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Understanding Liquor Liability Coverage

Author: Chris Boggs

Liquor liability insurance is designed to defend the insured against charges of negligent conduct related to the service of alcohol; and to indemnify or pay on behalf of the insured if they are ultimately found legally liable for the injury or damage.

Operations serving or supplying alcohol can be subject to charges of negligent conduct when, for example, a patron or third party is injured as a result of the negligent service of alcohol or negligence in not preventing an individual from injuring a third party. Legal liability can also arise out of other negligent actions or inactions. Charges of assault and battery account for a high percentage of liquor liability claims so any liquor liability policy should include coverage for this exposure.

Attorneys typically seek a connection to as many pockets as possible. Lawsuits often name the establishment, the liquor manufacturer, the distributor and any others that seem to make sense (or even those that do not make sense). Any entity making, selling or serving alcoholic beverages needs this protection because the unendorsed commercial general liability (CGL) policy excludes coverage for liability arising out of one of these activities. Here is helpful advice, if you can smell the alcohol, write the coverage.

The cost defense and the ultimate claim cost is based on the individual jurisdiction's definition of legally liable. Forty-three states and the District of Columbia apply a codified or judicially interpreted liquor or dram shop law.

  • Some states allow every bar in which the intoxicated person drank to be pulled into the lawsuit; the establishment has to prove that the patron was not or did not appear intoxicated while there. Each bar or restaurant in these states can be held jointly and severally liable.
  • At least one state holds the establishment liable if the patron appears intoxicated even if they came in that way and didn't imbibe there.
  • Other states require proof that: 1) the establishment sold alcohol to the or that intoxicated the individual; 2) injuries were sustained; and 3) the intoxication was the proximate cause of the injury(ies).

In essence, coverage provided by the liquor liability policy is partially based on statute rather than strictly policy language. Liquor liability insurance typically covers the cost of damages and all legal fees and related expenses up to the policy limits.

Controlling Costs

If price is truly the concern, the owner can take many actions to reduce the cost of liquor liability coverage. Like most forms of insurance, liquor liability premiums are based on exposure and the historical losses of the insured operation.

Insurance Services Office (ISO) assigns liquor liability hazard grades." Grades range from 0 to 10 and are based on the liquor (dram shop) laws and liquor-related court decisions of that state. A 0," the best possible grade, indicates there is no cause of action against an alcohol vendor. A grade of 10," the worst possible grade, indicates that strict liability is imposed on the vendor. The higher the grade, the higher the rates. Liquor liability grades are found in each state's State Exception page of Rule 45 of the CGL's commercial lines manual (CLM). States breakdown as follows:

 

Rates are especially high for establishments with a poor claims history and those having unique exposures such as pool tables, live music, exotic dancers or other forms of live entertainment. Owners of operations with these histories or exposures typically pay a premium surcharge."

Training your staff

Closing earlier, removing pool tables or other diversions and/or getting rid of live entertainment may not be practical; but the insured may consider alcohol-awareness training as an option. Many liquor liability carriers offer discounts for such training.

Alcohol awareness training is a good starting point and should be required for all management and staff who serve alcohol. Servers learn to identify patrons who have had too much to drink, how to avoid serving under-aged customers and when to make and keep notes. Servers also learn the consequences of failing to take responsibility for their patrons. Many servers assume that they will not be held personally responsible for serving an intoxicated customer, but this may not be the case in certain states.

Security personnel should also be trained. Unfortunately, security staff may be overzealous in their duty, using stun guns, mace and physical force to restrain patrons. Such attacks, ironically, endanger rather than protect a business.

Training is essential but only if managers and owners take the training seriously. Staff should be continuously monitored to make certain everyone is consistently applying the lessons they've learned. Several training programs exist to aid alcohol-serving entities in their quest to become better at protecting their clients and staff while at the same time potentially lowering their liquor liability premium. These include:

  • Training for Intervention Procedures by Servers of Alcohol (TIPS): A live training class with nine different programs are available depending on the type of operation and situation;
  • ServSafe Alcohol: Sponsored by the National Restaurant Association Educational Foundation (can be done online);
  • Serving Alcohol, Inc.;
  • Techniques of Alcohol Management (TAM): Endorsed by the National Hospitality Institute offering in-person and online training;
  • Techniques for Effective Alcohol Management (TEAM): A non-profit alcohol awareness program geared towards sports venues and sporting events; and
  • Alcohol Safety Institute of America: An online training program.

Availability of Liquor Liability Coverage

Depending on who you ask, liquor liability is now freely available unlike in decades past. However, availability may vary depending on the jurisdiction. Many standard carriers willingly extend liquor liability protection to any insured who meets their basic underwriting guidelines regarding the amount of liquor served (as a percentage of sales) and other exposure factors.

If the insured is unable to secure liquor liability protection from the carrier providing the general liability protection, many excess and surplus lines carriers stand ready to prove the necessary coverage on a stand-alone basis.

Last Updated: November 22, 2019

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