With a good economy has come a booming bar and restaurant business. As the economy has gotten better, more people have more disposable income. With this disposable income more frequently families are deciding to go out to a restaurant for lunch and dinner. This has created many new customers for the bar and restaurant industry, but with these new customers has come an elevated amount of risk. The primary risk within any business that is open to the public is related to slips, trips, and falls. The next largest risk for this industry is related to alcohol sales. When an intoxicated customer causes bodily injury or property to a third party, the business that served the alcohol may be responsible for some of the liability. Bars and Restaurants can protect against that liability by securing a Liquor Liability Insurance Policy.
Liquor Liability Insurance, also commonly referred to as Dram Shop Insurance is a specialized type of liability coverage for businesses that serve and sell alcoholic beverages. Most of the liability arises from the actions of an intoxicated patron. Because of the amount of risk related to liquor liability many carriers are shy about offering this coverage to most businesses. Most carriers are even more conservative when offering coverage as the percentage of sales from alcohol becomes greater than 50 percent of total sales. If businesses operate in this amount of revenue from strictly alcohol sales, it can be much more difficult to find carriers to offer coverage and the price for premium increases significantly. Here are several factors to consider when first purchasing or renewing liquor liability insurance for a bar or restaurant.
Dram Shop Law (Where the need for Dram Shop Insurance Arose)
Dram Shop is a term that derived from a time when most alcohol was served by the dram. A dram is an eighth of an ounce of alcohol or what is commonly referred to now as a shot. Dram Shop Laws exist in all but six states (Delaware, Kansas, Maryland, Nevada, South Dakota, and Virginia). Each state has individualized laws that are specific to the businesses that operate within the states border. When Dram Shop Laws are in place within a state, businesses that sell and serve alcohol may be liable when an intoxicated customer gets into a fight, damages someone else’s property, or even gets into a car accident. Some of this liability is difficult to prevent. For those occasions, insurance companies have created specific insurance policies to deal with this liability (Dram Shop Insurance & Liquor Liability).
What is Dram Shop Insurance?
Dram Shop Insurance is ‘Liability imposed upon those in the business of serving alcoholic beverages for loss arising out of the intoxication of patrons’. Another definition for this type of insurance is, ‘An insurance policy for proprietors of a business that serves and sells alcohol’ according to the International Risk Management Institute (IRMI). This type of insurance policy protects a business from liability for accidents caused by customers who become intoxicated while inside a bar, tavern, or restaurant. There are three main types of liability this type of insurance policy will cover. Those three types of liability include:
3 Major Risks Associated with Businesses that Serve Alcohol
The three major risks associated with alcohol serving businesses include selling alcohol to an intoxicated customer, contributing to the over-intoxication of a customer, and serving alcohol to a minor.
Selling Alcohol to an Intoxicated Customer
Selling alcohol to an intoxicated customer is a grey area that any business that serves alcohol has to deal with. Proper training of all staff that serve alcohol is necessary to prevent liability. Sound judgment is necessary, but the employees of any business are more likely to exercise sound judgment when the business has a policy in place for how to deal with both mild and extreme intoxication.
Contributing to the Over-Intoxication of a Customer
Contributing to the over-intoxication of a customer is an area of serving alcohol that has a little less grey area. Serving multiple drinks within a short amount of time is not something any person can easily handle in a safe manor. Drinking contests should never be encouraged at any establishment. Having signs throughout the business that encourage responsible drinking habits is a good first step to discouraging over-intoxication.
Serving Alcohol to a Minor
Serving alcohol to a minor is the main type of liquor liability a bar or restaurant has control over. Implementing a policy of carding every person is always the best way to prevent mistakes from happening. Train your staff to card every person and turn the carding of older patrons into a joke or a compliment about how young they look. If an older patron is clearly over the age of 21 and does not have identification, that is a time for sound judgment to come in and a manager or key employee should be involved. If an employee is ever suspicious of a young adult being under 21 and that patron does not have identification to prove their age, they should never be served alcohol. It is better to lose the business of one customer compared to the consequences of serving a minor.
What Businesses Need Liquor Liability Insurance Coverage?
There are a number of businesses that need liquor liability insurance. Those businesses include: Restaurants, Bars, Taverns, Caterers, Breweries, Wineries, Grocery Stores, Liquor Stores, Convenience Stores, Food Trucks, and even Grocery Stores. In most states, any business that serves or sells alcohol is legally required to carry General Liability, Workers Compensation, and Liquor Liability Insurance. Workers Compensation covers the business when it experiences an injured employee who has to miss work and needs medical attention. General Liability covers general third party liability minus the specified exclusions. Common slips, trips, and falls are covered by General Liability. Liquor Liability deals specifically with liability that arises from intoxicated customers. Most insurance carriers have specific packages of policies designed for each classification code. The best way to ensure your business is properly insured and get the best rate is to partner with an independent insurance agent who can shop the business around to multiple carriers.
Types of Carriers in the Liquor Liability Market
The market for Liquor Liability Insurance is divided into two types of carriers, Admitted and Non-Admitted Carriers. Both admitted and non-admitted carriers serve a functional role for the market within each state. Admitted carriers are required to file information about the rates they offer with the state insurance governing body. They are also required to follow a certain set of rules administered by the state. Non-Admitted Carriers are not required to file rates nor are they required to follow the same rules as Admitted Carriers. Non-Admitted Carriers serve an extremely valuable role for the insurance system. They are often the only carriers willing to take on high risk businesses. These are businesses with a much higher likelihood of losses. Even though these carriers are willing to take on greater risk, they are still required to show proof the business is financially able to cover the claims taken on. Each state has their own way to require carriers to prove this function.
What do Carriers Consider when deciding what to charge?
Insurance carriers deal in the business of managing risk. The basic way an insurance company makes a profit is by taking in more in premium than is paid out in claims. For this reason, insurance carriers tend to be extremely conservative when offering coverage to businesses and individuals. When it comes to the bar and restaurant industry, there are a number of factors that come in to play when a carrier is deciding what to charge a business for different types of commercial insurance. Those aspects include the classification code of the business, the location, the claims history, and the amount of revenue derived from the sale of alcohol.
There are a number of classification codes related to a business for different types of coverage. Most deal with the actions of the employees in a business. Office employees are less likely to get hurt or hurt a third party compared to a construction worker. The main aspect determining a classification code in the bar and restaurant industry is the time the business is open and the amount of sales derived from alcohol.
The Claims History of a business is a large determining factor when it comes to price for premium. When it comes to workers’ compensation insurance, each business has an experience modification rating that is determined primarily by the loss history of the business over the previous three years not including the current year. These means that claims filed stick with a business for a 3-year period after the claim is closed. The best way for a business to control this rating is to keep claims low, have an in-depth safety program, and a return-to-work program for when a business does experience an injured worker.
The location of a business can have an impact on whether a carrier decides to offer coverage. This determines whether a carrier offers coverage and how much the carrier charges for insurance premium. If a business is located in an area where crime is more prevalent, the amount the business pays for insurance is impacted. The location of the parking lot, the amount of lighting, and the presence of security can impact what a carrier charges for insurance.
Amount of Revenue from Alcohol Sales
Bars, Tavern, or Restaurants that get more than 50 percent of sales from alcohol are much more likely to face liability due to intoxicated patrons. The higher the percentage of revenue from alcohol sales the higher the business will pay for insurance premium.