Host Liquor Liability Coverage
Host liquor liability coverage protects your business against claims or suits that arise from the incidental selling or serving of alcoholic beverages. It is designed to cover your liability as a social host. It differs from liquor liability insurance, which covers bars, restaurants, and other establishments that are in the business of selling liquor. Host liquor liability coverage is automatically included in a general liability policy.
Covers Social Events
Host liquor insurance covers alcohol-related claims that result from the occasional serving of alcoholic beverages. It is intended to cover claims that arise from social events like a company picnic or Christmas party. Consider the following example.
It's a warm spring day and employees of Trusty Tax Services have gathered for a picnic at a park near Trusty's office. The company has provided gourmet food and several cases of wine to celebrate the end of tax season. The festivities have been going on for several hours and are beginning to wind down. Tom, a Trusty Tax Services employee, is feeling tipsy and decides it's time to leave. He drains a bottle of wine and then toddles off to his car.
Tom is about halfway home when he accidentally runs a stop sign. His car broadsides a vehicle driven by a local businessman named Sam. Sam is injured in the accident and sues Trusty Tax Services. His suit contends that the company's executives were negligent because they provided alcohol to Tom after he was visibly drunk. Moreover, they did not prevent Tom from driving even though he was clearly inebriated. Sam seeks $50,000 in compensatory damages. Trusty Tax Services is insured under a general liability policy that includes a $1 million per occurrence limit.
Will Trusty’s liability policy cover Sam's lawsuit? The answer is yes.
Liquor Liability Exclusion
Host liquor coverage is included under Coverage A of the ISO general liability coverage form (CGL). Coverage A applies to damages against the insured because of bodily injury or property damage. This coverage contains a liquor liability exclusion. The exclusion eliminates coverage for bodily injury or property damage for which any insured may be liable if he or she has done any of the following:
- Caused or contributed to someone's intoxication
- Furnished alcoholic beverages to someone under the legal drinking age or "under the influence"
- Violated a statute, ordinance or regulation related to the sale, gift, distribution or use of alcoholic beverages
The liquor liability exclusion applies only if the insured is in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. It is directed at businesses like wineries, taverns, bars, and breweries, whose main operations involve manufacturing, selling or serving alcoholic beverages.
Host Coverage Exception
Companies that aren't in the business of making, selling or serving liquor are exempt from the liquor exclusion. Such businesses are covered for claims that arise from the serving of alcohol in a social setting. The coverage that is afforded by the exception to the liquor exclusion is called host liquor liability coverage.
In the Trusty Tax Services example, Tom became inebriated at a social function sponsored by his employer and injured a third party (Sam). Trusty Tax Services is not in the business of serving alcohol. Thus, Sam's claim against Trusty should fall within the exception to the liquor liability exclusion. The claim should be covered by Trusty's general liability policy.
Because host liquor liability coverage is automatically included in Bodily Injury and Property Damage Liability Coverage, any damages or settlements the insurer pays for liquor-related claims will reduce the each occurrence and general aggregate limits in the policy. However, court costs, legal fees, and other expenses the insurance company incurs to defend the insured will not reduce these limits.
The liquor liability exclusion in the standard CGL specifically addresses BYOB (bring your own bottle) arrangements. The exclusion states that your company is not automatically considered "in the liquor business" if you simply permit someone to bring alcoholic beverages onto your premises to consume there. This is true whether or not a fee is charged or a license is required for the BYOB activities.
For example, suppose that your company sponsors a holiday party for employees at your office. While you don't provide any liquor at the party, you allow your employees to bring their own. Bill, an employee of yours, brings a bottle of bourbon to the party. Bill becomes inebriated and topples over onto the spouse of another employee, injuring her. If the injured spouse sues your business for negligence, your firm's general liability policy should cover the suit. Your company isn't deemed "in the liquor business" based on the fact that you permitted someone to bring liquor onto your premises.
State or Local Statutes
Social hosts are subject to lawsuits by third parties for injuries those parties sustain as a result of the hosts' negligence, a tort under common law. Social hosts may also be fined or imprisoned if they violate a state or local liquor statute. Many jurisdictions have enacted laws that prohibit social hosts from serving alcohol to minors. Some laws also apply to liquor served to adults who are visibly drunk. To learn what social host laws apply in your state or community, ask your insurance agent or attorney.
Liquor Liability Coverage
Finally, companies that are in the business of manufacturing, serving or selling alcoholic beverages have no coverage for liquor-related claims under the CGL. For this reason, such businesses need liquor liability coverage. This coverage protects bars, taverns, restaurants and related businesses against claims for injuries caused by intoxicated customers.
Liquor liability coverage may be provided on an occurrence or a claims-made basis. Claims-made policies are usually cheaper but they cover claims made during the policy period only. A liquor liability policy will not replace your general liability policy. If you own a liquor-related business, you need both coverages.