Liquor liability insurance is designed to protect any business that sells or serves alcoholic beverages (e.g., bars, taverns, restaurants, clubs and liquor stores). Such coverage can provide financial assistance in the event that a business is held responsible for bodily injuries or property damage stemming from an intoxicated customer’s wrongdoings, such as fights, car accidents or careless acts.
Similar to other lines of commercial coverage, the liquor liability insurance market has faced hardened conditions in recent years, largely brought on by rising claim frequency and severity. Consequently, most policyholders have faced ongoing premium increases and diminished capacity. As the segment continues to experience large-scale losses, some insurance carriers have either reduced their risk appetites or exited the liquor liability space altogether, thus prompting additional capacity constraints.
Going into 2024, several factors could further impact liquor liability exposures and related costs, including a surge in drunk-driving lawsuits and evolving legislation. Considering these developments, premium hikes and limited capacity will likely press on in the coming year. In addition, those with poor loss control measures or who operate in certain locations could be more susceptible to larger rate jumps and possible coverage restrictions.
Developments and Trends to Watch
• Surging drunk-driving lawsuits — Drunk-driving incidents represent one of
the most significant liquor liability exposures for businesses. After all, alcohol consumption reduces brain function and impairs muscle coordination, making intoxicated customers who choose to get behind the wheel far more likely to cause accidents on the road (and subsequent losses) than their sober counterparts. As such, drunk driving is illegal in all 50 states. Even so, these incidents have been on the rise in recent years. The National Highway Traffic Safety Administration reports that more than 13,000 people have died in alcohol-impaired crashes annually since 2021, representing a 23% increase from the 10-year average. As a result, businesses have been facing a growing number of large-scale drunk-driving lawsuits and associated liquor liability claims. These lawsuits are expected to continue impacting claim frequency and severity for the foreseeable future.
• Evolving legislation — As it stands, 43 states have dram shop laws in place, which hold businesses accountable for serving alcohol to minors or intoxicated patrons who go on to injure other people or damage their property. With drunk-driving lawsuits and related losses on the rise, however, some states have been pushing for changes to dram shop laws, thus minimizing potential liquor liability exposures and costs. In particular, certain states have revised the wording of these laws to only hold businesses responsible for intoxicated customers’ actions if employees knowingly continue to give these individuals alcohol after observing that they are under the influence and such service is deemed the proximate cause of the resulting injuries or damage. With this in mind, businesses should make it a priority to keep track of evolving dram shop legislation.
• Coverage challenges — Many policyholders in the liquor liability space have encountered coverage challenges amid increasing claim frequency and severity. According to industry data, most insureds have seen double-digit rate increases since 2021, with some carriers implementing minimum premiums between $25,000 and $50,000. Further, surging losses have forced carriers in certain locations (e.g., South Carolina, Kentucky and Alabama) to lower capacity or even exit the segment, leaving policyholders unable to secure ample coverage and making them vulnerable to large out-of-pocket expenses. Making matters worse, some states have liquor liability insurance laws requiring businesses to secure coverage with policy limits of at least $1 million, which has become increasingly difficult in the current risk landscape. Although evolving dram shop laws could help address capacity issues going forward, it may take years before market conditions start softening.
Tips for Insurance Buyers
- Review your business hours and serving protocols to determine specific liquor liability exposures. Make adjustments as needed, such as closing earlier and implementing regulated pour systems.
- Hire experienced workers and train staff regularly on verifying customers’ ages, watching for signs of intoxication, and confirming patrons have a designated driver or utilize a ride-hailing service.
- Consult legal counsel to ensure compliance with applicable liquor liability legislation.
