Liquor liability availability and pricing have put small business owners in the alcohol-related sector in some states in a bind. While securing coverage is easy in some areas, premiums have skyrocketed and carriers have pulled out of others.

"Every state has different laws," explained Randy Velin, a senior producer at RPS who writes liquor liability insurance policies in Wisconsin, Minnesota, the Dakotas and Montana. "The states that don't have dram laws are easy to write in. The states that have tough laws are hard to write in."

The Hartford reports that liquor liability insurance is a type of business insurance that protects operations that sell, serve and distribute alcohol. If sued, it covers legal costs, settlements or judgments, repair costs to fix property damage, as well as medical bills to treat injuries. Liquor liability also covers claims of assault and battery, drunk driving and property damage.

Focusing on South Carolina

South Carolina's challenging market has been well-documented.

In 2017, a state law change upped liquor liability coverage requirements to at least $1 million following a high-profile auto accident that killed two people and severely injured a police officer. Carl Sobocinski, owner or founder of at least seven popular restaurants in South Carolina, recently told a joint legislative committee that his premium had jumped from $62,000 a year to more than $115,000.

"With just an 86% increase, I feel like one of the lucky ones," Sobocinski said.

According to a recent report from the South Carolina Department of Insurance, between 2017 and 2022, insurers lost about $1.77 for every $1 of premium earned on liquor liability policies. In the worst of those years, carriers lost as much as $2.60 for every $1 of premium earned, even though earned premium more than doubled in that time.

"Combined ratios for the industry make it clear that this sub-line of insurance is being written at massive underwriting losses," reads the DOI report, released in January. "The data seem to confirm the anecdotal assertions, made by both insurance companies and small businesses, of a very troubled and challenged marketplace."

The state's lawmakers are now considering a bill that would bring an insurer of last resort approach to liquor liability insurance for bars and restaurants. House Bill 5066, sponsored in part by Rep. Jason Elliott, R-Greenville, is titled the Fair Access to Insurance Requirements, or FAIR Act. It would create a liquor liability fund financed by part of the revenue from an excise tax on drinks. The fund would be able to contract with a private insurance company to administer the program.

Minnesota provides an assigned risk pool option through the Minnesota Joint Underwriting Association. Even though the limits may be low, "at least you can get" coverage," Velin said. "In other states like South Dakota, or North Dakota, or Wisconsin, they don't have an assigned risk pool. So, if you can't get coverage, you're out of business."

Other States

In a recent CRC Insurance Services report, the wholesaler said Vermont bars, nightclubs and other establishments that serve alcohol also often struggle to find a company to provide coverage.

CRC reported that placing liquor liability for establishments in Texas or the District of Columbia is also "extremely challenging," especially for smaller operations. The report also noted that three markets had exited the liquor liability space in Kentucky in the previous two years.

In their own writeup on the hospitality market, RPS Insurance brokers Velin and James Ward shared their insights on the changing landscape. Velin wrote that he's seeing carriers pull out of Texas, and that Minnesota has few standard markets available.

Forty-two states have dram shop liability laws; Delaware, Kansas, Louisiana, Maryland, Nebraska, Nevada, South Dakota and Virginia are the eight states that don't have legislation enforcing dram shop liability in place. The laws in these states shift liability from bars to drivers, meaning liquor policies are cheaper and more available.

"You don't get sued," Velin explained. "And there's no liability on the bar."

He explained in the RPS report that in Minnesota, some standard carriers won't write accounts with more than 75% in liquor receipts unless their general liability policies have assault and battery limits equal to the liquor liability limits. The higher the percentage of alcohol receipts, the higher the rate, he said.

Advice to Agents

In the RPS writeup, Ward encouraged agents to speak to their clients about reviewing their websites, social media platforms and Yelp reviews to see if what is being presented reflects their operation.

In its report, CRC said agents may help with the affordability of liquor liability coverage by encouraging establishments to review business hours and menu options, and establish rigorous risk management policies. Gathering current information and producing low-touch submissions that tell a story are also key.