Liquor Liability Insurance is not cheap – Is there a more Cost Effective way to protect your bar or restaurant?
Some alcohol service establishments avoid paying the “high” premiums for liquor liability insurance, because they think they can protect themselves with elaborate corporate structures.
There is a theory that if you own and operate your bar or restaurant in one business name, and own the real estate in another business name you are protected by a Corporate Veil.
This doesn’t sound like a great idea to me, but I sell liquor liability insurance, so I wanted to get some unbiased advice.
When in doubt, consult an expert!
I wanted to get to the bottom of how this strategy worked in real life, so I interviewed Aaron Zeamer, an attorney who specializes in PA Liquor Licenses and other hospitality related legal affairs.
“There’s no easy answer like just separating entities and licenses and things like that…even if you have a valid defense, you have to hire your own attorney which can cost thousands of dollars up front” – Aaron Zeamer, Esquire
Best Case Scenario using Corporate Entities to Protect Yourself instead of Liquor Liability Insurance
If you’re not actually liable for the damages – meaning the lawsuit was totally frivolous. You’ve won the suit, or it got thrown out pretrial, but you spent thousands of dollars on legal fees, maybe $10,000 – $20,000 or $30,000 in addition to living through the stress of having to wonder what if it DOESN’T get thrown out?! As well as putting all the time and effort to defend the claim with your attorneys – time and effort that could have been spent on something else!
If you ARE LIABLE – Meaning you served the Visibly Intoxicated Person one too many – you could end up losing the operation you worked so hard to build, either through bankruptcy (which involves more legal fees) or asset forfeiture to the plaintiff.
You may feel like you own the real asset because you still have the building in an unrelated entity, but now you have the plaintiff as a tenant, and that would be another legal process (involving billable hours) to get them out, all the while your business is shuttered.
Aaron Zeamer’s expert opinion of how these claims go when there is no insurance:
“One word: Nightmare!” – Aaron Zeamer
IF NOTHING ELSE – DEFENSE!
One of the key components of any liability policy is the defense costs that the insurance company will pay when you get sued.
Even when you don’t have any liability to the plaintiff, you still need to pay the cost to defend the case – Aaron Zeamer
Legal bills can be thousands of dollars at a time, and if your case goes to trial that can be years of your life, and many, many billable hours for your attorney.
Liquor Liability policies handle defense costs in two ways:
- Defense Costs INSIDE the Limits
- Defense Costs OUTSIDE the Limits
Defense INSIDE the limits means legal fees incurred by the insurance company to defend claims against you count against your limit of insurance.
If you have $1,000,000 policy limit, and had $250,000 in legal defense costs, only $750,000 of that limit would be left to pay a judgement.
Defense OUTSIDE the limits means legal fees incurred to defend liquor liability claims do NOT count against your limit of insurance.
If you have $1,000,000 policy limit, and the insurance company pays their lawyers $250,000, you STILL have $1,000,000 to pay any judgments.
Defense Costs is a Key Consideration for your Liquor Liability Insurance.
For a complicated or drawn out case, the legal fees will pale in comparison to the additional premium you pay to have defense costs OUTSIDE the limits.
Unfortunately, liquor liability claims are becoming more and more common. If you’re in the business for any length of time, its not a matter of IF you get hit but WHEN. – Aaron Zeamer
I think we’ve settled the “should I get Liquor Liability Insurance” question.
Aaron makes the level of stress associated with an uncovered claim seem very unappealing, and says several times that its not worth the cost savings.
There are three additional topics I wanted to address regarding liquor liability insurance:
- The Legal Environment In PA for Liquor Liability Claims
- Assault and Battery Exclusions
- Catering Endorsements
What’s the Legal Environment in PA for Liquor Liability Claims?
In a word: Bad.
The Insurance Services Office (ISO) has established liquor liability grades reflecting a particular state’s attitude towards liquor liability. The grades range from 0 -10
A state designated with a 0 is one in which there is no cause of action against one who supplies, furnishes, vends or sells liquor due to bodily injury or property damage.
A state designated with a number from 1-9 imposes moderate liability, that is a cause of action
may be brought against a vendor under certain circumstances (i.e. serving a minor, serving an intoxicated person, serves a know
alcohol abuser, vendor is in violation of state liquor control laws.)
A state is designated as a 10 if it imposes strict liability on the liquor vendor.
So the higher the number, the worse the business conditions for the alcohol vendor.
Pennsylvania’s ISO code? 7 – with only two states rated higher!
While we don’t have STRICT LIABILITY, we’ve got the next worst thing!
Hospitality Mutual Insurance Company offers one of the most comprehensive liquor liability policies available in Pennsylvania. Start a Quote Here
Assault & Battery Coverage
Assault & Battery Coverage is optional on most liquor liability insurance policies, but is deleting this coverage worth saving a few bucks?
I discussed assault and battery claims with Aaron Zeamer. Aaron has definitely seen claims where an alcohol fueled fight has injured a patron or a third party.
If a bartender cuts someone off or the bouncers decided to escort them out of your establishment, the situation is ripe for confrontation.
Sometimes your staff will be injured in this process, but that will be covered by your Workers Compensation policy.
The expelled patron may decide to fight for their honor, and get their butt whupped by the bouncer in the process. Unfortunately, nothing prevents the unruly customer from coming back and suing you for winning the fight.
If your PA Liquor Liability Insurance policy EXCLUDES Assault and Battery, you will have no coverage for this legal battle.
Most liquor liability insurance policies automatically exclude assault and battery, so you have to add it back by Endorsement.
See my the clip discussing Assault and Battery coverage with Aaron Zeamer:
Your PA Liquor License doesn’t Travel with you, and neither does your Liquor Liability Insurance!
If you take your operation off site for a special event, in Pennsylvania you need to make sure you get a special license from the PLCB to allow you to sell alcohol at that temporary location.
The same is true of your Liquor Liability Insurance. The policy is location specific. If your establishment resides at 823 Main St, you only have liquor liability coverage for that specific location.
You can solve this problem by consulting with your agent and adding an endorsement.
A catering endorsement to your policy will remove the location limitation and broaden your coverage to wherever you operate.
Special events endorsements provide an additional, short term location to your policy, so its still location specific, just with more than one location.
If you ever take alcohol for sale to an off premises event, make sure you take your insurance with you!
If you don’t currently have a liquor liability policy, and you serve alcohol at your establishment, you need to reconsider your risk retention strategy. A claim will come your way eventually, even if you do all the right things!
Schedule a call with me, and we can get you started with a new liquor liability insurance policy. It will be a little more expensive for the first year or two, but if you stay claims free, get RAMP certified, and avoid citations from the PLCB, you can save big in the years to come.
If you do have a policy, but you’re not sure if you have the right coverage, or you’re interested in saving up to 40%, schedule a call with me, and I’ll see if we can help you out!
Thank you for your time!
Nate Bunty, CIC