Tag: Liquor Liability Insurance

Dram Shop Insurance

Liquor Liability Insurance 

Dram Shop Insurance, also commonly referred to as Liquor Liability Insurance, is a specialized type of liability coverage for businesses that serve and sell alcoholic beverages. Many insurance carriers do not have a strong appetite for quoting businesses where a large amount of alcohol is served. Most carriers will shy off companies as the percentage of alcohol sales moves northward of 50 percent of total sales. When a business does sale predominantly alcohol, there are fewer carriers to get a quote from. The market for this type of coverage is divided up between two types of carriers, Admitted and Non-Admitted Carriers. Both types of carriers serve a functional role for the market. Here is a detailed description of what Dram Shop Insurance is, where Dram Shop Laws came from, what types of businesses need Dram Shop Insurance, what types of carriers offer Dram Shop Insurance and how much the coverage costs.

Two people sitting at a bar show the need for a business to purchase Dram Shop Insurance.

Dram Shop Law? (Where the need for Dram Shop Insurance Arose.)

Dram Shop as a term comes from a time many years ago when alcohol was sold by the dram. This was typically an eighth of an ounce or what is commonly today served as a shot of alcohol. All but 6 states (Delaware, Kansas, Maryland, Nevada, South Dakota, and Virginia) have some form of Dram Laws on the books. States where Dram Laws are on the books a business may face liability if a customer gets into a fight, damages someone else’s property, or even gets into a car accident.

What Businesses Need Liquor Liability Insurance Coverage?

Businesses that typically need liquor liability insurance coverage include: Restaurants, Bars, Taverns, Caterers, Breweries, Wineries, Grocery Stores, Liquor Stores, Convenience Stores, Food Trucks, and Grocery Stores. Most of these businesses are legally required to carry General Liability, Workers Compensation, and Liquor Liability Insurance. Workers Comp will cover injured employees, General Liability will cover general third party liability minus the specified exclusions, and Liquor Liability covers risks associated to intoxicated customers. Most carriers have specific packages of policies for businesses in this industry depending upon the specific classification code. It is important to partner with an independent insurance agent with whom you trust and take their recommendations. Not securing enough insurance is a main factor that leads to many businesses closing their doors permanently after a loss.

Several people toasting drinks at a bar.

3 Major Risks Associated with Serving 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. None of these events by itself trigger a Dram Shop Insurance Claim, but they can lead to any incident involving an intoxicated patron that does lead to legal liability for the business. These incidents can include injuries to the customer, the minor, or an unrelated third party injured by the intoxicated patron.

Admitted Carriers Vs. Non-Admitted Carriers

Finding a carrier to offer Dram Shop Insurance may be difficult for some businesses. Depending upon the appetite of the carrier, the claims history of the business, the amount of revenue of the business, and the percentage of revenue that comes from the sale of alcohol. There are two types of carriers that do offer Liquor Liability Insurance, Admitted and Non-Admitted Carriers. The basic difference between the two types of carriers is admitted carriers are required to file their rates with the state governing body and follow certain rules set by the state governing agency. Non-Admitted Carriers are not required to file rates nor are they required to follow the same rules as Admitted Carriers. Non-Admitted Carriers do serve a functional role within the insurance system of the states they operate within. They are often the carriers that are willing to take on high risk businesses that have a greater likelihood of losses. Non-Admitted Carriers are required to show proof they are financially able to cover the claims they are taking on. Each state has their own way to require carriers to prove this.

Sign outside of Cheers Tavern. Where everybody knows your name.

Special Considerations of Carriers who offer Dram Shop Insurance Coverage?

The cost of the Dram Shop Insurance depends on a number of factors including the classification code of the business, the claims history of the business, the location of the business, the revenue of the business, and the amount of revenue that comes from the sales of alcohol.

Classification Code

The Classification Code of the business will determine the recommended premium rate for workers compensation insurance. Depending upon the risks involved with the business this can be favorable or unfavorable in relation to what the business pays for coverage.

Claims History

The Claims History of the business applying for a Dram Shop Insurance Policy impacts immensely what the business pays for premium. The experience modification rating deals with the three previous years of claims history not including the current year. For new businesses without enough claims history, the rating is negatively impacted. For businesses with frequent or severe claims, the rating is impacted more. Businesses that have low or no claims, have an in-depth safety program, and a return-to-work program tend to pay less for premium.

Location

If a business is located in an area of town where crime is more prevalent, the amount the business pays for insurance may be impacted. The location of the parking lot and the amount of lighting on the premises impact premium. The presence of security or law enforcement can impact what a carrier charges for insurance.

Revenue

The revenue of a business will impact the amount of risk related to the business. A business that serves more alcohol will in turn have more intoxicated customers. The more intoxicated customers being served at a business, results in more likelihood of the business facing liability.

Amount of Revenue from Alcohol Sales

Businesses that get more than 50 percent of their sales from alcohol are much more likely to face liability due to intoxicated patrons. The higher the revenue and the higher the percentage of alcohol sales will result in a high rate of premium.

Dram Shop Insurance

What is Dram Shop Insurance and How Should a Business Purchase Coverage?

Dram Shop Insurance is required by law in nearly every state in the country. In the past, Dram Shop was a term that referred to places where alcohol was sold by the dram (a small quantity of liquid). Dram Shop Liability Laws have been created to protect the public from intoxicated individuals who have been over-served by an establishment. Dram Shop Insurance is a type of insurance required by businesses that sell and serve alcoholic beverages. Most within the insurance industry now use the term Liquor Liability Insurance as it is a more straight-forward and easier to remember term.

View of many bottle of liquor showing the need for Dram Shop Insurance.

What is Covered by Dram Shop Insurance?

Dram Shop Insurance covers many claims your business may face. Some of those covered claims include bodily injury, property damage, coverage for intoxicated employees, fights, legal costs, and mental anguish. Not what is covered and how much is covered will differ depending upon the carrier you are purchasing from and the state you are operating in. Businesses should review all policies extremely carefully before purchasing coverage for their business. Partnering with an independent insurance agent is a great way to get unbiased advice about the differences between coverages from carrier to carrier.

Who needs Dram Shop / Liquor Liability Coverage?

  • Restaurants
  • Bars and taverns
  • Caterers
  • Breweries and wineries
  • Grocery stores
  • Liquor stores

Picture of a long bar iwth many risks that show the need for Dram Shop Insurance.

What Determines Cost of Dram Shop Insurance?

There are a number of factors that determine what a business pays for Dram Shop Insurance. Like a normal commercial insurance policy, it depends upon the state you operate in, the revenue of your business, and the number of employees. Specific to Dram Shop Insurance the determining factors include the types of alcohol sold, the closing time, the amount of food compared to alcohol receipts, the square footage of the facility, the average price of the drinks, the types of entertainment on the premises (live music, karaoke,etc.), and whether the establishment has bouncer manning the door. Having well-designed protocols in place for how your staff should deal with intoxicated customers goes a long ways towards limiting the frequency and severity of claims within your business.

Do I Need Liquor Liability Insurance if I Serve Liquor at My Home or at an Event I am Hosting?

Yes, you most definitely need some form of liability insurance that includes liquor liability if you are serving liquor at your home or other event. The liability coverage included may be in your homeowners or business insurance policy (as long as you are not selling the alcohol). Checking with your insurance agent is a wise decision before any event where alcohol will be served and their is a risk of patrons injuring themselves while under the influence at your place. You may not need Dram Shop Insurance Specifically. To avoid buying coverage you or your business do not need, talk to you ragent about the specifics of all policies already in place. If coverage is already included, you do not need to buy more Liquor Liability Coverage.

The big difference between Dram Shop Insurance Policies are the type of carrier a business is purchasing coverage from. The two types of carriers include admitted and non-admitted carriers. An Admitted Carrier is required to file rates with the state and follow rules and regulations set by each state’s Department of Insurance. A Non-admitted Carrier is not required to file rates or follow the same state regulations. Non-admitted Carriers do have to prove to the state they operate in that they are able to financially pay the claims their policyholders file. In addition to admitted vs. non-admitted carriers it is important for business owners to check the financial strength of the carrier as reported by the AM Best or by Standard & Poor’s.

What Insurance do Bars, Taverns and Restaurants need?

Bars, Taverns and Restaurants

Small Businesses in the Bars, Taverns and Restaurant Industry have many different risks that are unique to this industry. The difference between a dive bar and a four star restaurant are as different as a beauty salon and a gun club. There are different classification codes for different types of insurance coverage depending upon the operations of your business. This is because the risks of a coffee shop, is different from the risks of a cafe or a wine bar. Which classification code the business is classified in is a large part of what determines how much they pay for commercial insurance. This may determine whether the business wants to offer a certain type of food or service depending upon how much it will impact what the business pays for commercial insurance.

Overhead picture of a Restaurant.

Alcohol Consumption

Most states determine if a business is a restaurant (not a bar or tavern) if it makes a certain percentage of its revenue from food and not from alcohol sales. The typical amount to be determined a restaurant is less than 50%. If the business makes more than 50% of its revenue from alcohol sales it is a riskier business and is thus places in a riskier classification code. This causes the business to be charged a higher premium for commercial insurance. The next main factor that impacts a restaurants rate for commercial insurance is whether the restaurant offers alcohol or not at all. If the business does not offer alcohol at all, they obviously eliminate the risk of intoxicated customers. This lowers the most costly risk a bar tavern or restaurant faces.  Also, an additional factor in the amount of premium is if the business does offer alcohol, whether or not the business offers hard alcohol or just beer and wine. Hard alcohol causes intoxication at a faster rate, because of this the business is more likely to have problems related to alcohol consumption.

Picture of a bar or tavern.

Hours of Operation

Aside from alcohol consumption the next largest risk that faces Bars, Taverns and Restaurant is the hours of operation. There is much less risk in a diner open from 6:00 AM –  1:00 PM, compared to a bar that serves no food and stays open until 2:00 AM 7 days a week. The latter might carry a few more risks that might turn in to insurance claims. Because of this risk the business is going to pay more in premium for their commercial insurance. Limiting these risks before they turn in to insurance claims can save your business immensely over the long term.

Picture of a table with breakfast food and a laptop.

Types of Coverage for Bars, Taverns and Restaurant

Most insurance carriers have business owner’s packages designed specifically for Bars, Taverns and Restaurants. Here are some common coverages you will find included in those packages.

  • General Liability
  • Liquor Liability
  • Commercial Property
  • Business Personal Property
  • Workers Compensation
  • Business Income and Expense Coverage
  • Commercial Crime Coverage
  • Umbrella Coverage

General Liability Insurance covers a business for common slips and falls that happen on the property, Liquor Liability is required by law in most states and the amount of coverage is usually determined by the amount and type of alcohol a restaurant serves. Commercial Property Insurance covers damages to the building and most fixtures attached to the building. Workers’ Compensation is required by law in nearly every state and is coverage to prevent lawsuits for injuries that occur to your employees as part of normal business operations. Business Income and Expense Coverage is an addition to a Commercial Property Policy and will cover your business for loss of revenue due to being closed after damage to your premises. Commercial Crime Coverage will cover your business for crimes committed by your employees while acting on behalf of the company.  Umbrella Coverage is designed to extend the limits of existing policies when those limits have been met. It is important to note that Umbrella Policies only kick in on top of other existing policies. If the cause of the damage is not a covered peril than the Umbrella Policy will not be activated.

 

Below is a list of all the classification codes that might be included as a Restaurant, Bar or Tavern.

Business ISO General Liability:

  • Code: 16920- Restaurant- alcohol sales >75%- Table service, dance floor
  • Code: 16921- Restaurant- alcohol sales >75%- No table service, but dance floor
  • Code: 16930- Restaurant- alcohol sales >75%- Table service, no dance floor
  • Code: 16931- Restaurant- alcohol sales >75%- No table service, no dance floor
  • Code: 16940- Restaurant- alcohol sales >75%- Bar service only, with dance floor
  • Code: 16941- Restaurant- alcohol sales >75%- Bar service only, no dance floor

NCCI Class Codes:

  • 9082 – Traditional Restaurant.
  • 9083 – Fast Food Restaurant
  • 9058 – Restaurants owned or operated in a hotel.
  • 9084 – Restaurant who receives more than 50% of their revenue from the sale of alcohol.