If you're like many business owners, you probably think your general liability policy gives you enough coverage. But if you serve alcohol and are sued for alcohol-related damages, you might find yourself having to pay for those damages entirely out of pocket.
It depends on the laws in your state and the specifics of your policy, but there's a good chance your liability insurance excludes liquor liability. If that's the case, you'll need to buy a separate policy or an endorsement to reduce your risk.
In this article, we'll cover the some important factors you need to consider when deciding whether you should buy a liquor liability policy.
Dram Shop Laws
Dram shop laws hold servers and sellers of alcoholic beverages liable if they over-serve patrons and those patrons' actions cause harm to themselves, others, or property.
43 states and the District of Columbia currently have dram shop laws, but they're certainly not identical.
Some states allow a plaintiff to sue two or more parties for the full amount of personal injury damages, regardless of their degree of fault.
Other states only consider an establishment or individual liable if they knew (or should have known) that the patron posed a risk to themselves and others.
Virginia, South Dakota, Nevada, and Maryland do not have dram shop laws, and California prohibits civil liability.
Types of Liquor Liability Insurance
Liquor liability insurance provides coverage for bodily injury or property damage for businesses that manufacture, sell, or serve alcohol for a fee.
Businesses at risk include:
- Restaurants, bars, and taverns
- Wineries and breweries
- Caterers and bartending services
- Facility rentals that serve alcohol
This coverage works with your general liability coverage to adequately cover your liquor risk exposures.
Liquor liability insurance excludes coverage for illegal activities, such as serving liquor to minors, selling alcohol after hours, or selling liquor without a license.
Coverage for Occasional Functions
Occasional functions require host liquor liability insurance.
Host liquor liability insurance provides coverage when you don’t normally serve alcohol, but choose to offer it to prospects, customers, and employees during an event.
Typically, a commercial general liability policy includes coverage for occasional events, but check with your insurer in case some restrictions apply.
Host liquor coverage is strictly for occasional events. That means it won't protect you against alcohol-related claims if your business makes, sells, or serves alcoholic beverages as an integral part of your business.
What Are the Risks?
Liability claims resulting from damage or injuries caused by an intoxicated person can be very costly. The most obvious risk occurs when an intoxicated patron leaves your establishment and gets in an accident which severely injures or kills a person. This can result in a lengthy lawsuit seeking compensation for:
- Lost wages
- Medical treatment
- Property damage
- Pain and suffering
Other problems include liquor-induced fights and difficulty removing inebriated patrons from the premises, which could lead to assault or battery charges.
Even if the court rules in your favor, defending yourself can cost thousands. Paying out of pocket for legal fees always damages your bottom line.
Owners and managers also can’t be on hand at every hour of the day to ensure employees serve alcohol properly. Insurance coverage can help mitigate the risk and protect the business interests of those who must delegate some of the work to a supervisor.
Why Your Business Needs It
Even if you're not operating in a state with dram shop laws, it makes sound business sense to carry adequate insurance. Your lender or landlord may require it to minimize risk, too.
Business owners often downplay the risks associated with alcohol service, but this doesn’t mean risk evaporates. Victims of intoxicated patrons can – and do – file lawsuits which result in huge financial losses. Without adequate insurance coverage, your business could shoulder the burden of court fees, legal defense, and punitive and compensatory damages.
Lawsuits affect businesses large and small. In a 2004 case, the courts ordered a small café in Pennsylvania to pay $5 million in punitive damages after a drunken manager struck and paralyzed a person in an automobile accident. In 2005, a landmark lawsuit awarded $135 million to the family of a girl paralyzed by a drunken Giants football fan who had been over-served at the stadium.
Lawsuits can follow any number of incidents, including:
- Motor vehicle injuries or deaths
- Property damage
- Assault and battery
- Sexual assault
- Drunken employees
- Mental injuries following a traumatic event
Factors Affecting the Cost of Coverage
Liquor liability coverage varies by state and insurers rely on a numeric grade to determine risk. States with low numbers have few liquor liability laws and those with high numbers have strict laws and an increased likelihood of lawsuits. As the number increases, so does the cost of liquor liability insurance.
Besides this grading system, insurers also consider many other factors. For instance, the venue type greatly influences the cost since a restaurant serving food is lower risk than a bar only serving alcohol. Insurers may ask what percentage of sales comes from liquor to determine your risk level.
Insurance companies may also ask many questions regarding security, management experience, entertainment, employee training, and loss prevention measures your business uses to minimize risk.
Finding Adequate Coverage
Many insurance companies sell liquor liability policies, but it is important you find appropriate coverage. Here are some important features you’ll want in a policy:
- Assault and Battery Coverage – Some policies exclude coverage or offer very low limits if a fight occurs on the premises and triggers a lawsuit
- Off-Premises Claims – Some policies exclude off-premises coverage for special events or festivals
- Defense Costs – Check that the policy pays for defense costs separately from your policy limit; otherwise, attorneys' fees and other legal expenses can exhaust your policy limit, leaving your business liable for damages
- Employee Coverage – Many policies exclude employees, but if one of your employees drinks while working (even if they’re forbidden to do so) you could be liable
- Sexual Assault – Many policies exclude sexual assault, so an intoxicated patron could cost you dearly if your policy does not include this coverage
- Shootings – Alcohol and firearms are a dangerous combination, so make sure your policy covers this peril
- Mental Injuries – Psychological injuries can lead to lawsuits, too, so make sure your policy covers damages from stress, mental anguish, post-traumatic stress disorder, and other forms of psychological distress
Businesses should not dismiss liquor liability insurance because they believe it is too costly. Serving alcohol exposes you to a lot of liability risks. Even if it's not your main offering, it just takes one drunken patron to land you in court.
When you consider the potential damages, liquor liability insurance really is more affordable than you think.