Casinos as Absolute Insurers

written by I. Nelson Rose

#158© Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose,

Rather leave the crime of the guilty unpunished than condemn the innocent.

Marcus Tullius Cicero

Letting the guilty go free, rather than punish the innocent, might be a noble goal for criminal law. But governments often decide it’s no way to regulate legal gambling.

The horseracing industry has long had a doctrine known as the absolute insurer rule. If a horse runs a race with an illegal drug in its system, the trainer is liable, and will be fined — even if the trainer was in another state at the time.

Now, the Nevada Gaming Control Board has imposed a similar standard on casinos.

Planet Hollywood was fined $500,000, and another $250,000 if it does it again, because the casino knew — or should have known — that some lewd and possibly illegal activities were taking place in the Privé nightclub on its grounds.

The “should have” standard is common for claims of negligence. But it can easily slip into strict liability: Regulators, not operators, ultimately have the final say on whether the casino’s actions were reasonable.

Here, the Board held Planet Hollywood liable, even though the club was a completely independent business.

The Board has sent letters to as many as eight other casinos warning about improper activity. In 2006 and again in April, 2009, the Board posted warnings about problems in casino resort nightclubs, ultra lounges and European (topless) pools.

The problems are not small stuff. From the April 9, 2009 warning, signed by Board Member Randall E. Sayre:

Some of the issues related to the aforementioned venues that have surfaced over the last few years include: excessive inebriation; drug distribution and abuse; violence; overt sexual acts in public areas; acts deemed lewd, indecent or obscene; presence of minors; mishandling of incapacitated individuals (“dumping”); date rape, extortion/misquoting of service charges; restricted access by law enforcement; lack of coordination with licensee security; and prostitution.

Sayre also made it clear who would be held responsible, regardless of the legal structures separating the casino and clubs:

[I]t is the Nevada gaming licensees’ responsibility to ensure operations conducted within the boundaries of their property are run in accordance with all laws and regulations and in a manner that does not reflect badly on the State of Nevada or its gaming industry.

The $500,000 fine, and loss of Privé’s liquor license, shows the Board is tired of being ignored.

“I’m not going to write any more letters,” Sayre was quoted as saying in

Planet Hollywood faced major legal problems somewhat of its own making. Every casino licensee knows that it can be held ultimately responsible for almost anything serious that goes wrong on its grounds. And if it did not know when it opened, it certainly knew after receiving more than one warning from the state gaming regulator.

But Planet Hollywood made the mistake of agreeing with the club’s owner that casino security officers were not even allowed to enter without a club employee. So, the gaming operator was legally responsible for activities in the club, but did not have a free hand to police what went on.

Of course, in hindsight, the club owner’s name should have been a clue that something could go wrong: Privé is owned by the Opium Group.

Planet Hollywood also suffered because the club apparently refused to cooperate with the regulators. As we recently learned, even a Harvard professor can get arrested on the steps of his own home when he yells at police and refuses to give authorities identification containing his address.

The result was a potential nightmare for the casino. The Board filed a 15-page-long Complaint on July 9, 2009, containing nine counts and 77 paragraphs. Besides the list of horribles from the prior warning letters, the Board included descriptions of the large percentage increases in calls to Clark County Fire Department Emergency Medical Service and Las Vegas Metropolitan Police Department. The paramedics took 106 calls over an eight month period for the following categories: hemorrhage/laceration, overdose/ingest poison, traumatic injuries, unconscious/faint, assault/rape, breathing problems and unknown. Metro saw a doubling of calls for service regarding guns and for fights, and a 500% increase for service for narcotics.

Enter the smart and experienced gaming lawyer.

Frank Schreck, who represents Planet Hollywood, understands that regulators can literally impose the death penalty – they can take away the casino’s gaming license. He knew that the best way to handle a mess like this, is to do exactly what the regulators want, starting with apologizing.

“We didn’t execute proper supervision and we’re the message being sent to the rest of the industry,” Schreck said.

The main thing to do when a scandal hits is to end it as quickly as possible. A public relations problem only grows by ignoring it. We have never had a world as hungry for news of any kind – especially if it involves sex and embarrasses the rich – as today.

Planet Hollywood quickly signed a stipulation, agreeing to every allegation in the Complaint. This was another smart move, because a scandal like this will only grow with time.

Schreck also announced that the leases between the casino and its clubs had been rewritten, giving the gaming operator control.

It is interesting to note that while the absolute insurer rule is gaining in the casino industry, it is losing some of its power in horseracing. The California Racing Board, for example, has added a regulation allowing a trainer to show “that he made every reasonable effort to protect the horses in his care from tampering…”

That is probably the real bottom line for casinos. The owner of the gaming license has to be able to show that it has written into its agreements with its clubs that the casino’s agents have free access to all parts of the property at all times. The casino has to have the last word on any dispute. And failure of the clubs to cooperate with the owners or with any of its many regulators is grounds for instant termination.

And then the casino has to be proactive in putting procedures into place.

Because it really is a casino owner’s responsibility to ensure that its nightclubs don’t look like scenes from the movie “Caligua.”

© Copyright 2009. Professor I. Nelson Rose is recognized as one of the world’s leading experts on gambling law. He is a consultant and expert witness for federal, state and tribal governments and industry. His latest books, Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website,

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I. Nelson Rose

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