Liquor liability insurance is designed to defend the insured against charges of negligence related to the service of alcohol and indemnify the insured for their financial loss if legal liability is found.
Alcohol serving or supplying operations can be subject to charges of legal liability 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. Assault and battery accounts for about half 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 not). Any entity making, selling or serving alcoholic beverages need this protection since the commercial general liability policy excludes coverage for any entity involved in one of these activities.
The breadth of defense and coverage provided is based on the individual jurisdiction's definition of legally liable. Each state applies its own codified or judicially interpreted liquor or dram shop laws.
- 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 intoxicated individual; 2) injuries were sustained; and 3) the intoxication was the proximate cause of the injury(ies).
In essence, the coverage provided by the liquor liability policy is 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.
Going Bare
There are clients who are willing to risk the loss of a liquor license, their business and perhaps even their personal assets for the sake of a little additional premium or because they believe they can't afford liquor liability protection. Whether the perception of affordability is true or not, the average claim settlement has increased significantly in the past 20 years so coverage should be considered.
Controlling Costs
There is much a business owner can do to reduce the cost of liquor liability coverage if price is truly a concern. Like most forms of insurance, liquor liability premiums are based on exposure and the historical losses of the insured operation.
Major, news-making claims can have a dramatic impact on premiums and availability. Many insurance carriers determined that liquor liability coverage was too risky and abandoned the market following a tragic fire killed 100 people at The Station in Warwick, R.I., in 2003. Although many of those carriers have returned, overall rates are somewhat higher than in years prior to the incident.
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 for the staff. Many liquor liability carrier 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, when to make and keep notes and more. Servers also learn the consequences of failing to take responsibility for their patrons as many servers assume that they will not be held personally responsible for serving an intoxicated customer, but this may not be the case (depending on state law).
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 it seriously. Managers and owners should monitor their staff and 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 and potentially lower their liquor liability premium at the same time:
- Training for Intervention Procedures by Servers of Alcohol (TIPS): Nine different programs are available depending on the situation;
- ServSafe Alcohol: Sponsored by the National Restaurant Association Educational Foundation (can be done online);
- Serving Alcohol, Inc.: Offers security training as well (onsite in Wisconsin and Minnesota only);
- Techniques of Alcohol Management (TAM): Endorsed by the National Hospitality Institute offering in-person and online training; and
- Alcohol Safety Institute of America: An online training program.
Availability of Liquor Liability Coverage
Liquor liability is rather freely available unlike in decades past (availability may vary depending on the jurisdiction). Many standard carriers willingly extend liquor liability protection to any insured who meets their basic underwriting guidelines. This extension may take the form of the removal of the CGL's liquor liability exclusion or by separate endorsement.
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 proved the necessary coverage on a stand-alone basis.
Comments
Now the arguments I ahve heard:
What if the insured restrains a patron and injures him/her? Restraining someone is not assualt and battery when done to protect others and the property. If an insured is unreasonable rough, well that is a question of fact and there would still be defense until the facts show otherwise. Even so, that is a question of training, a different risk management tool.
No I have heard arguments about one patron injuring another. I am not sure how that is excluded since injury needs to be intentional from the standpoint of the insured. I do not see how a carrier could not defend an establishment without subjecting themselves to a serious bad faith claim in this scenario. There just is no exclusion under this scenario.
So could you please elaborate on specifically what you mean by "assualt and battery coverage"?
Now the arguments I have heard:
What if the insured restrains a patron and injures him/her? Restraining someone is not assualt and battery when done to protect others and the property. If an insured is unreasonable rough, well that is a question of fact and there would still be defense until the facts show otherwise. Even so, that is a question of training, a different risk management tool.
No I have heard arguments about one patron injuring another. I am not sure how that is excluded since injury needs to be intentional from the standpoint of the insured. I do not see how a carrier could not defend an establishment without subjecting themselves to a serious bad faith claim in this scenario. There just is no exclusion under this scenario.
So could you please elaborate on specifically what you mean by "assualt and battery coverage"?
Also, I have had requests for adding other parties as an additional insured on the Liquor Policy. ISO does not have such endorsments for the CG 00 33.
I believe that this is because the policy is issued to someone licenced to serve alcohol and like a professional coverage. However this creates a dilema because one could see for caterers a need to add their clients as AI's and the CGL would not respond because of the liquor exclusion.
Has anyone had to deal with this too?
You are correct in saying that Injury that is expected or intended on the insured's part are always going to be excluded under the CG0033 Liquor Form. If the insured's bouncer causes injury while removing an unruly patron they could definitely be sued. No coverage would be afforded under the liquor liability policy as this does not involve the negligent service of alcohol. The CGL may respond, it all depends on the circumstances and the exclusions of the policy.
As far as Additional Insureds go, this is common practice on a Liquor Liability policy. The landlord is often included and the same ISO forms used on the CGL policy can be used. Caterers need to name additional insureds often (either the owner of the premises of the event or the host of the even). Again, this can also be done using ISO forms (the same ones used on CGL policies). Off-premise caterers are often written with non-admitted carriers so those carrier could use their own company forms to add A/I's.
Thanks!
The same AI forms may not be attached to the Liquor liability policy. None of the forms mention they may be attached to a liquor policy. The CLM does not say you can attach them so that would be a violation of the filing and not to mention sloppy policy production since they do not always match up. There has to be a reason ISO did not make endorsements for this product. So your solution may be fine for nonadmitted paper, I keep getting pressure on the admitted side. I am not against making my own endorsement but I am perplexed as to why ISO did not do it before I pull the trigger and create the endorsement for my company.
Assault and Battery - I get the point about assault and battery being excluded from the policy when it comes to patrons injuring patrons. To me, it would be covered unless it is excluded and I don't plan on adding the exclusion on my book. What I am running into is the request for assault and battery coverage for the insured and their employees for when the allegation is against them. I have a big problem with that coverage and I have been told if we don't provied it my company is not competitive.
I think what is happening is some agents, although well intended, are requesting something they don't fully understand. Sort of like primary and noncontributory coverage. They are buzzwords they know they need to ask for but never stopped to think what precisely it is their clients need or what it is.
I am not a claims person but here is my two cents. It would depend on the allegations but my bet is there would be a reservation of rigths issued under the GL during defense. If the facts come up the bi or pd were subject to the exclusion, then no duty to defend would exist. It is highly dependent on your state and the facts of the case.
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Here in Mass., a Liquor License will occasionally not be in the name of the Restaurant and the license holder typically requires Additional Insured status if they're smart.
I would agree with you that the ISO forms do not apply to Liquor, they specifically amend the CGL.
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