, now serving as a wholesale insurance broker.
• Family Legacy: His family has been involved in providing affordable insurance and education to the party rental industry for over 20 years, with his father, Larry, being a pioneer in the field.
• Current Role: As a wholesale broker, Alex works with retail agents to secure coverage for complex risks, including the inflatable rental industry, through an exclusive program with Hudson Insurance Group.

2. General Liability Insurance: The Cornerstone of Coverage

• What It Covers: General liability insurance protects against bodily injury and property damage claims, but coverage typically requires proof of negligence, often through a lawsuit.
• Why It’s Essential: Venues like schools or parks often require proof of coverage and may request to be named as additional insureds, ensuring they are defended if included in a lawsuit due to the rental company’s negligence.
• Key Considerations:
  • Additional insured endorsements (e.g., CG 2011 or CG 2026) are common and usually cost-free unless specific endorsements like waivers of subrogation are required.
  • Claims can take years to resolve, leaving an open loss on your record, which may significantly increase premiums (e.g., from $5,000 to $25,000+ annually).

3. Participant Accident Insurance: A Critical Supplement

• Purpose: Covers minor medical expenses (e.g., broken bones, knocked-out teeth) without requiring negligence, acting as a “sacrificial lamb” to prevent claims against the general liability policy.
• Coverage Details:
  • Typically ranges from $5,000 to $25,000 per incident, acting as excess coverage over a claimant’s primary health insurance or as primary coverage if they lack insurance.
  • Can cover volunteers and 1099 subcontractors, who are not covered by workers’ compensation, for a small additional premium (e.g., $100–$250/year).
• Benefits: Affordable (e.g., $350/year minimum premium), quick claim processing (about a month), and helps de-escalate situations by covering out-of-pocket costs, reducing the likelihood of lawsuits.

4. Inland Marine Insurance: Protecting Equipment

• What It Covers: Protects mobile equipment like bounce houses, not just in storage but also in transit or at event sites, covering risks like theft or catastrophic losses (e.g., a storage facility fire).
• Best Practices:
  • Use for significant losses rather than minor damages, as claims can lead to non-renewal or higher premiums.
  • Include miscellaneous items like stakes and extension cords in your inventory.
  • Update coverage annually or after major purchases to reflect increased inventory value.
• Valuation: Equipment less than five years old is typically covered at replacement cost; older equipment is covered at actual cash value (depreciated).

5. Workers’ Compensation Insurance

• Purpose: Covers job-related injuries and lost wages for W2 employees, but not 1099 subcontractors or owners (though owners can opt for coverage).
• Key Points:
  • Premiums are based on payroll and job duties, with higher rates for riskier tasks like equipment setup compared to clerical work.
  • Dividing tasks among employees can lower premiums by avoiding the highest-risk class codes.
  • Some states may not require workers’ comp for small payrolls, but venues may mandate it for events.
  • Ensure coverage extends to all states where work is performed to avoid coverage gaps.

6. Commercial Auto Insurance

• Coverage Needs: Essential for vehicles used in business operations, especially for deliveries and pickups, which are considered commercial exposures.
• Key Considerations:
  • Personal vehicles used for business may require hired and non-owned auto coverage if the business (e.g., an LLC) does not own the vehicle.
  • Trailers can be covered under commercial auto policies, not always inland marine, to address damage or theft.
  • Minimum recommended coverage is $1 million combined single limit (CSL).
  • Loading/unloading incidents (e.g., scratching a vehicle in a driveway) fall under commercial auto, not general liability.

7. Additional Recommended Policies

• Cyber Liability: Protects against data breaches, especially for businesses storing customer information or processing payments, covering notification and credit monitoring costs.
• Abuse and Molestation Coverage: Critical for businesses staffing events, as general liability excludes these claims; accusations alone can lead to significant losses.
• Employment Practices Liability (EPLI): Covers lawsuits related to discrimination or wrongful employment practices, which are excluded from general liability.
• Pollution Coverage: Addresses claims from chemical runoff (e.g., cleaning bounce houses), which are not covered by general liability.
• Travel Accident Coverage: Provides benefits like accidental death and dismemberment or medical coverage for business travel, including international trips, at a low cost.

8. General Insurance Tips for Party Rental Businesses

• Day-One Must-Haves: General liability and participant accident insurance are essential for new businesses with limited units.
• Shopping Insurance: Limited carrier options mean multiple agents may approach the same insurers, so focus on complete applications and provide loss runs early.
• Avoid Lapses: Policy lapses, especially for non-payment, can harm your marketability and lead to fully earned premiums (no refunds on cancellation).
• Audits: Comply with policy audits, even after switching agents, to maintain a good reputation with carriers.
• Read Your Policy: Review exclusions in your general liability policy to identify gaps and consider additional coverages to address them.

Conclusion

Alex Cossio’s insights highlight the importance of a strategic approach to insurance for party rental businesses. General liability and participant accident insurance form the foundation, while inland marine, workers’ compensation, commercial auto, and specialized coverages like cyber liability and abuse/molestation protection address specific risks. By understanding these policies and maintaining continuous coverage, business owners can protect their operations and ensure long-term success in a high-risk industry.