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.
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.
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.