Liquor Liability Insurance 2023: Know Your Policies

Liquor liability insurance protects businesses that distribute, produce, serve, supply, or sell alcohol. It provides coverage against claims of alcohol-related incidents when guests are inebriated. Liquor liability insurance is generally an add-on to an already existing commercial liability policy and is sold separately.

Typically, liquor liability insurance provides coverage for the following:

• Third-party property damage
• Legal costs
• Third-party medical expenses
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Why is Liquor Liability Insurance Important?

Most businesses usually opt for commercial general liability (CGL) insurance to protect themselves from claims associated with property damages, bodily injuries, and occupational injuries. However, CGL only provides protection if the loss is due to an unforeseen event. Therefore, it does not include compensation for claims that are associated with alcohol consumption.

If your business follows dram shop laws—laws that discourage serving alcohol to people who are minors or are observably drunk—then having liquor liability insurance is crucial. So far, 43 states have dram shop laws with Delaware, Kansas, Maryland, Nevada, South Dakota, and Virginia being the only exceptions.

What Coverages Does Liquor Liability Insurance Provide?

Generally, a liquor liability insurance policy offers two basic coverages and then various supplemental coverages can be added to augment and tailor your policy to your unique business needs.

Third-Party Bodily Injury

When a person is drunk, they are likely to injure another person either inside or outside of your business premises. Thus, liquor liability policy can help you cover the ensuing medical and legal fees.

Third-Party Property Damage

If a drunk patron damages or destroys another person’s property, then liquor liability insurance can help you cover the cost of repairing or replacing the property.

Supplemental Coverages to Consider

The following are some additional features you can look into while planning to get your liquor liability coverage.

Legal Fees Coverage

Binge drinking can lead to alcohol-related crimes, deaths, and property damages. Correspondingly, Such activities naturally invite a high number of lawsuits and legal battles. In such cases, liquor liability insurance helps cover the cost of legal action if a drunken patron is suing your business. This coverage includes costs such as court fees, attorney fees, and settlements.

NOTE: Always review defensive propositions with care so that your policy covers additional defense costs.

Assault and Battery Exclusions

When dealing with a drunk and rowdy customer, businesses are likely to face property damage within their premises. The intoxicated individual may cause a commotion that could result in injuries to other guests or employees. While the drunk individual may be held liable for their actions, the business can also be accountable in terms of negligence. Per the NCSL dram shop laws, if a drunk patron engages in any form of assault, the business will also be held accountable for liquor liability.

A few liquor liability policies have exclusions related to assault and battery. You should carefully review your coverage to make sure you have the necessary protection.

Mental Injuries Coverage

There is a high possibility that people who are victims of alcohol-related incidents may claim for non-physical damages. These individuals can file a claim on the premise of stress, mental traumas, or psychological strain. This coverage is not provided by many policies and must be added separately. However, some policies specifically exclude mental injury coverage so you’ll need to review your policy carefully before adding it as an endorsement.

Additional Policies to Consider For Liquor Liability Insurance

Liquor liability insurance alone is not enough for your business. It only covers damages to third parties that result from the actions of drunk customers as well as related legal costs. Some additional insurance policies that you should consider to complement your liquor liability policy include:

General Liability Insurance

Liquor liability insurance does not cover third-party bodily injuries and property damage resulting from normal business operations. Therefore, you need a separate general liability insurance policy to cover those claims.

Commercial Property Insurance

Commercial property insurance covers damages to business assets from hazards such as fire, theft, and natural disasters. This type of coverage is not provided by liquor liability insurance.

Business Owners Policy

A business owners policy (BOP) is a combination of commercial property insurance and general commercial insurance that gives businesses broad coverage. A BOP helps to reduce an insurance policy rate that would generally be higher when purchased separately. This policy allows for some financial leeway to add liquor liability coverage as an endorsement.

Workers Compensation Insurance

Workers compensation insurance is mandated by law in all states except Texas. Businesses must have it to cover employee job-related injuries when they do not fall under the purview of liquor liability insurance.

State Requirements for Liquor Liability Insurance

Liquor liability policies and their scope differ in every state. According to Independent Agent, each state is subjected to a grade scale from 0-10 that represents the extent of liability imposed on businesses that deal with alcohol and related products. Therefore, the lower the grade a state has, the lesser the liability on establishments that sell or supply alcohol.

Grade 0:

A state appointed with a grade of 0 has no cause of action upon a vendor, or business that sells liquor to an intoxicated person. There is no liability for any injury, property damage, or death caused by the actions of the intoxicated person. As mentioned previously, these include Delaware, Kansas, Maryland, Nevada, South Dakota, and Virginia. Puerto Rico also falls into this grade.

Grades 1-9:

A state appointed with a grade between 1-9 enforces moderate liability for liquor vendors and businesses. If the actions of an intoxicated person cause injury, property damage, or death, then the liquor vendor or business will be held accountable with certain limitations and circumstances. For example, Louisiana has a grade of 3, and establishments there can only be held liable if the intoxicated person is a minor.

Grade 10:

A state appointed the grade of 10 enforces strict liability for a liquor vendor or business. If an intoxicated person’s actions cause injury, property damage or death, then the liquor vendor or business will be held liable without any certain limitations. Strictly speaking, the very act of selling liquor is considered as a cause of the incident. Alabama and Vermont are both in this grade.

IMPORTANT: Remember to check with your state’s regulatory body to ensure your business complies with your state’s requirements since they are likely to change frequently.

Businesses That Need Liquor Liability Insurance

Besides bars and clubs, liquor liability insurance is useful for the following businesses as well:

Event Organizers

Events and alcohol often go hand in hand. With this in mind, it’s always wise to check if your insurance policy includes event insurance as well. As per FindLaw, just like dram shop laws, social host laws vary between states so it’s important to check your state’s law.

Eighteen states have a general social host liability statute and nine states have social host laws specific to minors. As a result, under these laws, a few states even hold hosts, event planners, or servers liable for drunk guests’ activities.

Gas Stations with Convenience Stores

According to IBISWorld, around 61,000 gas stations had a convenience store within their property. If you operate a gas station in a state where dram shop laws are prevalent, you will need liquor liability insurance coupled with your gas station insurance.

Hotels and Hospitality Establishments

Hotels are a great place to relax and enjoy life. A report by Nielsen CGA found that Americans increased their alcohol consumption while visiting a hotel. About 46% of American guests will have a beer during a typical drinking occasion, however, that number rises to 52% if they are at a hotel. Given this, the right liquor liability insurance would be a smart and safe addition to standard hotel insurance.

Restaurants and Food Businesses

Alcohol makes up a big part of sales for restaurants, wineries, and breweries. Having a liquor liability policy as an endorsement to restaurant insurance coverage is an essential investment for these food establishments.

It’s important to check your state regulations when determining if you need liquor liability insurance or not. A state’s dram shop law dictates which businesses can be held accountable for alcohol-related incidents.

What Does Liquor Liability Insurance Not Cover?

It’s important to know what your liquor liability policy does not cover. Some of the exclusions are as follows:

Anticipated or Intended Injuries

The insured will not receive coverage for any intended or anticipated injuries.

For example, a drunk customer starts a scene and starts getting physical with another customer. You intervene by restraining the intoxicated customer, but in the process, they are injured. In this scenario, your insurance policy will not cover related medical and legal expenses.

Liquor License Not in Effect

The insured is not qualified for liquor liability coverage if their liquor license was not in effect during the time of the alcohol-related incident.

Offsite Alcohol Transactions

A liquor liability insurance may or may not cover any offsite coverages. Offsite coverage is entirely dependent on what kind of policy the insured is planning to purchase.

How Much Does It Cost?

The premium that you pay on liquor liability coverage is associated with many factors. With this in mind, a few of the things that determine your insurance cost includes your business type, your amount of alcohol sales, your previous insurance claim history, the state you are running your business in, and more.

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