Do you own a winery, a bar or a restaurant that serves liquor? If so, your basic general liability policy won't protect you against lawsuits that arise from the sale or service of alcoholic beverages. The reason is the liquor liability exclusion that appears in most general liability policies. This exclusion precludes coverage for liquor-related claims if your company is in the business of manufacturing, selling, serving or distributing alcoholic beverages.

Note that if your business is not liquor-related, your basic policy should provide host liquor liability coverage. This coverage is afforded by an exception to the liquor liability exclusion.

To protect your bar, restaurant or other business against liquor-related claims, you need to purchase liquor liability coverage. This coverage is usually provided on an occurrence form. Claims-made policies are also available but occurrence policies are preferable. Liquor liability coverage can often be added to an existing liability or package policy.

Cost

The cost of liquor liability coverage depends on the type of business you operate, the amount of your alcohol sales compared to your total sales, and your loss history. The cost also depends on the type of liquor laws that apply in your state.

Many states have enacted laws that hold a bar or restaurant liable for injury to a third party caused by a drunken patron. These laws vary in severity. Some are very strict, holding liquor servers liable for third party injuries even if the servers aren't negligent.

Other laws are more lenient. In some states a server may be held liable only if he or she served a minor or someone who was visible intoxicated, and that person then injured someone else. Generally, stricter laws mean costlier coverage. A bar or restaurant has a greater chance of being held liable for third party injuries in a state with very stringent laws.

Coverage

A liquor liability policy typically covers damages you are legally obligated to pay because of bodily injury or property damage when liability is imposed on you because you sold, served or furnished   alcoholic beverages. Coverage should apply whether you are liable under a written law or because you committed negligence. To be covered under an occurrence policy, the bodily injury or property damage must occur during the term of your policy.

Here is an example of the type of claim a liquor liability policy is designed to cover. Suppose that Bob, a customer of yours, is drinking in a bar you own. Bob becomes intoxicated and picks a fight with Bill, another bar patron. Bob hits Bill with a chair, causing Bill to suffer a broken arm. Bill sues your bar for bodily injury, claiming that your business is liable for his injury because you served Bob alcohol when he was already visibly drunk. Bill demands $25,000 to cover his medical bills. Your liquor liability insurer should either pay the damages or settle the claim for a smaller amount.

Defense Costs

A liquor liability policy covers the cost of defending you against a lawsuit. This coverage is important because alcohol-related lawsuits can generate substantial defense costs. Even if you are cleared of any liability for injury or damage, the cost of defending you can be significant.

When shopping for liquor liability coverage, look for a policy that covers defense costs outside the policy limit. That is, the limit in your policy should apply to damages only. It should not include defense costs.

Exclusions

Many liquor liability policies contain the following key exclusions.

• Employee Injuries Excludes suits filed against you by employees for bodily injury.
• Workers Compensation Excludes any obligation you have under a workers compensation law.
• Lack of License Excludes claims that arise from alcoholic beverages you sold when your license was not in effect.
• Product Liability Excludes bodily injury or property damage arising out of your product other than alcoholic beverages. In other words, your liquor liability policy will not protect you against claims arising from products you make and sell (such as food). Product liability claims are covered under your basic general liability policy.

Expected or Intended Injury or Assault and Battery

Another exclusion found in some liquor liability policies applies to expected or intended injury.  This exclusion applies to bodily injury or property damage that is expected or intended from the standpoint of the insured. That is, if the insured (meaning the insured that has been sued) committed an act by which he or she expected or intended to injure someone or damage someone's property, the injury or damage will be excluded.

For example, suppose that Jim owns a bar. One evening, Jim's pesky brother-in-law (Paul) arrives at the bar. Jim and Paul dislike each other, and they get into an argument. Paul calls Jim an offensive name. Jim wants to punish Paul so he slugs him in the head with a beer bottle. Paul is injured and later sues Jim for bodily injury. When Jim hit Paul with the bottle, Jim intended to injure Paul. Thus, Jim's liquor liability insurer may deny coverage for the lawsuit based on the expected or intended injury exclusion.

The expected or intended injury exclusion applies only to acts committed by insureds. It should not apply to acts committed by customers or others who are not insureds. Moreover, theexclusion does not apply to bodily injury that results from the use of reasonable force to protect persons or property.

For instance, suppose that Paul enters Jim's bar. Paul grabs Susan (another patron) by the neck and begins to choke her. Susan is clearly in danger so Jim grabs a beer bottle and hits Paul over the head with it. In this case, Jim hit Paul to protect Susan. If Paul sues Jim or his bar for bodily injury, the claim should be covered by Bill's liquor liability policy.

The expected or intended injury exclusion does not apply to an intentional act that results in untended injury. For instance, suppose that Jim ejects Steve, an unruly customer, from the bar. Steve sues Jim, alleging that Jim injured him when Jim threw him out of the bar. If Jim can show that when he ejected Steve, he didn't expect or intend to injure Steve, the claim should be covered.

The expected or intended injury exclusion is sometimes referred to as the assault and battery exclusion. Some liquor liability policies use the terms assault and battery instead of expected or intended injury. No matter what terms are used in the exclusion, it is important that you read it  carefully.

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