Insurance Coverages Needed by a Bar

Insure your Tavern, Bar, or Liquor Establishment

Barman making an espresso martini at Luxe Bar
Image courtesy of [Orien Harvey] / Getty Images.

Like any business, a bar or similar operation requires insurance. This article will describe the types of coverages a liquor establishment is likely to need.

Property Insurance

Commercial property insurance will protect your business from losses resulting from physical damage to property you own. Such property may include the building where your bar operates and personal property you use in your business.

Many bar owners obtain property insurance as part of a package policy. Some insurers offer policies that are specially tailored to liquor purveyors.

You can insure your property based on its actual cash value (ACV) or its replacement cost. Replacement cost coverage is more expensive but is a good investment. Many bar owners are unable to remain business after a large loss unless they have purchased replacement cost coverage. If you own your building, you should also consider purchasing building ordinance coverage. The latter ensures that your policy will cover the cost of upgrades required by building codes when a damaged structure is repaired or replaced.

To determine the limit of insurance to purchase, you'll need to estimate the cost of replacing all of your property. This is the amount you would have to spend to replace your building, fixtures, refrigerators, stock, and other property if it were destroyed by a fire or other peril.

Note that many property policies do not provide replacement cost coverage for artwork, collectibles, bric-a-brac and the like. These items are covered on an actual cash value basis. If your bar has unique décor, such as a moose head or license plate collection, you may need to purchase fine arts coverage.

This coverage can help avoid disputes with your insurer over the value of unique items that have been are damaged or destroyed.

Suppose that the building in which you operate your bar is badly damaged by a fire. You are forced to shut down your business until the building is repaired. Most standard property policies do not cover income you lose during a shutdown. To safeguard your business against income losses, you'll need to purchase business income coverage.

Finally, property policies exclude damage caused by flood or earthquakes. If your bar is located in an area prone to one of these hazards, you should consider purchasing flood insurance or earthquake coverage.

Liability Insurance

Liability insurance is essential for a liquor establishment. You'll need both general liability and liquor liability coverages.

General Liability Coverage

A general liability policy protects your business against claims or suits by third parties (including patrons) for bodily injury or property damage they sustain on your premises. An example is a claim by a customer who slipped and fell on the floor of your bar, breaking his leg. Most general liability policies automatically include product liability insurance.

This insurance covers claims for bodily injury or property damage that arises out of a product you sell. For instance, a customer becomes ill from a tainted sandwich he purchased at your bar and sues you for bodily injury. Your liability policy should cover the claim. 

Some bars provide entertainment such as a live band. Others offer amusements like pool tables or mechanical bulls. Bars that engage in such activities may pay more for liability insurance. Some types of activities, such as pyrotechnic displays or trampolines, may be excluded from coverage.

Liquor Liability Coverage

General liability insurance will not cover claims against your business that arise out of the sale or service of alcoholic beverages. Such claims are excluded via the liquor liability exclusion. Thus, any establishment that sells liquor needs liquor liability coverage.

In some states, this coverage is required as a condition of obtaining a liquor license.

The cost of liquor liability coverage depends on several factors. These include the nature of your business, the percentage of your total sales that is comprised of alcohol sales, and the state in which you operate.  Generally, you'll pay more for insurance as your alcohol sales increase relative to your total sales. Moreover, liquor liability coverage is more expensive in states that hold bars owner liable for injury to third-parties caused by an intoxicated patron. It is important that you understand how the liquor laws apply in your state. Ask your attorney to explain them to you.

Some claims fall into "gray areas" between general liability and liquor liability. Such claims can generate disputes between general liability and liquor liability insurers. You can avoid these disputes by purchasing liquor liability and general liability coverages from the same insurer.

Assault and Battery Coverage

The standard (ISO) general liability and liquor liability forms don't specifically exclude assault and battery. However, these forms do exclude injury that is expected or intended from the standpoint of the insured. Actions by a bar owner or employee against an unruly patron may result in injury to the patron. If the patron sues you or your business, the suit could fall under the "expected or intended injury" exclusion. Thus, when buying liability insurance for a liquor establishment, look for a policy that covers assault and battery claims under both general liability and liquor liability insurance.

Other Coverages

Besides property and liability coverages, a bar owner may also need commercial auto and workers compensation insurance. You should consider buying commercial auto liability coverage if you use autos in your business. This includes autos your business doesn't own, such as a vehicle owned by an employee. If your business employs workers, you'll need to purchase a workers compensation policy.

Article edited by Marianne Bonner