Serving alcohol to customers exposes your business to new sources of liability. If your customers become intoxicated and cause a car accident, injure others, or damage property, you could be sued. Although you can take steps to mitigate your risk, there’s always a chance that an incident could lead to costly lawsuits. Liquor Liability Insurance can help financially protect your company against these risks. 

What is Liquor Liability Insurance?

Liquor Liability Insurance protects your business from liability in situations where individuals who consumed alcohol that your business sold, manufactured, or served cause injury or damage to others. When you operate a business that sells or serves alcoholic beverages, you could be held legally liable for the actions of customers who become intoxicated. Customers could cause car accidents, trip and fall, unintentionally injure another person, start a fight, or damage someone else’s property, and your business could be sued. Liquor Liability Insurance can cover damages and legal expenses in the case of a lawsuit.

Example:

• A customer visits your brewery and drinks many beers over a short period of time, becoming obviously intoxicated. He loses his balance on the stairs and grabs another patron, causing the other person to fall. The other patron suffers a broken wrist. Because of the injury, the patron files a lawsuit against your business. Your Liquor Liability Insurance would cover legal costs and any resulting settlements in the lawsuit.

What does Liquor Liability Insurance cover?

Liquor Liability Insurance covers incidents of third-party bodily injury and property damage caused by individuals who consumed alcohol that your business sold, served, or manufactured. Some policies may even cover mental trauma, assault and battery, and liquor-related incidents involving employees. 

If your business is sued, your insurer would pay for legal expenses, including court costs, attorneys’ fees, and any settlements. If your business is found to be at fault, Liquor Liability Insurance can provide coverage for any damages owed, including medical expenses, costs to replace or repair damaged property, lost wages, and more.

Example:

• A patron of your restaurant drinks a number of strong cocktails in less than an hour, then tries to leave in her car. She backs her car into the plate glass window of the neighboring business, shattering the window. Your Liquor Liability Insurance would cover any damages if the other business files suit against your restaurant. 

Who needs Liquor Liability Insurance?

Liquor Liability Insurance is a key coverage for any business that makes, sells, or serves alcohol. Businesses that commonly secure this coverage include:

• Restaurants, bars, nightclubs, breweries, and wineries
• Stores that sell alcohol, including liquor stores, convenience stores, and grocery stores
• Companies hired to serve alcohol at events, like catering companies or bartending services
• Venues or event spaces that allow alcohol to be served

Why do I need Liquor Liability Insurance?

Dealing with a costly liquor liability lawsuit could be financially devastating for your company. No matter how hard you work to ensure a safe environment and monitor customers’ alcohol consumption, it’s impossible to completely eliminate the chance of accidents and lawsuits. Liquor Liability Insurance will step in to cover any claims that arise as a result of liquor liability. In addition, liquor license laws in many states legally require you to have this coverage, and commercial leases often require it as well. 

Many states have “dram shop” laws that hold businesses liable if they serve an intoxicated customer who later causes an accident or injury. Even in states without dram shop laws, negligence laws can still hold businesses liable. An event attendee who receives alcohol from you, becomes intoxicated, and causes a car collision or starts a violent altercation with another person could result in liability for your company. 

Example:

• Your catering company serves alcohol at a wedding. After becoming severely intoxicated, one of the attendees leaves in his car. He runs a red light and collides with another car, severely injuring its occupant. Family members of the injured party sue your catering company. Your Liquor Liability Insurance would cover the lawsuit and any resulting settlements.

It’s important to understand that although general liability insurance covers most third-party property damage and bodily injury, it does not cover incidents caused by liquor liability. General liability policies may include coverage for host liquor liability, but this only applies to companies that do not make, sell, or serve alcohol as part of their business. Companies that occasionally allow alcohol at company events or businesses that allow patrons to bring alcohol onto their business premises for consumption would be covered by host liquor liability. 

What is host liquor coverage?

Host liquor coverage provides liability protection from liquor-related incidents that cause bodily injury or property damage but, unlike Liquor Liability Insurance, is specifically designed for businesses that are not primarily involved in the manufacturing, distribution, selling, or serving of alcoholic beverages. Often included as part of commercial general liability coverage, host liquor liability coverage can protect businesses that may occasionally serve alcohol as part of company parties or celebrations or who may allow customers to bring alcohol for consumption onto their business premises.

Example:

• Your software company is celebrating a record-breaking financial quarter. Your team breaks out the champagne, and one of your sales representatives drinks too much, becoming intoxicated. He leaves the office to drive home and ends up crashing into another car on the highway. The other car’s driver is severely injured and sues your company for damages. Host liquor liability insurance would provide coverage.

What is the difference between host liquor and retail liquor?

Host liquor liability refers to the liability that arises out of the incidental serving of alcoholic beverages. This primarily applies to organizations that are not in the business of selling, manufacturing, distributing, or serving alcohol. An example of this is a movie theater that does not sell or serve alcoholic beverages but does allow customers to bring their own alcoholic beverages.

Retail liquor liability refers to the liability that arises out of the manufacturing, distribution, selling, or serving of alcoholic beverages to your business’s patrons, which is covered by Liquor Liability Insurance.

What is dram shop coverage?

Dram shop coverage is another name for Liquor Liability Insurance. Dram shop coverage protects your business from liability in situations where individuals who consumed alcohol that your business sold, manufactured, or served cause injury or damage to others.

How is Liquor Liability Insurance priced? 

The pricing of your Liquor Liability Insurance varies depending on what type of business you operate. Insurers typically ask these questions when determining the price of coverage:

• What type of business do you run? Businesses that primarily sell alcohol, such as bars and nightclubs, are considered to have a higher risk level than restaurants or other businesses that primarily sell food. 
• Where is your business located? Liquor liability laws differ widely depending on the state and county. Local dram shop laws determine liability for businesses that serve alcohol. The costs of coverage will be different depending on the laws that will affect your business. 
• What percentage of your sales are alcohol sales? Establishments with a higher percentage of alcohol sales are considered to be at a higher risk. A restaurant that sells large amounts of alcohol might be considered to have a risk level more comparable to a bar. 

What are the key exclusions of Liquor Liability Insurance?

Common exclusions from Liquor Liability Insurance include: 

• Underage drinking. Liquor Liability Insurance will not cover claims resulting from underage drinking, so it’s crucial that you train your employees to verify drinkers’ ages.  
• Incidents that occur without an active liquor license. If you serve alcohol without a liquor license, any resulting claims will not be covered. 
• Expected or intended injury. However, if the injury was caused by someone using reasonable force to protect other people or property, this would be covered. 
• Workers’ compensation incidents. If an inebriated customer injures an employee, workers’ compensation insurance would provide coverage.
• Damage to your business property. Liquor Liability Insurance only provides coverage if inebriated customers damage property belonging to another person or business. You’ll need commercial property insurance to cover your business’s own property. 

Tips to Reduce Liquor Liability Risk

The liability that comes from serving or selling alcoholic beverages can be daunting, but there are steps that your business can take to mitigate these risks. Aside from securing Liquor Liability Insurance, your business can also benefit from the following precautionary actions:

• Provide comprehensive training for employees involved in serving alcoholic beverages, including how to verify age and IDs, identifying signs of alcohol impairment, how to refuse service to intoxicated customers, and what state and local liquor laws require
• Thoroughly screen job applicants for past violations involving alcohol sales
• Create a written policy for serving alcohol or for alcohol consumption at company events
• Inform employees of standards of behavior prior to company events or parties and emphasize a no-tolerance policy for inappropriate behavior or alcohol abuse
• Post clear signage stating that your establishment strongly upholds local liquor laws

Final Word

Establishments that sell or serve alcohol can become embroiled in costly lawsuits if inebriated customers cause third-party bodily injury or property damage. This is why it’s crucial to make sure your business has adequate Liquor Liability Insurance. This coverage provides valuable financial protection, and it is often required by liquor licensing laws and commercial leases.