Liquor Liability Insurance:
Everything There Is To Know
What is liquor liability insurance?
Liquor liability insurance is an insurance policy for businesses that sell or serve alcohol to customers. It provides coverages for alcohol-related claims arising due to the actions of drunken patrons. This policy is sold as an add-on to a commercial liability policy or as a separate liability policy as well.
Liquor liability insurance generally provides coverages for:
- Medical expenses
- Legal costs
- Property damage costs
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Why do businesses require liquor liability insurance?
Businesses usually have a commercial general liability which protects them from claims of bodily injury, property damage, as well as advertising injury resulting from a business operation on the business premises. However, you should remember that the CGL only protects if the loss is a result of a spontaneous occurrence. CGL excludes compensation for any claims arising due to the consumption of alcohol. According to Insurance Journal, many small businesses take their chances with proper liquor liability coverage either to save money or due to unawareness. In such a scenario, businesses can find themselves exposed to the risk of a liquor liability lawsuit.
Liquor liability insurance is essential for businesses operating in states that follow the dram shop law. The general idea is that the dram shop law holds businesses accountable for selling alcohol to an intoxicated person if it causes property damage, injuries, or even death.
What are the state requirements for liquor liability insurance?
The scope of requirements for liquor liability policy varies from state to state.
Insurance Services Office introduced a scale of 1-10 for each state. That grades represent the extent of liability a state imposes establishments dealing with alcohol or alcohol-related products. A state with lower grade has lesser exposures for establishments operating with sales or supply of alcohol.
- Grade 0:
States with grade 0 hold businesses accountable for bodily injury, property damage, or death caused by an intoxicated patron. The parties that come under Grade 0 are as follows: manufacturers, wholesalers, and distributors.
- Grade 1-9:
States with grades 1-9 hold businesses dealing with alcohol accountable on varying degrees. A liquor vendor can be liable for bodily injury, property damage, or death caused by an intoxicated patron.
- Grade 10:
States with grade 10 impose strict liability on parties that supply, furnish, vend, or sell liquor. Simply providing alcohol to a patron who then goes on to cause injury, damage, or death can result in legal ramifications.
Currently, 35 states and the District of Columbia hold businesses responsible if they serve alcohol illegally. That means a business is liable if they sell alcohol to:
- Visibly intoxicated people
Other states with dram shop laws limit liability to cases where establishments serve alcohol to a minor.
Only states without dram shop laws are:
- South Dakota
Always check with your state’s regulatory body to make sure your business adheres to the requirements of the state as they can change frequently.
What coverages does liquor liability insurance provide?
A standard liquor liability insurance policy offers following coverages to policyholders:
Third-party bodily injury:
An intoxicated patron is likely to injure another person inside or outside your business premises. In such situations, liquor liability policy will help you pay for both medical and legal fees in case you get sued.
For example, one of your patrons went for a round of binge drinking. Unfortunately, they run into another customer causing them to fall. Your customer breaks an arm. Your customer then sues your business to recover medical expenses. In this situation, your liquor liability insurance will cover for the medical expenses such as the ambulance ride and visit to the emergency room.
Third-party property damage:
If your drunken patron damages or destroys another person’s property, liquor liability coverage can cover for the cost of replacing or repairing the property.
For example, a drunken patron leaves your bar. In their drunken haze, they then stumble onto a car and then break a side view mirror. Your liquor liability policy will then cover the damage costs.
These are some of the basic coverages your liquor liability insurance will provide you. However, you can always tailor policies to fit your requirements. As a business owner, you may want to add other coverages to your standard policy.
Here are some additions and features you can look into while shopping for your liquor liability coverage:
Legal fees coverage:
According to CNN, binge drinking brings damages worth $249 billion a year. While $29 billion of the cost comes from health-related problems; alcohol-related deaths, crime, and property damage make up the remaining share of the pie. Such staggering numbers make it evident that lawsuits are a common occurrence. Liquor liability insurance helps you cover for costs if a lawsuit is filed against you over an incident caused by a drunken patron. It covers several cost factors. Such as: court costs, attorney’s fees and settlements.
You should always review defense provisions carefully to make sure that your policy covers defense costs outside the limits.
Assault and battery exclusions:
Many businesses face the possibility of violence due to a rowdy customer, employee, or tenant. A drunk patron may cause a fight to break out in your restaurant. This in turn, results for your customer to face injury. While it a logical thought process to think that the assailant is liable in such situation, a business is also held accountable on the grounds of negligence. Under the dram shop laws, if your drunk patron engages in any form of assault and battery, you will also be held accountable due to liquor liability.
Generally, insurance covers only fortuitous acts. These involve damage to property or bodily injury from a normal business exposure. Some liquor liability policies have an assault and battery exclusion. Careful review of your coverage can help ensure you have the appropriate protection.
Mental injuries coverage:
It is a high possibility that victims of liquor induced incidents may claim for non-physical damages. They may file claims for stress, mental traumas, or psychological pains. Not all policies provide this coverage unless it has been added. If this comes as an exclusion under your liquor liability policy, you must look into this endorsement.
What other coverages can you consider along with liquor liability insurance?
There are other coverages that you must also consider for your business. After all, liquor liability insurance, though a necessary insurance policy, only covers for third-party claims resulting from the actions of a drunk patron. Other coverages you should consider along with a liquor liability policy are:
General liability insurance:
As mentioned earlier, liquor liability only covers a business for third party claims that result from the actions of a drunk customer. Third-party bodily injury and property damage that result from normal business activities are not covered by liquor liability insurance. You will need a separate general liability insurance to cover for such claims.
Commercial property insurance:
Commercial property insurance protects your commercial assets from hazards such as fire, theft and natural disasters. This coverage is not provided by liquor liability policy.
Business owners policy (BOP):
Business owners policy usually bundles both CGL and commercial property insurance to provide more comprehensive coverage to businesses. A BOP helps to reduce rates for an insurance policy that would otherwise cost higher when purchased individually. This gives you the room to spend money on purchasing liquor liability insurance coverage. You can always opt to add a liquor liability insurance policy as an endorsement to your standard BOP.
Workers compensation insurance:
A liquor liability insurance does not cover for employee injuries resulting from job-related hazards. for that, in addition, owners of establishments will need separate workers compensation insurance coverage.
What lines of business need liquor liability insurance?
Selling and serving alcohol are not only limited to bars and nightclubs. A customer can make alcohol purchases from convenience stores, restaurants, hotels or even consume it in events. Therefore, various lines of business also require liquor liability insurance as an add-on in their insurance policies. These include insurance such as:
If you’re hosting an event where you serve alcohol to your guests, it is best if you check whether your insurance policy includes event insurance as well. According to FindLaw, 18 states have general social host liability statutes and 9 states have social host laws specific to minors. Under the social host law some states even hold hosts, event planners or servers responsible for the actions of drunk guests.
Gas station insurance:
According to IBISWorld, there are 61,980 gas stations with convenience stores in US as of 2020. A lot of the gas stations also sell liquor in said convenience stores. If you operate your gas station in a state where dram shop laws are operational, you will need a liquor liability insurance coverage included in your gas station insurance package.
According to the Nielsen CGA Hotel Report, hotel bars are becoming the next big destination for American drinkers today. The report states that although 46% percent of Americans would drink an alcoholic beverage during a regular drinking occasion, the number rose to 51% when they were staying in a hotel. Moreover, with such high numbers of alcohol consumption happening in hotels, it is no secret that liquor liability would be a good add-on to standard restaurant insurance.
Lines of businesses that need liquor liability coverage
With the SIC Codes in mind, the following businesses need Liquor Liability Insurance:
- Breweries and Wineries
- Liquor stores
- Grocery Stores that sell beer
- Event spaces
It is also important to remember that it is the state’s dram shop laws that dictate who is accountable for alcohol-related incidents.
What does liquor liability insurance not cover?
There are various liquor liability exclusions that you should know. Standard exclusions include the following:
- Anticipated or intended injuries:
An insured will not get coverage for any intended or anticipated injuries.
For example, your patron gets drunk and starts to create a ruckus. They start showing violent behavior and try to hit one of your other customers. You then step in and push the intoxicated individual to protect your customer, but in the process, the patron gets injured. In this instance, your insurance policy will not cover the resulting medical and legal expenses.
- Liquor license not in effect:
An insured does not qualify for liquor liability coverage if their license was not in effect during the time of injury or loss.
- Offsite alcohol transactions:
Offsite coverages may or may not be covered by liquor liability insurance. It is because it depends on what kind of policy the insured is purchasing.
How much does liquor liability insurance cost?
Liquor Liability Insurance FAQs
Due to the unique nature of liquor liability coverage, some questions arise concerning the policy. Following are the questions that are often asked are: