It’s no secret that liquor liability is a complex coverage. There are numerous variables that underwriters take into consideration when pricing and structuring a policy. For example, on liability policy that is written on the form CG 0001 (sometimes with CG 2150) the host liquor coverage provided will be sufficient as long as insured’s operations are not required a liquor license (for example, when alcohol is served free of charge for a social function). Hence, the more informed you are about the underwriting thought process for liquor liability risks, the better terms and pricing you can obtain, with the help of Paperless Insurance Services, Inc.
There are several variables to the complexity of liquor liability. First, there are 50 states with 50 different sets of laws governing liquor liability, ranging from strict liability (Alabama) to very little liability (Nevada). Second, there is a wide range of venue types – from restaurants to nightclubs to concerts – which all have specific nuances that need to be addressed. Finally, each specific location has its own unique underwriting concerns that will arise, and it is critical to address them fully when submitting a risk to market.
The Purpose of Liquor Liability
The principal idea of liquor liability insurance is to protect a licensed purveyor of alcoholic beverages from third party liability. Liabilities for these establishments share some common characteristics. Typically, liability arises when a venue over-serves, serves minors, serves a known drunk, or serves an individual who is involved in a drunk driving incident after he or she was served on premises. Venues also have significant exposure to assault and battery claims from either employees being overly rough with patrons or patrons assaulting other patrons.
Factors That Determine Coverage Pricing
There are a host of different factors that go into the rating and pricing of this coverage.
1. Type of Venue
The most basic way of looking at risk factors for different venues is simply to identify what the primary purpose of the venue is – whether it is a restaurant, bar/tavern, nightclub, concert, and so on. If a restaurant’s primary purpose is serving food in a sit-down environment, it is considered to be much less risky than a nightclub with a primary purpose of entertainment and dancing. A bar/tavern may provide a mix of both, which places its risk factor in between a restaurant and a nightclub. Other venues that need a liquor liability policy are concerts, special events*, country clubs, and fraternal organizations – essentially, anyone who is charging the general public for liquor.
*For special events where alcohol provided free of charge, as long as your liability insurance is on form CG 0001, there is primary liquor liability coverage. Contact us for complete details.
2. Location of venue
State liquor laws vary dramatically by venue and jurisdiction. States each have their own basic scoring system based on the punitive nature of their dram shop law. Simply put, dram shop laws are laws that impose certain liability standards on the venues that serve alcohol. Tough jurisdictions, such as District of Columbia or Alabama, impose the toughest standards on venues when it comes to proving that they didn’t contribute to a third party bodily injury or property damage claim. Other jurisdictions, such as Nevada or Delaware, are more favorable to venues, and it is very difficult to prove the venue contributed to negligence. It is important to understand the varying dram shop laws associated with each venue as it will better help gauge the customer’s expectations and ability to find adequate coverage.
Individual traits of the risk: What controls are in place? How the operation is run by management?
3. Percentage of liquor sales
Further complicating the realm of liquor liability coverage is the percentage of the alcohol sales; as would be expected, more liquor sales equate to higher premiums. A restaurant with a high percentage of alcohol sales may be classified as more of a bar. A bar with a dance floor plus high liquor sales may be classified as a nightclub. When submitting a risk for liquor liability coverage, it’s important to review the specifics so you know what to expect from underwriters.
4. Individual traits of the risk
- Below are some additional variables which underwriters will take into consideration.
- What types of entertainment are on premises – live music, karaoke, mechanical bull?
- What is the average age of patrons; what is the proximity to a college?
- What is the experience level of management?
- What are the formal controls or loss prevention procedures?
- Is security a third-party vendor with separate limits of insurance, or the venue’s own employees?
- Does the venue do background checks on employees, especially bouncers/security?
- What is the security-to-patron ratio?
- What training does the serving staff undergo?
- Does the venue allow minors? If so, what are the control procedures?
- Are there security cameras?
- What is the procedure for dealing with intoxicated patrons?
In short, liquor liability is a complex coverage that is becoming harder and harder to procure, but with a proper understanding of the type of risk, venue and location, we can more effectively position our client for success with underwriters.
This article was originally published by AmWINS Group, Inc., a leading wholesale distributor of specialty insurance products and services. AmWINS publishes The Edge, a monthly email with informative and timely articles for P&C and benefits insurance agents and brokers. To sign up to receive The Edge or for more information about AmWINS, visit amwins.com.
Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.