Sit down, have a drink, and let’s talk about liquor liability!
Updated: Aug 17, 2021
Yes, people get confused by liquor liability. How do I know that? Even up till the end of my active underwriting career, I was getting requests from wholesale brokers (which translates into one retail broker and one wholesale broker) for host liquor liability. The truth is “host liquor liability has not existed since the mid 1980’s!
Back in the 1980’s, ISO reworked their commercial insurance forms. Those forms are the same forms we use today. They have proved to be extremely adaptable as the world changed around us not unlike our very own Constitution of the United States. Unlike the Constitution, the ISO forms do not need approval of two-thirds of the insurance industry to make amendments. It only takes a few lawyers, underwriters, claims adjusters, and agents to figure out what needs to be done and do it. Now how about that drink?
The Commercial General Liability Coverage form excludes liability arising from getting someone intoxicated, serving alcohol to a minor, or any liability imposed by liquor laws. They do have a carve out for the exclusion by only applying to those businesses which are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. Furthermore, it clarifies that permitting a person to bring alcoholic beverages on your premises, for consumption on your premises, whether or not a fee is charged or a license is required for such activity, is not by itself considered the business of selling, serving or furnishing alcoholic beverages. This is somewhat like what we used to consider as host liquor liability decades ago.
If you are not “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages,” you do not need liquor liability. But here’s the rub. It is very easy to be considered “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.”
First there is no exception for what we call incidental exposures. For example, consider all those hotels that have a small kiosk near the front desk where you could buy a bottle of wine or beer. Those hotels are in fact selling alcoholic beverages. It might not amount for much, but they are selling alcoholic beverages.
What about those hotels who have manager receptions for guests to enjoy a free cup of beer or glass of wine? Are they in the business of serving or furnishing alcoholic beverages? There is some merit to the argument their business is being a hotel, hence not in the business of furnishing alcoholic beverages. But it is part of their marketing strategy to encourage folks to stay at their establishment. Hence, the line becomes a bit fuzzy. Fuzzy lines are not good when designing insurance programs.
What are all these businesses to do? Should every commercial enterprise who has incidental sales or serves alcohol in some fashion purchase liquor liability? That is one solution but not the only solution. ISO has created several options for the gray fuzzy areas.
Purchasing liquor liability has some advantages. The advantage is when you tack on liquor liability using CG 00 33 (occurrence trigger) or CG 00 34 (claims-made trigger) provides a whole new set of limits outside the coverage provided by the Commercial General Liability Policy. Any liquor liability claims are applied against a separate occurrence and aggregate limit and do not count against the general aggregate built into the Commercial General Liability Policy.
The downside is the potential cost. While some insurance carriers may provide the coverage for a nominal charge, others may have a significant minimum premium. Is it worth it to pay $5,000 in premium to cover an exposure generating a $1,000 in annual sales? It may be better to convince someone to open a convenient store next to you.
There are other alternatives. One option is to endorse the Commercial General Liability Policy to include endorsement CG 24 08 (Liquor Liability), which deletes the liquor liability exclusion on either CG 00 01 or CG 00 02. The effect is to include liquor liability exposures within the current Commercial General Liability occurrence and aggregate limits.
Using CG 24 08 is a short and sweet solution for those commercial ventures that truly have no significant exposure. However, it will leave the insurance carrier open to any liquor liability claim that may come up. For example, if a hotel decides to open a small bar in the lobby, the company is on the hook for claims. Therefore, an underwriter may feel less likely to do this as they create coverage wider than they may intend to.
A third option is to endorse Commercial General Liability policy to include ISO endorsement CG 21 51. This endorse permits the underwriter to schedule a narrower range of operations to be excepted from the liquor liability exclusion. For example, they may schedule “any alcohol sales from the kiosk,” or perhaps “complementary manager receptions.” Just like using endorsement CG 24 08, liquor liability claims are applied against the general aggregate. This is perhaps the best solution as it can be used to provide coverage for those fuzzy areas, but not cause underwriters to inadvertently cover exposures they are not intending to cover.
One last comment on liquor liability before I leave you. ISO has an amendment to liquor liability, form number CG 21 50. It is not an acceptable solution to cover what folks used to call host liquor liability. It in fact expands the exclusion to not cover those “fuzzy” areas.
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