By Michael Steele Commercial Insurance November 24, 2020

All About Liquor Liability Insurance

According to a report from John Hopkins University’s Center on Alcohol Marketing and Youth, a total of 44 states and the District of Columbia have enacted liquor liability laws that apply to social or commercial retailers who serve alcohol to patrons.

But how does liquor liability insurance work? What are some common examples of the insurance at work, and how much might you expect to pay? I’ll answer some of the most common questions here.

How Does Liquor Liability Coverage Work?

If your business serves, sells, distributes, manufactures, supplies, or otherwise generates a profit from alcohol, a basic general liability policy excludes coverage. So, what can you do?

Pro tip: Keep in mind that liquor liability isn’t designed to replace a general liability policy. In other words, you might need to carry both forms of insurance at the same time.

The Insurance Information Institute reports that liquor liability insurance, also commonly referred to as dram shop insurance, which you can purchase as a standalone policy or as an endorsement to many GL policies, provides coverage for bodily injury and property damage as a result of:

“Causing or contributing to the intoxication of any person
Furnishing alcoholic beverages to a person under the legal drinking age or under the influence of alcohol
And violating any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.”

A few examples of businesses that can benefit from liquor liability insurance include restaurants, bars, taverns, caterers, breweries, wineries, grocery stores, and liquor stores.

It’s important to point out that liquor liability insurance requirements can vary widely by state. For example, many states will not issue a liquor license to businesses without liquor liability insurance. However, other states like Texas and Louisiana might not require coverage, although business owners remain exposed without it in place.

With these details in mind, liquor liability, also known as dram shop laws, do not apply in the following states:

Delaware
Kansas
Maryland
Nevada
South Dakota
Virginia

Liquor Liability Insurance vs. Host Liquor Liability Coverage

Whereas liquor liability insurance provides liability and property damage coverage arising out of serving or distributing alcohol, host liquor liability—serving or distributing alcoholic beverages outside of business-related activities, such as an adult birthday party, or even companies hosting social events—is often covered under a general liability policy.

In fact, homeowner’s policies typically provide coverage for personal liquor liability, although limits typically stop at $100K or $300K. And depending on your business’s assets, this might not represent sufficient coverage.

Examples of Liquor Liability Insurance in Action

Liquor Liability Example #1: Customer Injuries

A patron at your restaurant gets angry, storms away from the bar, and bumps into another customer on their way to the restroom. The impact is so significant that it knocks the second customer to the ground and injures their wrist.

If the second customer decides to later sue your establishment for overserving the aggressive person, liquor liability insurance could provide coverage or defense and other costs.

Liquor Liability Example #2: Drunk Driving

A patron who’s visited your restaurant for years is undergoing a remarkably low point in their life and decides to drown their sorrows at your establishment. After their fifth drink on an incredibly busy evening, the bartender realizes that they’re very drunk and stops serving the individual.

However, despite several employees’ opposition, the patron decides to leave the property, get in their vehicle, and attempt to drive. On the way home, they’re pulled over, tested well over the legal blood alcohol driving limit, and taken to jail.

As a result, the client decides to litigate against your restaurant for over-serving them.

Liquor Liability Example #3: Employee Liability

After serving alcohol at a tavern’s holiday party, an intoxicated employee lashes out against a guest, assaults them, causes bodily injury, and sends them to the hospital. Here, liquor liability might kick in and provide coverage.

How Much Does Liquor Liability Insurance Cost?

How much you pay for most types of insurance, including liquor liability, depends on a wide variety of factors, including:

Your business’s industry – For example, restaurants will typically pay higher liquor liability rates than a caterer, who earns significantly less revenue than restaurants.
Your business’s exposure – The percentage of alcohol sales. In other words, a business that earns 50 percent of its revenue from alcohol sales will likely pay more than a company that makes 10 percent of its revenue.
Claims history – As with any other form of insurance, the more claims (and higher payouts) associated with your business, the more you’ll likely pay (up to 50 percent more after a single claim) for liquor liability insurance.
Business location – If your business is located in an area with higher-than-average liquor liability claims, you might pay higher rates for insurance.
Coverage limits and deductibles – The higher your coverage limits and the lower your deductibles, the more you’ll likely pay for liquor liability insurance.
Total annual revenue – From the sale of alcoholic beverages
Hours of operation – The later your establishment is open, the more you’ll likely pay for liquor liability insurance.
The presence of pool tables – If your business has pool tables on premises, you’ll likely pay more for liquor liability coverage than those who don’t.
Bouncers and other security personnel – Despite assumptions, the less security your business has in place, the lower rates you’ll typically pay for liquor liability insurance.
Server training regimen – you could reduce your liquor liability premiums by as much as 20 percent by implementing server training for alcohol sales.

With these details in mind, there are several loss control techniques your business can implement to reduce your liquor liability insurance rates, including:

Training and educational courses for servers
Promoting non-alcoholic drinks
Asking customers to take a breathalyzer test if they could be over the legal limit
Encouraging alternate transportation options, such as taxi or rideshares

With these details in mind, Howmuch.net indicates that the average cost for liquor liability insurance with no claims history is between $900 and $1,200. However, if “the restaurant’s alcohol sales volume exceeds the food sales, the premium will likely go up to about $1,400 per year,” they say.

How Can You Learn More About Liquor Liability Insurance?

With all of these details in mind, it’s important to point out that liquor liability laws are enacted on a state versus federal level. As a result, if your business operates across multiple state lines, you must remain compliant in whichever states you do business.

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