Does your state require hospitality establishments to procure liquor liability insurance? Does that requirement apply only to businesses with a certain level of alcohol receipts, or does it apply on a blanket basis to any business that serves alcohol?
What’s your state’s legal blood alcohol content level for getting behind the wheel? Does your state hold commercial hosts liable for bodily injury or property damage sustained during a drunk driving incident?
“You have to continually monitor state statutory and common law for changes that affect the liability imposed on servers,” says Bill Turner, vice president, professional and product development at BerkleyReSolutions.
Consider that in 2016, a court in Maryland—a state that has been historically reluctant to impose liability on commercial and social hosts regarding alcohol consumption and consequences—ruled that a social host who furnishes alcohol to a minor can be held liable for subsequent injuries incurred by other parties.
“A prospect might say, ‘There’s no liability imposed on commercial hosts in my state, so I don’t need the coverage,’” Turner says. “As an agent, you need to be able to say, ‘Wait a minute—they just imposed liability on social hosts, and we don’t know what’s going to happen down the road. You should really buy this coverage.’”
The parameters vary slightly depending on your state, which means understanding dram shop law everywhere you have a liquor liability client is crucial to succeeding as a trusted adviser in this market. Here are four other steps that can help you accomplish that goal:
1) Get honest answers from clients. After dram shop law, this is perhaps the most important thing to remember in the liquor liability market—and you’d be surprised at how often it doesn’t happen.
“I can’t tell you how many agents submit applications where you know the liquor sales cannot possibly be right,” says Sandra Haley, senior vice president of underwriting and marketing at Hospitality Insurance Group. “I get applications that say the insured doesn’t have entertainment, and then we go to their Facebook page and they show them having a band.”
Good rule of thumb: Never fill out the application for your prospect. “A lot of times, agents will answer that the client has never had any fines or had their liquor license revoked, when indeed they actually have,” Haley says. “And then you speak to the agent and they say, ‘Oh—I didn’t mean to, but I filled it out for them and I didn’t know.’ That leaves a really bad taste in an underwriter’s mouth.”
In the standard market, carriers “may be hard-pressed to not honor a claim because the insured lied on their application—they have to live by the laws of their insurance department, which don’t let you leave an insured high and dry,” Haley says. But the excess & surplus market is another story: “Insurance departments have no regulation over them. If you’re lying on an application and the insured signs it, an E&S carrier could—not that they would, necessarily—but they could be within their rights to decline coverage.”
2) Stick with reliable carriers. Whether you’re placing coverage in the standard or E&S market, make sure you’re working with a carrier that has a strong track record.
“The biggest issue I see is the churning of the market,” Turner says. “Maybe a company has written a fairly light-hazard restaurant book, 1-25% liquor receipts, and then they expand to sports bars or taverns, which is a different beast. Sometimes a company enters the business and they’re a bit naïve—they don’t understand the loss potential and what’s really important in the risk assessment process.”
Turner says it happens “like clockwork” within 18-24 months: “A carrier that has not established a responsible, credible pricing and underwriting approach will either be out of the business, increase their pricing significantly, or significantly restrict their underwriting guidelines. And that might create some undue explanations for an insured if all of a sudden they can’t find coverage, or pricing has doubled or tripled.”
Do your homework regarding “what classes your carriers are targeting, whether they’ve stayed within that target, whether they have appropriate pricing,” Turner suggests. “Make sure you line up with carriers that offer a lot of attention to detail and risk management, specifically regarding responsible service of alcohol. Some carriers even offer responsible beverage service training. Being aware of these things might give you a market edge and make you more of an asset to insureds.”
3) Push a lot of limit. Haley cautions agents to remember that liquor is a line marked by catastrophic severity. “You don’t see a lot of frequency on these alcohol claims,” she says, “but when you get one, it’s never pretty.”
That means adequacy of limits “is always a major concern,” says Paul Wagner, senior vice president and account executive, Gen Re, Los Angeles. “We have seen a number of liquor liability verdicts that well exceed the policy limit in place. A $1-million liquor policy limit may not be enough for a serious auto accident or major bar brawl.”
“Liquor’s a very volatile line,” Turner agrees. “If you have a $1-million liquor policy limit and a $10-million umbrella, and the state imposes liability on the commercial host, it’s not unreasonable to anticipate that both the liquor limit and the full umbrella limit could be exhausted.”
According to Turner, “the insured really can’t buy too much limit. Agents should really push not only for liquor liability coverage, but also as much umbrella as they can.”
4) Pay attention to emerging developments. Here are three you need to keep an eye on:
- RIDESHARING. “The whole Uber scene is a huge positive for liquor,” Haley says. “A lot of the younger people who use Uber and Lyft are using it more when they go out—they’re a little bit more conscientious. You can’t measure it, but I do think we’ll see less claims related to younger people who are drinking and driving.”
- POUR-YOUR-OWN SYSTEMS. “The customers serve themselves—they just plug in their credit card. And that creates underwriting concerns for us, because a crucial element of a responsible alcoholic beverage service program is someone monitoring the flow of alcohol and monitoring for signs of intoxication,” Turner explains. “We’re struggling to determine whether or not adequate controls are in place with those kinds of systems.”
- LEGAL MARIJUANA. “There are really no parameters established yet as to how these drugs interact,” Turner says. “What we’re really watching for is the first state that allows smoking or ingestion of cannabis or byproducts in conjunction with consumption of alcohol.”
Jacquelyn Connelly is IA senior editor.