Liquor Liability Insurance
Coverage protecting businesses that sell, serve, or manufacture alcoholic beverages against claims arising from the actions of intoxicated persons they served.
What It Is
Liquor liability insurance protects businesses in the alcohol industry against claims alleging that they contributed to an injury or property damage by selling, serving, or furnishing alcoholic beverages to an intoxicated person. Most states have 'dram shop laws' that create a statutory cause of action against businesses that serve alcohol to visibly intoxicated persons or minors who subsequently cause harm.
Standard CGL policies contain a Liquor Liability Exclusion (ISO CG 00 01) that eliminates coverage for businesses in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. This exclusion does not apply to businesses that serve alcohol incidentally (such as a company hosting a holiday party), but it does apply to bars, restaurants, liquor stores, breweries, wineries, and event venues.
Liquor liability coverage is typically written as a separate policy or endorsement specifically covering dram shop and related alcohol-service claims.
Why It Matters for Brokers
Liquor liability claims can be devastating — a drunk driving fatality linked to over-serving can generate multi-million dollar verdicts. Brokers serving the hospitality industry must ensure every client that serves alcohol has proper liquor liability coverage, because the CGL exclusion eliminates what would otherwise be the primary coverage for these claims. Many states also require proof of liquor liability coverage as a condition of the liquor license.
Real-World Example
A sports bar serves alcohol to a patron who is visibly intoxicated. The patron leaves and causes a head-on collision, killing the driver of the other vehicle. The deceased driver's family sues the sports bar under the state's dram shop law, alleging the bar negligently served alcohol to a visibly intoxicated person. The sports bar's liquor liability policy covers the $2.1M settlement and $380K in defense costs. The CGL policy would not have responded due to the liquor liability exclusion.
Common Mistakes
- 1Assuming the CGL policy covers liquor liability for any business that serves alcohol — the exclusion applies to all businesses 'in the business of' serving alcohol, which includes restaurants even if food is their primary revenue source.
- 2Not verifying that the liquor liability policy includes host liquor liability for events where the insured provides alcohol (such as catered events) in addition to standard dram shop coverage.
- 3Overlooking state-specific liquor liability requirements, as some states mandate minimum coverage amounts tied to the liquor license.
How brokerageaudit.com Handles This
Policy Checker identifies liquor liability exclusions in CGL policies and verifies that separate liquor liability coverage is in place. The system flags restaurant and hospitality accounts where the CGL exclusion applies but no separate liquor liability policy exists.