Liquor Liability Insurance

Protect Your Business From Alcohol-Related Claims

Image courtesy of [John Carey] / Getty Images. Image courtesy of [John Carey] / Getty Images

If your business serves alcoholic beverages, a patron of your establishment could become intoxicated and injure himself or someone else. The injured patron or third party could then sue your business for damages. You can protect your business against liquor-related claims by purchasing liquor liability insurance. This coverage is essential if your company operates a bar, tavern, winery, brewery, bartending service, restaurant or other business that makes, sells, or serves alcohol to others.

Why You Need It

Like most businesses, you have probably purchased a general liability policy. The policy covers claims against your business for bodily injury, property damage, or personal and advertising injury. It includes host liquor liability insurance. The latter covers your liability as a social host. It covers claims against your business that result from the incidental service of alcohol, such as liquor served at a company function. Host liquor coverage WILL NOT protect you against alcohol-related claims if you are in the business of manufacturing, selling, or serving alcoholic beverages.

Businesses that need liquor liability coverage often fail to purchase it. Business owners may underestimate the liability risks associated with intoxicated patrons. A drunken customer of a bar or restaurant may become unruly. He or she may start a fight or attack another patron. Alternatively, the inebriated customer may cause an auto accident after leaving the premises.

Anyone injured in the accident, including the drunken customer, may file a lawsuit against the business that provided the alcohol.

Many businesses purchase liquor liability insurance from the same insurer that provides their general liability coverage. If your liability insurer does not offer this coverage, your agent or broker can help you obtain it from a specialty carrier.

Laws Affect Cost

Many states have enacted "dram shop " statutes. These laws impose liability on liquor servers for injuries caused by intoxicated patrons. The laws vary in severity. The most severe laws impose strict liability on liquor servers. In these states, a server may be held liable for injuries caused by a drunken customer simply because he or she served the alcohol. The injured person need not prove that the seller was negligent.

The cost of liquor liability coverage varies by state. The coverage is cheaper in states with lenient liquor laws and more expensive in states with strict laws. ISO has established a system for grading states based on the risk of liquor liability lawsuits to businesses operating there. Each state is assigned a numeric grade between 0 (no law) and 10 (strict liability law). The risk of lawsuits rises as the number increases, so the cost of liquor liability coverage goes up as well. Some insurance companies that offer liquor coverage have developed their own system for grading states.

What to Look For

Here are some features to look for when shopping for liquor liability coverage:

  • Assault and Battery Coverage Many claims against bars and restaurants result from fights. Yet, some of these claims may be excluded by the expected or intended injury exclusion that appears in many liquor liability policies. Fortunately, you can buy back this coverage by purchasing insurance for assault and battery claims. A liquor liability policy that does not include assault and battery coverage has limited value.
  • Defense Costs The cost of defending a liquor liability claim can be significant. Be sure your policy pays for defense costs outside the policy limit. That is, the cost of defending claims should be covered in addition to your liquor liability limit. Otherwise, attorneys' fees and other legal expenses could reduce or exhaust your policy limit, leaving little or no insurance to pay for damages.
  • Employees Included If you serve alcohol, your employees may drink on the job, even if you have forbidden them to do so. Look for a policy that covers employees as patrons. Some policies specifically exclude employees.
  • Covers Mental Injuries Claimants may allege that they were injured in non-physical ways. They may seek damages for stress, mental anguish, or psychological injury. Some policies exclude such injuries. Be sure your policy covers damages for mental injuries.
  • Rewards for Safety and Good Claims History Insurers that are market leaders in bar and restaurant insurance offer free training to policyholders. Policyholders that complete this training may receive a discount on their premium. They may also receive a premium reduction in exchange for a good loss history.

Finally, liquor liability insurance may not cover certain claims arising from the sale of liquor in a manner that violates the law. For example, no coverage will apply to a lawsuit that alleges that you sold alcoholic beverages without a liquor license.

Edited by Marianne Bonner