If you manufacture, sell, or serve alcohol, you need liquor liability insurance. If someone you sell or serve alcohol to causes any bodily injury or property damage while intoxicated, you can be held at least partially liable, so this policy provides coverage for associated medical expenses and legal fees.
Any business that sells or serves alcohol, no matter how small, is exposed to liquor liability, including bars, restaurants, liquor stores, grocery stores, and event venues. In some cases, you’re legally required to purchase liquor liability coverage before you can get a liquor license or a commercial lease.
Liquor Liability and Dram Shop Laws
Most U.S. states, including Illinois, Indiana, Wisconsin, Michigan, and Iowa, have dram shop laws in effect. These laws hold businesses liable for the actions of intoxicated people who purchased or were served alcohol at that establishment. They also allow those harmed by the intoxicated person to sue the business that sold or served the liquor along with the person who directly harmed them.
Dram shop laws vary significantly between states, so if you operate locations in multiple states, you need to make sure you’re in compliance with each state’s law. The one common element in nearly all state dram shop laws is what’s known as the obvious intoxication test. If a court determines the person involved was so visibly intoxicated that a reasonable person would know they could cause harm and the establishment continued to serve them anyway, the establishment will likely be held liable.
This can be difficult to determine, though, and is often very subjective. Blood alcohol content doesn’t always correlate directly to behavior, as a larger person or a more seasoned drinker can consume more alcohol without losing control. And it can be difficult for a business to determine if a person has been overserved before they cause damage, especially if they do so off premises.
Liquor Liability vs. Host Liquor Liability
Liquor liability insurance is only for establishments for whom selling or serving alcohol is part of their business activity. If you are, for example, hosting a party where alcohol will be served, but it’s not part of your usual business, you would need host liquor liability coverage instead. Most host liquor liability exposures will be included in a general liability policy (as long as your agent is aware of the exposure). However, this is not the case if alcohol sales or service is part of your business activity, in which case you need separate liquor liability insurance.
Similar to dram shop laws, if you host a party where attendees get intoxicated and cause damage or bodily harm, you can be sued under social host liability laws. These laws hold hosts of private functions liable for injuries or death caused by overserving alcohol, permitting underage drinking, or failing to prevent an intoxicated guest from driving.
If your business sells or serves alcohol, you are legally obligated to stop serving alcohol to patrons who you and your staff can tell are intoxicated and are planning to drive. If you make no effort to stop them from driving and they get in an accident, you can be held liable.
There are ways you can mitigate liquor liability risks, such as:
- Providing alcohol server training to all customer-facing staff
- Encouraging customers not to drink too much
- Promote non-alcoholic beverage options
- Keeping a breathalyzer on hand, and testing customers who might drive before they leave
- Promoting taxis and rideshare options to customers, especially if they appear intoxicated
Here at Kamm Insurance Group, we have extensive experience in insuring the hospitality and retail sectors, and we can help you get the liquor liability policy you need. With the right risk management and insurance coverage, your business can thrive and keep the community safe.