How much do you know about insuring craft beverage establishments?
NSM Insurance Group divides the niche into four categories: wineries, distilleries, breweries and brew pubs, which incorporate both brewing and restaurant activities.
Most have a few coverage needs in common. In addition to the obvious—liquor liability, general liability, premises liability and property—sources agree that breweries, wineries and distilleries usually require additional coverage for risks like all-premises power failure and equipment breakdown.
In fact, Paul Martinez, program manager at Winery/Brewery/Distillery/Cider Pak Insurance Programs, says the majority of claims he’s seen in the craft beverage establishment sector involve the latter. Consider tank collapse, which typically occurs after a forklift collides with the tank or knocks off a valve while passing by, causing a leak.
“When a tank starts to leak, eventually the tank’s going to implode due to the pressure change,” Martinez explains. “For regular carriers that are using the regular ISO property form, those types of losses are not covered. We had to manuscript new forms to tailor to the craft beverage manufacturing industry.”
Many of the carriers that play in the craft beverage establishment space “have crafted unique coverage enhancements on the GL and property side that a standard business owners policy wouldn’t necessarily cover,” agrees Geoff Pratt, director of workers comp programs at NSM. “Our property broadening endorsement is literally something like 44 pages long, because it offers 60 unique coverages.”
Product liability is another major concern and should include coverage for leakage, contamination, perishable goods and spoilage, Martinez adds, while Pratt points to workers compensation as a must for businesses with three or more employees. According to Pratt, if they’re big enough, some craft beverage establishments may even want to consider adding employment practices liability or a commercial umbrella for good measure.
And although wineries, breweries and distilleries tend to be “a little more of a sophisticated animal” in terms of patron behavior, “whenever there’s alcohol consumption involved, you definitely need assault and battery coverage,” Martinez says. “When you’re dealing with winery tasting rooms or brewery tap rooms, people typically drink responsibly, but it’s always best to be prepared.”
Quirks to Consider
But there are also major differences between these types of businesses when it comes to insurance. Breweries with tap rooms and wineries with tasting rooms have similar liquor liability exposures, Pratt says. But for a standard brewery or brew pub, the start-to-finish production process tends to be significantly faster than it is at a winery or distillery.
“From dumping the water in the tank to bottling your product, it’s probably 30 days for beer,” Pratt says. “Compared to wine, some age months or years, and distilleries can age up to 12 years.”
And “in most cases for breweries, there’s more equipment involved than with a winery,” adds Matthew Walters, program underwriter at NSM. “Distilleries, that’s a higher-flammable material people are working with, so there’d obviously be different types of safety sections, blast areas, fire extinguishing equipment and construction concerns.”
Differences abound within each category, as well. For example, “in its most basic form, the winery is going to have a tasting room, which is the on-premises consumption of alcohol covered by liquor liability,” explains Mike Williams, senior product director for the agribusiness division at Travelers. “The typical winery is going to have a bit of off-premises consumption as well for wine-tasting events.”
But expanding outward, Williams says a winery may host events on premises that aren’t necessarily tied to the tasting room, such as wine club member events where customers enter the premises to pick up their case goods, listen to music and sample wine. Beyond that, a winery may rent out its premises entirely for a wedding or corporate meeting.
“Usually that’s contracted out to a third party like a caterer, and they’re maybe serving the insured’s wine with some beer and some other liquor,” Williams explains. “The key there is that the insured should be looking to those vendors for a certificate of insurance showing the winery as an additional insured, and that they have liquor liability.”
Pratt has seen a number of wineries that he calls “an offshoot of a completely different habitational exposure.” He visited one winery in the north Georgia mountains “where the guy probably only makes about 600 cases of wine a year, but he’s got 12 rental cabins in addition to about an acre and a half of grapes.”
Overall, it’s all about “knowing what your customer is doing on the premises,” Williams says. “Any time they change their operation, expand their operation or use their premises for something other than what was already contemplated, you need to have that constant communication.”
For small to midsize establishments that don’t have adequate storage space at their own facilities, third-party transportation and storage create additional exposures that may require crime and commercial auto policies.
Martinez cites a recent incident in which an alleged inside job resulted in a theft that cost a Georgia brewery about $90,000 in limited-edition beer—a prime example of the importance of employee training, cameras, automatic shutoff switches for trucks and crime coverage for employee dishonesty.
“Who was responsible for the goods and when? If I’m a brewery and I have a deal with the distributor that says once the beer is on their truck it becomes their responsibility, obviously that’s best-case scenario,” Martinez explains. “But a lot of times, until the beer reaches its final destination, it’s my responsibility. So it’s important to understand when and where I need to have coverage.”
Distribution laws vary by state—Pratt points out that in Pennsylvania and California, for example, distribution agreements “are in perpetuity, so you’ve got people that want to self-distribute it as long as they can so they don’t get locked in with a distributor. Doing that increases the workers comp exposure because now you’ve got people driving vans over the road, lifting kegs and stuff like that.”
On the other hand, the hold harmless agreements in a distribution contract may appeal to a larger craft beverage establishment, because “if something happens to your product while it’s in the control of the distributor, you’ll be covered for that,” Pratt explains. “You’re actually offloading some of the workers comp exposure by not having to self-distribute.”
Walters suggests considering transportation coverage that includes breakdown or malfunction. “That’s more for the people who are self-distributing and have a number of trucks that are refrigerated to get the product out there by themselves,” he explains. “A lot of these people are expanding, so they need places to store their equipment for a short amount of time, or they buy equipment and they can’t put it in until their place is renovated.”
Be aware that in some cases, storage facilities may utilize more than one warehouse. “They can actually move that stock in between those locations and the insured would never know,” Williams points out. “The agent needs to ask the insured if they have additional warehouses, get those addresses and make sure those locations are all scheduled on the insurance policy associated with the wine stock coverage.”
And while most storage facilities are well maintained, make sure you get a sense of the quality of protection they provide. “Some are better than others,” Williams says. “If they lose power, how long is it until they need a backup generator to keep the wine at a certain temperature? It’s just some of the basic blocking and tackling that agents may not think of. These customers have millions of dollars stored in these places. Be concerned about what safety controls and contingency plans the warehouse has in place.”
What’s on the horizon for this type of insurance? Keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter to find out.
Jacquelyn Connelly is IA senior editor.