What Is Liquor Liability Insurance?

Liquor liability insurance protects businesses that manufacture, serve, or sell alcohol.

The policy provides insurance coverage for legal fees, settlements, and medical costs associated with bodily injury or property damage caused by an intoxicated person, who was served or sold liquor by the business.

Serving alcohol is a common practice for restaurants, bars, catering companies, entertainment venues, and similar establishments. While providing a wide array of beverage options is important, serving alcohol, in particular, can create a variety of risks for business owners.

For instance, if a patron of your business becomes intoxicated and injures a third party or causes property damage, you could be held liable for the damages.

In order to protect your business from serious financial and reputational losses, it’s important to consider purchasing liquor liability insurance as part of your commercial insurance package.

What is Liquor Liability?

The term liquor liability refers to an organization’s legal and financial responsibility for the actions of individuals who consume alcohol at their establishment. Under liquor liability laws, a business can be found liable for both the bodily injury and property damage caused by a person they improperly served alcohol to.

Liquor liability and dram shop laws

Liquor liability insurance is particularly important for businesses in states with dram shop laws.

These laws (in some form), named after establishments in 18th century England that sold gin by the spoonful, otherwise known as the dram, are present in 44 states and the District of Columbia.

Dram shop laws hold businesses liable for the actions of intoxicated individuals who were served or sold alcohol at their establishment. They enable third-party victims to file civil lawsuits against the establishment that sold or served the liquor, as well as bring a suit against the impaired individual.

If successful, they may be able to get damages from both parties under this law.

What Is Liquor Liability Insurance?

Dram shop laws are enacted on the state level, not by the federal government. This means that each state’s laws, while similar, can have nuances as outlined here by DRAM DUI Lawyers.

The scope of the laws varies quite significantly between states, so it’s important for policyholders with establishments across multiple states to ensure compliance in each region. According to FindLaw, there is one commonality between the state-enacted dram shop laws, which is: “the application of 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 himself or to others.”

According to study, published by the journal Accident Analysis & Prevention, out of all policies intended to reduce alcohol-related accidents, “laws allowing individuals to sue bars for the drunken behavior of their patrons were the policies most strongly associated with lower minor and adult fatality rates.”

Liquor liability vs. host liquor liability

Liquor liability insurance is not to be confused with host liquor liability insurance, which the IRMI describes as: “liability for bodily injury or property damage arising out of the serving or distribution of alcoholic beverages by a party not engaged in this activity as a business enterprise.”

Most host liquor liability exposures – for companies that are hosting a social event like a party – can be included in a general liability policy.

The same is not true for commercial enterprises involved in the liquor trade, (restaurants, bars, taverns, etc). Liquor liability coverage is almost always excluded from commercial general liability insurance policies, meaning companies should look at buying a stand-alone policy or a coverage endorsement.

Similar to dram shop laws, hosts of private functions where liquor is served can be sued under social host liability laws. These laws hold the hosts of private functions liable for injuries or death caused by their negligence in serving alcohol and/or failing to prevent an impaired guest from driving.

What is Liquor Liability Insurance?

Liquor liability insurance is designed to protect any business that sells or serves alcoholic beverages.

Specifically, this type of insurance covers damages that result from things like fights, careless behavior, or automobile accidents caused by individuals who have consumed alcohol.

Liquor liability is important, as it protects you should your clients or patrons sue your business for damages related to their intoxication—something a general liability policy won’t cover.

Most businesses carry a general liability policy, which covers claims against your business for bodily injury, property damage, or personal injury. While these policies often include host liquor liability coverage, they only provide protection related to the incidental service of alcohol.

While host liquor liability may protect you if you are simply serving alcohol at a company party, it does not offer the coverage you need if you sell alcohol as part of your business.

What’s more, the majority of states require establishments that serve, sell or assist in the purchase of alcohol to carry liquor liability insurance. As such, it’s important to know what to look for in a policy.

Does My Restaurant Need Liquor Liability Insurance?

The short answer is “Yes.”

The long answer is also “Yes.”

Commercial general liability, the standard insurance coverage held by most business owners, including restaurant, bar and tavern owners does NOT coverage liquor liability exposure for such businesses.

If serving alcohol is part of your business, you need liquor liability insurance.

This video explains why…

Do not assume you have this coverage. Contact your insurance agent to verify coverage is in place.

What Does Liquor Liability Insurance Cover?

When it comes to protecting your business from any kind of liability, it’s critical that you account for common risks.

In order to secure the right level of coverage, keep in mind the following policy enhancements when shopping for liquor liability insurance: 

  • Assault and battery coverage. When alcohol is involved, fights are a common risk. However, many liquor liability policies exclude coverage for assault and battery. Therefore, it’s important to ensure you account for this protection when building your policy. It should be noted that assault and battery coverage can also be extended to include specific incidents such as sexual assault, stabbings and shootings.
  • Defense costs. Legal fees from liquor-related claims can easily exceed tens of thousands of dollars. Be sure that your policy accounts for defense costs outside of the policy limit. Otherwise, legal expenses could quickly exhaust your policy limit, leaving little to no insurance to pay for any damages.
  • Employees included. Even if you forbid your employees to drink on the job, there’s a chance that they may disregard your instruction. Look for a policy that will cover your employees as patrons to better protect your business from liquor-related incidents.
  • Mental damages. In the event of a lawsuit, claimants may allege they were injured in nonphysical ways. In these instances, patrons could sue you for stress, mental anguish or psychological injury. Ensure that your policy accounts for these types of injuries.

It should be noted that liquor liability insurance won’t cover claims that arise from the sale of alcohol to minors or similar illegal transactions. Be sure your employees are instructed to verify patrons are of legal drinking age. 

The Rub

While all restaurants, bars and taverns run on tight margins, liquor liability insurance is NOT a luxury expense.

If you serve alcohol as part of your business, you need this coverage.

If your current insurance professional has never addressed coverages such as liquor liability with you before, then I’d encourage you to reach out to us today.

I look forward to introducing you to a new way of viewing your insurance program.

Thank you,

Ryan Hanley

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