Restaurateurs deal with many risks every day their business is open. They understand the need to make sure patrons and employees remain safe from slip and falls, Foodborne illnesses, and hazards in the parking area. But for those restaurants that serve alcoholic beverages, there is always a risk that incidents could take place in the restaurant or even after the customer has left. If you serve alcohol to a customer who then is involved in an alcohol-related incident, your restaurant could suddenly be in jeopardy of forcible liquidation. Knowing that bad things can happen in any business, it makes perfect sense to consider Liquor Liability Insurance.
What is Liquor Liability Insurance?
Liquor liability insurance provides financial protection if your business is found liable for any alcohol related incidents. Alcohol related incidents are excluded from general liability coverage and therefore, must be added to your restaurant insurance package by way of endorsement or as a stand-alone policy.
All restaurants that serve alcohol and are licensed by the state in which they operate, are subject to Dram Shop Liability. Dram shop is an 18th-century term used for bars and taverns because they served alcohol by the dram (.125 ounces) rather than by the ounce. The dram shop law, also known as the dram shop rule, establishes that bars, restaurants, and other alcohol retailers can be held liable for the actions of a patron who was served alcohol until intoxicated or while intoxicated. The law particularly applies when a patron is involved in an alcohol-related car accident.
Dram shop laws may differ according to the state that has jurisdiction, and there are currently only eight states that do not have some version of it. Many states also have social host liability laws which are meant to apply to hosts of private functions where alcohol is served.
What is Covered under Liquor Liability Insurance?
Your liquor liability insurance will protect you and your business if you are found liable for body injury or property damage caused by a patron who was served alcohol in your restaurant.
For example, Mr. Jones has dinner and cocktails at your restaurant and then on his way home is involved in an auto accident that causes severe injuries to the other driver.
Mr. Jones, after failing a sobriety test, is charged with driving while intoxicated (DWI) causing bodily injury and property damage. The injured driver sued Mr. Jones and the restaurant for all current and future medical expenses, pain and suffering, and lost wages totaling more than $1 million dollars.
In this case, your liquor liability insurance would pay for your defense costs and any settlement or damage awards that might result from the restaurant's portion of the liability.
How Much does Liquor Liability Cost?
The average cost for liquor liability insurance is between $900 and $1,200 per year although your final rate will depend on the limit and deductible you select. There are many factors that will affect the cost for your particular business:
- Type and volume of alcoholic beverages sold: Typically, a bar or restaurant where liquor sales are 25% or less of the total revenue and no claims history is going to pay about $900-$1,200 per year.
- Total annual revenue from sales of alcoholic beverages: With most insurers, once the restaurant’s alcohol sales volume exceeds the food sales, the premium will likely go up to about $1,400 per year.
- Hours of operation: Establishments that remain open very late will typically be surcharged because of the increased risk.
- Type of establishment (bar, pub, restaurant, concession, dinner theatre): Dinner theatres and concessions generally pay the lower premium of $900 per year because of limited hours of operation.
- Pool tables on premise: Establishments with pool tables have a greater risk for assault and battery incidents and are generally surcharged on the assault and battery section of the policy.
- Bouncers/Security personnel: Although most would think better security means lower risk, the reality is just the opposite.
- Server training: Server training for alcohol sales will result in a substantial discount on your policy premium. Usually about 20%.
- Claims history: Any establishment with a history of claims over the previous five years will be surcharged up to 50 percent depending on the number and frequency of claims.
Is Liquor Liability Required by Law?
Liquor liability insurance requirements depend on the state your business is located. Many states, especially those with strict dram shop laws, will not issue a license to sell alcohol unless proof of liquor liability insurance is provided to the office responsible for licensing. There are some states, such as Texas and Louisiana, who have "soft" or even no dram shop laws that may not require liquor liability insurance, but restaurant and bar owners would be jeopardizing their business to operate without it.
For restaurateurs who put up their building or equipment as collateral to secure a loan, the lender may ask for proof of liquor liability before approving a loan. Although lenders are typically only concerned with physical damage to your collateral, they may be reticent to complete a loan transaction if your business depends on alcoholic beverage sales to service your loan.
What is Not Covered Under Liquor Liability?
Although exclusions under liquor liability vary depending on the insurer, most standard policies contain provisions when they will not provide coverage; these are known as exclusions:
- Injury (bodily injury and property damage) arising out of any alcoholic beverage furnished, sold, or served while a required license is not in effect.
- Injury resulting from acts that do not involve the selling, serving, or furnishing of alcoholic beverages.
- Assault and/or battery as a result of the sale, servicing, or furnishing of alcoholic beverages. This coverage typically can be added by endorsement.
- Injury arising out of any alcoholic beverage sold to a minor or underage person.
- Many policies will not provide coverage for volunteers working in your establishment.
- Any liability found to be covered by another type of insurance policy, such as general liability.
- Any offense not considered bodily injury or property damage.
- Damages to real or personal property.
If your restaurant serves any type of alcoholic beverage, you are continually at risk of having an action brought against your business. Transferring this risk to a highly-rated insurance company is the most efficient and affordable manner to obtain the financial protection you'll need when alcohol-related incidents occur.