Legal Hypothetical - Opening a Gym (Not Really Going to Happen)

[alfred russel]

Climbing has exploded in popularity, and gyms are getting absurdly crowded. At the same time, their insurance costs are supposedly obnoxiously high and going up (gyms are increasing prices, and attributing it to this, though I suspect it is more supply and demand).

My radical solution: open a gym without insurance. How it would work: establish three companies.

Company A: Owns the land and building.
Company B: Owns the climbing equipment.
Company C: Leases the land and building from company A and climbing equipment from company B to run the climbing gym.

All the leases are not especially long term - say 1 year.

If there is a significant lawsuit, Company A should not be at fault, and Company B likely won't be (there could be an issue with the climbing equipment, but accidents are generally human error). If Company C stays thinly capitalized, it can go bankrupt without significant losses to the owners.

In the event third parties take over Company C, Company A and B can simply refuse to renew the leases and operations can resume with a new company with the previous ownership in no more than a year (if the leases were no more than a year).

My friends think that I am a deluded madman. What says languish?

[mongers]

Climbing has exploded in popularity, and gyms are getting absurdly crowded. At the same time, their insurance costs are supposedly obnoxiously high and going up (gyms are increasing prices, and attributing it to this, though I suspect it is more supply and demand).

My radical solution: open a gym without insurance. How it would work: establish three companies.

Company A: Owns the land and building.
Company B: Owns the climbing equipment.
Company C: Leases the land and building from company A and climbing equipment from company B to run the climbing gym.

All the leases are not especially long term - say 1 year.

If there is a significant lawsuit, Company A should not be at fault, and Company B likely won't be (there could be an issue with the climbing equipment, but accidents are generally human error). If Company C stays thinly capitalized, it can go bankrupt without significant losses to the owners.

In the event third parties take over Company C, Company A and B can simply refuse to renew the leases and operations can resume with a new company with the previous ownership in no more than a year (if the leases were no more than a year).

My friends think that I am a deluded madman. What says languish?

[Grey Fox]

Yes, quite assholish thing to do.

Probably already exist.

[Barrister]

1. I am not licensed to practice law in Georgia.

2. Generally though, you should google the phrase "piercing the corporate veil".  It can be done, although there is much litigation on the topic.  And even if you ultimately win, you have a potentially lengthy court battle to fight.

3. That's one of the advantages to having insurance.  If you do get sued, it's your insurer who pays for and retains your lawyers.  Insurance is just as much about protecting you from legal bills as it is from liability.

[The Minsky Moment]

Limited liability is a mostly reliable shield against debts (contract liability) assuming properly formalities are maintained.  It is not always reliable shield against tort liability however. If there is an accident then Company C may not be the only defendant - the individuals and agents responsible for the decision making or conduct that led to the accident (i.e. you) may be named as defendants as well. That's basic common law principles - but then you have to deal with state and local laws and regulations that address consumer-facing businesses generally and health and fitness facilities specifically. Even if local and state law permits operation of such a business without insurance, it may be considered a fraudulent or negligent act to fail to inform consumers of the uninsured status of the facility.

Bottom line - plan seems very dubious, I wouldn't consider without careful consultation with counsel and planning, and even then I would be skeptical.

EDIT: Re BB comment above your risk is not so much veil piercing - which is tough for a plaintiff to pull off - as the possibility that a negligent or responsible individual can be sued directly in tort.

[The Minsky Moment]

(there could be an issue with the climbing equipment, but accidents are generally human error).

See there is the problem.  Human error => human defendant.

[The Brain]

Good luck with your gym!

[Admiral Yi]

I'm guessing as part of the licensing process you have to show insurance.

[alfred russel]

Limited liability is a mostly reliable shield against debts (contract liability) assuming properly formalities are maintained.  It is not always reliable shield against tort liability however. If there is an accident then Company C may not be the only defendant - the individuals and agents responsible for the decision making or conduct that led to the accident (i.e. you) may be named as defendants as well. That's basic common law principles - but then you have to deal with state and local laws and regulations that address consumer-facing businesses generally and health and fitness facilities specifically. Even if local and state law permits operation of such a business without insurance, it may be considered a fraudulent or negligent act to fail to inform consumers of the uninsured status of the facility.

Bottom line - plan seems very dubious, I wouldn't consider without careful consultation with counsel and planning, and even then I would be skeptical.

EDIT: Re BB comment above your risk is not so much veil piercing - which is tough for a plaintiff to pull off - as the possibility that a negligent or responsible individual can be sued directly in tort.

My uninvolved brother would need to own company b and c...I'd of course need to hit any legally required insurance needs (I don't think they exist in Georgia beyond worker's comp) and I'd add to the significant waiver that everyone has to sign before using climbing gyms that they understand the gym does not have adequate insurance - disclosing that just seems like good business anyway to discourage lawsuits. I doubt anyone undeterred by the standard liability waiver you sign in a climbing gym will suddenly be deterred by that.

[crazy canuck]

1. I am not licensed to practice law in Georgia.

2. Generally though, you should google the phrase "piercing the corporate veil".  It can be done, although there is much litigation on the topic.  And even if you ultimately win, you have a potentially lengthy court battle to fight.

3. That's one of the advantages to having insurance.  If you do get sued, it's your insurer who pays for and retains your lawyers.  Insurance is just as much about protecting you from legal bills as it is from liability.

Not really the problem under the proposed scheme.  His problem is going to be one of personal liability as the tortfeasor who acted negligently and so his shares in A are likely going to be attached anyway.  Also B and C are likely direct defendants.  There is a good business reason to be adequately insured.

My uninvolved brother would need to own company b and c...I'd of course need to hit any legally required insurance needs (I don't think they exist in Georgia beyond worker's comp) and I'd add to the significant waiver that everyone has to sign before using climbing gyms that they understand the gym does not have adequate insurance - disclosing that just seems like good business anyway to discourage lawsuits. I doubt anyone undeterred by the standard liability waiver you sign in a climbing gym will suddenly be deterred by that.

Not sure that is going to help you as an individual defendant.

[alfred russel]

I'm guessing as part of the licensing process you have to show insurance.

Google seems to say only worker's comp in Georgia (which is required with 3 or more employees).

[alfred russel]

Not sure that is going to help you as an individual defendant.

Obviously I would be bankrupted.

[Sheilbh]

Under English law there's an emerging doubt over whether group companies can limit tortious liability. And I also think for health and safety specifically parent company's can be liable for negligence by subsidiaries.

Also a consumer or quasi-consumer v a corporate is likely to get more generous and creative interpretation by the courts.

But this is nowhere near an area I know anything about.

[crazy canuck]

Not sure that is going to help you as an individual defendant.

Obviously I would be bankrupted.

And so your upside of not getting insurance is?

[Legbiter]

Don't pick pennies in front of a steamroller.