Does your business need liquor liability insurance?
Because the behavior of people who drink too much alcohol is unpredictable, anyone who sells liquor is running a risk of being sued for injuries or property damages that are caused by intoxicated persons.
"If you're in the business of manufacturing, distributing, selling or serving alcohol, you need liquor liability insurance because the claims can be very severe," says Kevin Foley, a New Jersey insurance agent who handles commercial policies.
When juries believe that people have been harmed because alcohol was served in an irresponsible manner, they often hand out large cash awards, he adds.
"People are very passionate about injuries arising out of drunk behavior," he says. "That translates into severe jury awards."
In October 2013, a Texas jury found that a bar was liable for $18.75 million in the 2011 death of 18-year-old Bryant Hernandez. Hernandez was killed in a head-on collision in Corpus Christi, Texas. The owners of the bar had liquor liability coverage, says Bryan Harris, an attorney for the family of Hernandez.
According to a lawsuit filed by the teen's family, the driver who struck Hernandez had been served numerous drinks after exhibiting signs of intoxication. Harris says the intoxicated man eventually was asked to leave the establishment. His vehicle collided with the car Hernandez was driving just seven minutes later. The crash killed both drivers.
What is liquor liability insurance?
Liquor liability coverage typically is added on as a policy endorsement. The cost of this add-on depends on the size of the liquor establishment and the number of persons served. Most states in the U.S. require establishments that sell alcohol such as bars and restaurants to carry liquor liability insurance. However, Foley says some business owners don't realize that having a general commercial liability policy isn't the same thing.
Foley says businesses that require liquor liability insurance but may not be aware of it include:
- Bars and taverns.
- Social and fraternal clubs.
- Organizations that hold fundraisers where alcohol is sold.
- Liquor stores.
- Grocery and convenience stores.
- Catering companies.
A small private club that serves alcohol only to members typically would pay a premium of about $1,000 per year for a liquor liability policy of $1 million, Foley says. In contrast, a large bar or restaurant could pay $25,000 or more annually for the same level of protection.
It may seem unfair, but people who harm others while intoxicated often aren't the ones who end up paying for their mistakes, says William Kickham, an attorney in Westwood, Mass. The small business that served them alcohol can be held legally liable for any injuries or damage they cause while intoxicated.
"Let's assume that you were hit by a drunk driver or attacked by someone who was over-served alcohol at a bar," Kickham says. "If you could determine through evidence that the bar over-served the person who injured you, there would be liability and a potential for recovery."
According to the Delaware Division of Alcohol and Tobacco Enforcement, a person weighing 150 to 160 pounds typically would have to consume four alcoholic beverages within one hour in order to have a blood-alcohol level exceeding .08, the legal limit in the U.S.
However, determining when someone is being over-served alcohol requires good judgment, since as little as one or two drinks may be too much for some individuals. If the person recently has eaten, the effects of alcohol may be reduced.
Training servers to recognize intoxication
Stephen Vedova, a Chicago attorney, strongly recommends that restaurant and bar proprietors make sure that every employee who serves alcohol is trained to know when a patron is at risk of becoming intoxicated.
In addition to keeping track of how much a patron drinks, beverage servers can be trained to look for other signs of intoxication, such as slurred speech and impaired movements. If a lawsuit is filed, the business can demonstrate that it made an attempt to limit alcohol sales to persons in danger of becoming intoxicated.
No amount of training will replace a liquor liability insurance policy, however. No matter how well you train your staff, there's always a chance that a patron will have too much to drink and harm someone, Vedova says.
"Selling alcohol is inherently risky," he says. "If you're in the business of selling alcohol, you need to have coverage."
Most states and the District of Columbia have "dram shop" laws. Under such laws, businesses that sell alcoholic beverages are liable for their conduct. The degree of liability they face varies by state, however. You can check with your state department of alcoholic beverage control to determine local regulations.
Protecting the public
Dram shop laws were created to protect consumers from the sale of alcohol to underage or intoxicated people, says insurance agent John Sullivan, president of American Insurance in Lewiston, Idaho. States without dram shop laws include Delaware, Kansas, Louisiana, Maryland, Nebraska, Nevada, South Dakota and Virginia.
Sullivan says nonprofit groups often fail to realize that they can be the targets of liquor liability lawsuits if they hold fundraisers that include the service of alcohol. He notes that there are liquor liability insurance policies that can be purchased for one-time events by any organization that hosts fundraisers.
Nonprofit groups sometimes mistakenly think that dram shop laws don't apply to them, he adds.
"If you buy a ticket and you get a free drink as part of that, a case could be made that alcohol was sold," Sullivan says. "Nonprofit organizations need to be cautious about their fundraising efforts. They often need liquor liability insurance."
People who host parties in their homes generally are covered by homeowners or renter's insurance policies, which include personal liability coverage, he adds.
People who host large weddings or parties outside of their homes typically are covered for liquor liability by their homeowner policies, he says. However rental agreements with the commercial venues where the parties take place may have additional insurance requirements. For example, some may require you to have a large general liability limit and provide evidence coverage. This may require you to buy a special one-time event policy.
Because all personal liability policies have limits, be sure to read yours so that you know how much protection you have whenever you are hosting an event where alcohol is served. When in doubt, contact your agent or the insurance company.
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