Opening a restaurant comes with many decisions, chief among them is the decision of whether or not to serve alcohol.
Diners have come to expect a drinks menu, and restaurants—which usually have tight margins on food costs—generally see better sales and profit numbers when they serve alcohol. However, serving alcohol comes with elevated risks, especially increased liability for damage and injuries caused by customers who were overserved at your establishment.
If you own a restaurant that serves alcohol, you need liquor liability insurance.
What is liquor liability insurance?
Liquor liability insurance is coverage that protects your restaurant business in the event that a customer causes death, injury, or property damage after being served alcohol at your establishment if it is determined that intoxication was a factor in the incident.
Liquor liability coverage is what is known as “third-party coverage.” For example, let’s say a customer has dinner at your restaurant, has several drinks, and then drives into a fence on the way home. In this scenario, the driver and the owner of the fence that was damaged are the two primary parties, but because the driver was intoxicated, the restaurant that served the alcohol will be included in any damage claims and lawsuits.
A restaurant’s general liability coverage does not include liquor liability coverage. This is separate coverage, for which an additional policy will need to be purchased.
Who needs liquor liability insurance?
Anyone who sells alcohol would likely benefit from liquor liability coverage. Restaurants, bars, and nightclubs should purchase liquor liability coverage. Other examples are breweries and wineries, or any establishment that has a tasting room and alcohol for purchase, including liquor stores, grocery stores, and convenience stores.
In some states and localities, demonstrating that your business has liquor liability insurance is a requirement for securing a liquor license.
The amount of risk presented by businesses that sell alcohol will vary. A grocery store that sells alcohol designed to be taken home for consumption will have a different level of risk than a restaurant, which has a different risk than a bar or nightclub.
What are “dram shop laws”?
America’s legal roots in English common law are evident in this terminology. “Dram shops” were English pubs that sold alcohol in very small amounts (a dram), such as serving gin by the tablespoon.
Dram shop laws arose out of the Temperance Movement, and were designed to hold establishments that sold alcohol for consumption responsible when customers became intoxicated and caused damage or injury.
Dram shop laws have evolved, and are now a general legal term that covers restaurants, bars, pubs, nightclubs, and even retail establishments like convenience stores and liquor stores. These laws hold businesses that sell alcohol responsible for damages caused by overserved customers.
What does liquor liability insurance cover?
Liquor liability insurance is designed to help protect restaurants against losses from injury or property damage when found liable for contributing to the intoxication of the individual who causes the damage.
There are typically two components: bodily injury coverage, and property damage coverage.
Bodily injury coverage will help to pay medical bills and legal fees associated with accidents in which a restaurant overserving a customer is determined to be at fault. If a customer has too much to drink at dinner and gets in a car accident on the way home, injuring someone, and the restaurant is found liable, bodily injury coverage will pay for the injured party’s medical bills.
Property damage coverage pays to repair or replace property damaged in an accident in which a restaurant is found liable. If a group has too much to drink at a restaurant and damages property after leaving, and the business is found partially or fully liable, property damage coverage will kick in.
What factors go into determining liquor liability premiums?
Insurance premiums are based on risk, and there are a number of factors that go into determining the risk level presented by a restaurant. Some of these are:
- Location – Is your restaurant in a spring break hotspot, or in a suburban strip mall? What are the local liquor ordinances like? Your location will be part of the overall risk picture.
- Business type – As noted above in the dram shop section, there are lots of different types of businesses that sell alcohol. Each of these carries differing risks and can expect different premiums. Your insurer will want to know things like how late you are open, and how many employees you have.
- Sales – Your insurer will ask what percentage of your business is attributable to sales of alcohol. Some restaurants with high alcohol sales may even be reclassified as bars or nightclubs, depending on the underwriting criteria used by an insurer.
- Other risks – Is your restaurant on the premises of a concert venue? Do you sell alcohol and have an ax-throwing activity on-site? Are you located near a college campus? Individual characteristics of a restaurant will contribute to risk, and these factors will be part of your premium calculation.
How can a restaurant reduce its liquor liability risk?
Liquor liability insurance coverage can be expensive, and there are a few factors that contribute to premium costs that are truly in a restaurant owner’s control.
Staff training is an important way restaurant owners can reduce risk. The certification program TIPS (Training for Intervention Procedures) is widely recognized as an industry standard, and having mandatory TIPS certification in place can be considered a factor in a restaurant’s favor in legal liability lawsuits.
How much does liquor liability insurance cost?
With so many factors involved in calculating premiums, it can be hard to pinpoint an average cost. On average, restaurant owners can anticipate paying around $50 per month for this coverage.
The best way to find out how much a restaurant will pay for liquor liability insurance coverage is to get some quotes from different insurers. Talk to the experts at Rate Insurance. With access to a wide range of insurers, they can find quotes for liquor liability coverage relevant to your restaurant’s individual needs.
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