Host Liquor Liability Coverage

Cocktails in tall glasses with straws and fruit
Image courtesy of [Mark Lund] / Getty Images.

Host liquor liability coverage protects your firm against claims or suits that arise from the serving of alcohol in a social setting. This coverage is important because company-sponsored events can lead to liquor-related claims. Here is an example.

Example

It's a warm spring day and employees of Trusty Tax Services are gathered at a local park for a company picnic. Trusty Tax Services organized the event to celebrate the end of tax season.

The company has provided food and several cases of wine. The festivities have been going on for several hours and are beginning to wind down. Tom, a Trusty Tax Services employee, has polished off a bottle of wine. He's feeling a little wobbly, so he waves goodbye to his co-workers and toddles off to his car.

Tom is about halfway home when he runs a stop sign. There is a loud crash as Tom broadsides a car driven by a local businessman named Sam. Sam is injured and sues Trusty Tax Services. His suit contends that the company was negligent because Tom's superiors allowed him to continue drinking after he was visibly drunk. They also did nothing to prevent Tom from driving even though they could see he was inebriated. Sam seeks $50,000 in compensatory damages. Trusty Tax Services is insured under a general liability policy that includes a $1 million “per occurrence” limit. Will Trusty’s liability policy cover Sam's lawsuit?

The answer is yes.

Exception to Liquor Liability Exclusion

Coverage A under the ISO general liability coverage form (CGL) covers damages against the insured because of bodily injury or property damage. Coverage A contains a liquor liability exclusion. As a result, it provides no coverage for bodily injury or property damage for which any insured may be liable if he or she has done any of the following:

  1. Caused or contributed to someone's intoxication
  2. Furnished alcoholic beverages to someone under the legal drinking age or "under the influence"
  3. Violated a statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages

This exclusion applies only if the insured is in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. That is, the exclusion applies to businesses, such as wineries, taverns, bars and breweries, which manufacture, sell or serve alcoholic beverages.

The liquor liability exclusion does not apply to claims against social hosts, meaning people or companies that serve alcohol in a social setting. The coverage afforded for social hosts is called host liquor liability coverage.

In the Trusty Tax Services example, Tom became inebriated at a social function sponsored by his employer and injured a third party (Sam). Trusty Tax Services is not in the business of serving alcohol. Thus, Sam's claim against Trusty should fall within the exception to the liquor liability exclusion. The claim should be covered by Trusty's general liability policy. 

BYOB Arrangements

Suppose that Trusty Tax Services sponsors a holiday party for employees at its office.

Trusty doesn't provide any liquor at the party but permits employees to bring their own drinks. An employee becomes inebriated at the party after drinking bourbon he brought himself. The drunken employee injures a third party, who then sues Trusty for negligence. Will Trusty's liability policy cover the suit? The answer is likely yes, since Trusty is not in the business of serving alcohol.

Some liability policies specifically address the issue of BYOB (bring your own bottle) arrangements in the liquor liability exclusion. The exclusion states that if your company permits someone to bring alcoholic beverages onto its premises to consume it there, your company is not automatically considered "in the liquor business."  You will not be deemed "in the liquor business" even if you are charged a fee or required to obtain a license for the BYOB activities.

Limits and Defense

Because host liquor liability coverage is automatically included in Bodily Injury and Property Damage Liability Coverage, any damages or settlements the insurer pays for liquor-related claims will reduce the "each occurrence" and "general aggregate" limits in the policy. Court costs, legal fees and other expenses incurred to defend the insured are paid by the insurance company. These costs will not reduce the limits.

State or Local Statutes

The suit Sam has filed against Trusty Tax Services is a common law suit based on negligence. Social hosts may also be liable under state or local statutes. Most social host laws prohibit the serving of alcohol to minors. Some laws also apply to liquor served to adults who are visibly drunk. A person who violates a social host statute may be subject to a fine or even imprisonment. To learn what social host laws apply in your state or community, ask your insurance agent or attorney.

Liquor Liability Coverage

Finally, if your company manufactures, serves or sells alcoholic beverages you need liquor liability coverage. This coverage protects bars, taverns, restaurants and related businesses against claims for injuries caused by intoxicated customers.

Liquor liability coverage may be provided on an occurrence or a claims-made basis. Claims-made coverage is usually cheaper but the policy will cover only claims made during the policy period. A liquor liability policy will not replace your general liability policy. If you own a liquor-related business, you need both coverages.