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Do you operate a bar, winery, brewery, bartending service, restaurant or other business that makes money by manufacturing, selling, or serving alcoholic beverages? If the answer is yes, your business could be hit with a costly lawsuit. An inebriated patron could injure someone and the injured party could sue your business for restitution. You can protect your business from liquor-related claims by purchasing liquor liability insurance.
Like most businesses, you are probably insured under a commercial general liability (CGL) policy. The latter covers claims against your business for bodily injury, property damage, or personal and advertising injury caused by an occurrence. 1 The CGL contains a liquor liability exclusion, which excludes claims arising out of any of the following types of acts.2
Claims involving these acts aren't covered if you are in the business of making, selling or serving alcoholic beverages.
Liquor liability insurance covers the types of liquor-related claims that are excluded by the CGL. It is often written on a standard ISO form. The standard liquor liability form covers damages against the insured because of injury for which the insured is liable by reason of the selling, serving or furnishing of any alcoholic beverage.3 The definition of injury includes bodily injury and property damage. 4
Make sure your liquor license is current! Liquor liability coverage excludes injury arising out of any alcoholic beverage that's sold while your license is not in effect.
Many large property/casualty insurers offer liquor liability insurance as part of a business owners or commercial package policy. Examples are Hartford and Progressive. If your general liability insurer doesn't provide this coverage, your agent or broker can help you obtain it from a specialty carrier.
Here are some features to look for when shopping for liquor liability coverage:
No Assault and Battery Exclusion. Many claims against liquor establishments result from fights. Yet, some insurers add an assault and battery exclusion to their liquor liability policies. Businesses that sell liquor should avoid buying a policy that includes this type of exclusion.
Defense Costs Outside the Limit. The cost of defending a liquor liability claim can be significant. The standard ISO form covers the cost of defending claims in addition to the liquor liability limit.2 This means that attorneys' fees and other legal expenses won't reduce or exhaust your policy limit. However, some insurers use proprietary forms and these may include defense costs within the policy limit.
Review defense provisions carefully to ensure your policy covers defense costs outside the limits.
Occurrence coverage. Liquor liability coverage is usually written on occurrence forms. Policies cover claims that arise from injuries that occur during the policy period. Some insurers offer liquor liability coverage on claims-made forms. These forms are more restrictive because they limit coverage to claims made during the policy period. If your general liability coverage is written on an occurrence form, your liquor liability coverage should be written on an occurrence form as well.
Coverage for 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 while others specifically cover them.
Rewards for Safety and Training. Insurers that cater to bars and restaurants may offer free risk management training to policyholders and their employees. Policyholders that complete this training may be eligible for a premium reduction.
Many states have enacted "dram shop" laws that impose liability on liquor servers for injuries caused by intoxicated patrons. The laws vary in severity. For example, Alabama's law permits anyone injured by an intoxicated person to sue the liquor server.5 The plaintiff need not prove that the defendant was negligent or violated any laws. California's law is much more lenient. It bars suits against servers unless they served alcohol to a minor or to someone who was visibly drunk.6
Lawsuits against liquor servers are more likely to succeed in states with strict dram shop laws. Accordingly, liquor liability insurance is more costly in those states. The coverage is cheaper in states with lenient liquor laws.
Written by Marianne Bonner