You might assume owning a bar would be all fun and games, but bars, concert venues, and other businesses in various locations across the U.S. are finding that’s not the case. Many have been forced to close their doors as the cost of liquor liability coverage rises. The price of liability insurance, including liquor liability, has been rising steadily across the country. A recent Council of Insurance Agents & Brokers survey found that in the fourth quarter of 2021 alone, medium-size businesses saw an average insurance premium increase of 10.6%; small businesses saw an average 6.3% percent rise with increases attributed to economic inflation, social inflation of jury awards, and other factors (source 2). The liquor liability market likely would have hit rocky ground sooner, but the pandemic slowed most businesses down and court cases ground to a halt. Now that courtrooms have returned to normal operations, drunk driving lawsuits are hitting with increased frequency and severity, which drives up insurance costs.
Rising insurance rates are eating into profit margins, making it difficult for establishments to pay employees and maintain equipment. In South Carolina, rising liquor liability rates are leaving many bars with a massive bill. One bar owner reported paying $8,800 for liquor liability in 2021. That bill jumped to at least $31,000 in 2023. Another local bar owner indicated his liquor liability costs have skyrocketed from $5,000 to $60,000 in only three years. While South Carolina’s marketplace didn’t truly begin to feel the strain until 12-18 months ago, the issue can be traced back to 2017, when legislators passed a law requiring establishments with liquor licenses to purchase at least $1 million dollars’ worth of liquor liability coverage. The 2017 legislation was passed in response to an incident where a drunk driver without insurance left a bar, which also didn’t have insurance, and collided with a police officer, causing devastating injuries.1
South Carolina lawmakers intended for the law to cover similar instances, but for many, it pushed up coverage prices and drove bars out of business. It also made claims far more expensive for insurance carriers.1 The South Carolina Insurance Association reports that insurers are paying out two dollars for every dollar collected in liquor liability premium, making it impossible to generate an underwriting profit. Over the past four years, countless insurance carriers have pulled out of the state altogether. As premiums increase from year to year, driven by losses, there’s a lack of competition in the space, which normally helps keep rates down.1 Markets are continuing to exit and finding a potential insurer can be extremely challenging as most shy away from liquor liability business due to high losses and no tort reform on the state’s horizon. South Carolina doesn’t allow businesses to self-insure for liquor liability and those with alcohol revenue percentages of more than 30% have an increasingly difficult time obtaining coverage as the percentage of alcohol revenue climbs toward 50%-75%. Even clean accounts with no losses are seeing premiums rise to between $25,000 and $50,000, which is too high for many to reasonably pay. Without liquor liability coverage in South Carolina, bars, venues, or restaurants are forced to close.
Business owners in several other states are also having difficulty finding coverage at all as markets dwindle. Vermont bars, nightclubs and other establishments that serve alcohol were already facing sharp, often unaffordable increases in the cost of insurance, but now they are often struggling to find a company to provide coverage at all.2 Placing liquor liability for establishments in Texas, or the District of Columbia is also extremely challenging, especially for the smaller operations. Several common “go to” carriers for other lines won’t consider liquor liability and the one or two remaining have tightened underwriting guidelines to be even more strict. Larger brokerage risks with more than $1M in alcohol sales result in high rates and premiums that make it difficult to obtain bind orders. Some carriers will only consider offering coverage when premium hits $100,000 or more.
Over the last 18-24 months, establishments in Kentucky have seen three markets exit the liquor liability space, leaving only a handful that will quote the business. Even when carriers will consider it, minimum premium is often starting at $35,000 and many smaller bars or restaurants can’t afford the price hike. More markets are available if revenue from alcohol sales is less than 30% - 50% of total sales. When alcohol revenue rises above 50% it’s extremely challenging to find coverage and at 75% of revenue, it’s nearly impossible.
Alabama, a state with Dram Laws in place, recently passed legislation dealing with liquor liability insurance reform. Prior to passage of the new legislation, there were only three carriers providing policies to retail establishments and they required $100,000 minimum in coverage, often at a cost of more than $35,000 annually. However, the new law creates a broader standard. In Alabama, a server will have to knowingly serve an intoxicated person, and that service must be the proximate cause of the injury or death, if incurred. With the passage of this legislation, the cost of liquor liability insurance for restaurant and bar owners should start to decrease and allow businesses the opportunity to purchase higher amounts of insurance protection at a lower cost.6
Currently, 43 states and the District of Columbia have some form of a Dram Shop law in place. Dram Shop laws make it more likely that lawsuits will be filed against businesses. Such laws hold businesses like bars and restaurants liable for serving or selling alcohol to minors or intoxicated persons who later cause death, injury, or property damage to another.3 States with Dram Shop laws allow establishment landlords, along with individual employees, and the bar itself, to be sued if an intoxicated customer later causes an accident or injures someone.2 Even in states without Dram Shop laws, a business can be named in a lawsuit over the actions of an intoxicated customer. If a ruling is made in the establishment’s favor, the business must still pay defense costs and other legal fees, making liquor liability insurance a critical form of protection for any business that sells or serves alcohol.
HOW AGENTS CAN HELP
Agents can help insureds consider business model changes or risk management strategies that may help with the affordability of liquor liability coverage, including:
Social Media Clean-up. Most carriers are diving deep into social media. If a bar posted past advertisements about social events, drink specials, trivia nights, etc. that are no longer occurring, it’s wise to remove the information because underwriters may assume those events are ongoing.
Review Business Hours & Menu Options. Insureds that stay open into the early morning hours should review the level of business between 2am and 4am to determine if it’s really worth staying open that late. If not, the liquor license can be amended to help lower premium. Some bars that lack the ability to serve food alongside alcohol have also hired food trucks to serve patrons. While that creates a subcontracted cost, it does illustrate for carriers that food is available.
Establish Rigorous Risk Management Policies. Carriers are often asking about the policies in place to help prevent an intoxicated patron from driving, such as providing ride shares or a designated driver to drive people home. Bartenders should also maintain current certification through TIPS, a skills-based training program designed to prevent intoxication, underage drinking, and drunk driving, or another credible organization. Point-of-sale systems, security cameras, and ID scanners that monitor alcohol service can also be key risk management tools.
Gather Current Data. It’s helpful to have updated applications and at least 5 years of currently valued loss runs on every establishment up for renewal to help with remarketing. Any account with a loss should provide extensive details of any claims, especially those that remain open. Agents can also assist brokers by allowing enough time to adequately remarket the account. Ideally, it’s wise to start marketing at least 45 days out to ensure options can be found. Because available markets are dwindling in some places, remaining underwriters are swamped with submissions.
Produce Low-touch Submissions that Tell a Story. Because underwriters are busier than ever before, every submission should be complete up front, requiring minimal back and forth between underwriting and the insured. Telling the insured’s story can also help underwriting feel more comfortable with a risk.
BOTTOM LINE
Many places around the country are quickly approaching a critical point for restaurants, clubs, bars, and music venues when it comes to liquor liability insurance. For most, it’s no longer just a question of affordability - It’s also whether a business can even obtain coverage.2 The outlook for liquor liability is tough as Dram Laws remain prevalent and social inflation continues to drive up jury awards. Tort reform is needed in several states as carriers are often more willing to write business in states that have enacted strong tort reform that provides some level of protection to the server and the consumer.
Businesses that choose to gamble by self-insuring may find that one claim has the power to put them out of business. CRC Group is home to brokers with the product knowledge and market relationships needed to help your clients obtain the best possible coverage options in a challenging liquor liability marketplace. Reach out to your local CRC Group producer today to learn more.
CONTRIBUTORS
- Renee Middleton is CRC Group’s Sumter, South Carolina Office President.
- Sallie Howerton is an Inside Broker with CRC Group’s Indianapolis, Indiana office.
END NOTES
- Rising Liquor Liability Rates Leaving South Carolina Bars High and Dry and Stuck with Bill, WYFF 4, May 15, 2023. https://www.wyff4.com/article/rising-liquor-liability-rates-south-carolina-bars-alcohol/43896496
- Rising Insurance Rates Threaten Vermont Bars, Clubs and Restaurants, Seven Days, March 22, 2023. https://www.sevendaysvt.com/vermont/rising-insurance-rates-threaten-vermont-bars-clubs-and-restaurants/Content?oid=37849147
- Dram Shop Laws: History and Explanation in Alcohol Sales, Investopedia, October 2021. https://www.investopedia.com/terms/d/dram-shop-laws.asp
- Dram Shop Laws, FindLaw, October 25, 2023. https://www.findlaw.com/dui/laws-resources/dram-shop-laws.html#:~:-text=As%20of%202023%2C%2042%20states,%2C%20South%20Dakota%2C%20and%20Virginia
- How Alcohol Affects Driving Ability, United States Department of Transportation. https://www.nhtsa.gov/risky-driving/drunk-driving#:~:text=About%2031%25%20of%20all%20traffic,year%20in%20drunk%2Ddriving%20crashes.
- Alabama Senate Passes Liquor Liability Insurance Reform, Alabama Political Reporter, March 24, 2023.https://www.alreporter.com/2023/03/24/alabama-senate-passes-liquor-liability-insurance-reform/
- 2022 Drunk Driving Statistics, Bankrate, May 26, 2022. https://www.bankrate.com/insurance/car/drunk-driving/#stats