Underwriters May Ask More Questions In Wake Of Brazil Nightclub Fire

The nightclub fire that killed 235 people in Brazil on Jan. 27 may remind U.S. insurers to ask more questions when underwriting nightclubs, said James Chippendale, an executive at Doodson Insurance Brokerage of Texas.

The fire, which has generated a huge public outcry in Brazil, may also lead to tighter enforcement of safety regulations in Brazil, and ultimately, fewer insurance claims in the future, said Stephen Ixer, an associate at Edwards Wildman Palmer in London.

The fire in Santa Maria, a college town in southern Brazil, was similar to the Station nightclub fire, which killed 100 people attending a Great White rock concert in Rhode Island in 2003 (Best's News Service, March 29, 2011). In both cases, it was more than one mistake that led to the tragedies. Both the Station fire and the Brazil fire had similar situations: pyrotechnics, flammable materials on the ceiling or walls and limited or locked exits.

"After Rhode Island, everyone was asking more questions," Chippendale said. "It's been 10 years since Rhode Island, and maybe it faded from people's memories. This may bring it back onto their radar screens."

The Brazil fire probably won't impact insurance rates in the United States, Chippendale said. "Pyrotechnics in a small venue don't exist in the U.S. anymore," he said. "U.S. venues and promoters have really learned their lesson from Rhode Island."

In Brazil, local authorities are already feeling the pressure and have begun cracking down on those who flout fire regulations, Ixer said.

"Businesses have been closed down in several cities as a result. This may be a knee-jerk reaction but greater awareness among the populace should ensure better adherence to fire safety in the future," he said in an email.

In the short term, there may be a spike in insurance rates if insurers were unaware of lax fire controls at some businesses in Brazil. "However, in the longer term, better awareness and better enforcement of fire regulations should translate directly into fewer fire losses and insurance claims," Ixer said. "This tragic event may even help focus the country on safety issues generally, which can only be good news for everyone."

A wide range of insurance policies are likely to be triggered by such a fire, and everyone involved with the nightclub is likely to be sued, Chippendale said.

Property claims for the building, sound equipment and musical instruments can be extensive, but are usually dwarfed by the liability claims stemming from a fatal fire. Lawsuits are likely to name everyone from the manufacturer of the sound-proofing material and the person who installed it to the security company working the event to the club owners and the band itself, Chippendale said.

"Even a beer company with its name on the napkins can get sued," he said.

Jay Jablonski, vice president and general manager of Hartford Steam Boiler's Professional Loss Control unit, said property risk management and life/safety risk management often go together.

HSB's professional loss control unit considers a building's construction, the use of combustible materials, the placement and maintenance of fire extinguishers, the presence of sprinklers and the condition of the electrical system.

"If a building has sprinklers, it might not prevent a fire from starting but it may help control it," Jablonski said.

Doodson Insurance Brokerage of Texas is part of the Event Safety Alliance, an industry group consisting of entertainment and event executives, risk managers, brokers and insurers, which plans to release an event safety guide in February. The guide provides best practice management techniques for events, addressing everything from staging and weather to pyrotechnics and security.

Chippendale said he'd find it hard to believe that a nightclub fire like this could happen in the United States today due to increased scrutiny on safety regulations since the Station fire.

"There's going to be accidents no matter how much planning you do, but if that one thing happens and everything else is done right, it will be a minimal amount of casualties versus a catastrophic event," he said. "That doesn't mean there isn't a rogue band that starts shooting fireworks...all the planning in the world can't prevent that. But if you have fire-resistant material around the stage, it will be a nuisance, not a fatal day."

Hartford Steam Boiler, a subsidiary of Munich Re, currently has a Best's Financial Strength Rating of A++ (Superior).

(By Meg Green, senior associate editor, BestWeek: [email protected])