Liquor Liability Insurance

What is liquor liability insurance?

Liquor liability insurance, often referred to as dram shop insurance, is a type of coverage that protects businesses involved in the alcohol industry from legal and financial consequences associated with the actions of intoxicated patrons.

It’s crucial for restaurants, bars, taverns, caterers, breweries, wineries, grocery stores, and liquor stores.

Because drunk people sometimes do really dumb things.

A general liability policy typically excludes liquor liability coverage for businesses that generate profit from alcohol. That means you’ll need to get separate liquor liability insurance or add it as an endorsement to a general liability policy. We can walk you through all your options.

What’s a dram shop anyway?

According to Wikipedia, a dram shop (or dramshop) is a bar, tavern, or similar commercial establishment where alcoholic beverages are sold. Traditionally, it was a shop where spirits were sold by the dram, a small unit of liquid.

What’s so important about liquor liability?

Liquor liability insurance is important because your money is important to you. At least we’re guessing it’s important to you.

Liquor liability provides coverage for legal fees, settlements, and medical costs in cases where alcohol is sold to an intoxicated person who then causes harm to others or damages property. It’s essential because general liability insurance usually excludes alcohol-related liability.

In most states, businesses are legally required to carry liquor liability insurance to obtain a liquor license. It may also be necessary for signing a commercial lease or securing a loan. Dram shop laws in many states make this coverage even more critical, as these laws hold businesses responsible for damages caused by intoxicated customers.

What exactly does liquor liability insurance cover?

Third-Party Bodily Injuries

If a patron who became intoxicated at your business injures another person, liquor liability insurance can help pay for the medical bills. It will also cover legal expenses if the injured person sues your business. This includes drunk driving incidents where the injured party blames your business for overserving a patron.

Third-Party Property Damage

Liquor liability insurance covers the cost of repairing or replacing someone else’s property that was damaged by an individual who became intoxicated at your business.

Legal Costs

If a lawsuit results from an incident involving an overserved patron, liquor liability covers your legal costs up to the policy’s coverage limits. This includes attorney’s fees, court costs, and court-ordered judgments or settlements.

Additional Claims Like Assault and Battery

A liquor liability policy can be tailored to match your business needs. For example, the owner of a nightclub might want to ensure that their policy includes assault and battery coverage to protect against violent customers.

However, there are certain exclusions in liquor liability insurance:

• Libel and slander: A general liability policy can provide protection for libel and slander claims, as long as it doesn’t have an exemption for alcohol-related claims.
• Damage to your business property: Commercial property insurance or a business owner’s policy (BOP) can help pay for repairing or replacing your business property when it’s damaged or stolen, even if caused by an intoxicated customer.
• Incidents related to underage drinking: Insurance cannot protect against incidents related to underage drinking, but you may have legal recourse if the minor has a realistic-looking fake ID.

The Cost of Liquor Liability Insurance

The average cost of liquor liability insurance varies depending on several factors, including:

• Your exposure: A convenience store with 10% liquor sales can expect to pay less than a grocery store with 40% liquor sales.
• Profession: Rates vary based on your industry. A caterer generally faces different risks than a restaurant, so their rates may differ.
• Location: Your liquor liability insurance cost depends on various factors related to your location, such as the number of total claims in that area.
• Claims history: Insurance companies typically view businesses with a poor claims history as higher risk, resulting in higher rates compared to businesses with no claims.

Host Liquor Liability Insurance

Host liquor liability is coverage under a commercial general liability policy for businesses with incidental alcohol exposure like corporate functions, fundraisers, and other events where alcohol is served. For example, a financial firm that serves alcohol at its annual company party may be covered by its general liability policy if an intoxicated employee causes an accident.

However, if the business were a tavern instead of a financial firm, their general liability policy wouldn’t cover the accident. The tavern would need liquor liability insurance to cover the accident since they’re in the business of serving and selling alcohol.

Liquor Liability, Dram Shop Laws, & State Regulations

As mentioned earlier, dram shop laws are present in 44 states and the District of Columbia, holding businesses liable for the actions of intoxicated individuals who were served or sold alcohol at their establishment. These laws enable third-party victims to file civil lawsuits against the establishment and the impaired individual.

Section 67-3-73 of the Mississippi Code Annotated—the state’s dram shop law—states that, in most instances, an injured person can’t hold a vendor liable for selling alcohol to someone who goes on to cause an accident while intoxicated.

There are exceptions to this rule. First, the dram shop law doesn’t shield from liability vendors who unlawfully sell alcohol to minors. Second, the dram shop law explicitly states that a vendor who sells alcohol to a visibly intoxicated patron can be held liable for damages caused by that patron.

Dram shop laws vary significantly between states, so policyholders with establishments across multiple states need to ensure compliance in each region. Most states apply the “obvious intoxication test,” where a retailer knew or should have known that the patron was so intoxicated that more alcohol would cause danger to themselves or others.

Who needs liquor liability coverage?

Every business that sells or serves alcohol needs liquor liability insurance to protect against financial losses or comply with state laws and contracts. Industries commonly requiring this coverage include food and beverage businesses, retailers, manufacturers, and distributors of alcoholic products.

Mitigating Your Risk

Businesses can mitigate their liquor liability risks by employing various strategies, such as:

• Sending servers to training and education courses
• Encouraging customers not to become intoxicated
• Promoting the availability of non-alcoholic beverages
• Asking a patron to take a breathalyzer test if there’s concern that they’re over the limit for driving
• Encouraging patrons to take alternate transportation, like a taxi or rideshare service

Liquor liability insurance is vital to running a successful business within the alcohol industry. It offers protection against the financial and legal consequences of alcohol-related incidents. We’ll help you understand liquor liability coverage, its costs, and how to mitigate risks in your business, so you can operate with confidence, knowing you have the right protection in place.