Liquor Liability-Do you have the right coverage?

Why is Liquor Liability for Bars so much more than for Restaurants? A client who recently opened a high-end cocktail lounge after running a restaurant for years thought his insurance would be about the same for his restaurant. He was surprised when he discovered it would cost thousands more when comparing just Liquor Liability. The reason for this starts with defining what is a “restaurant” and what is a “bar”. Total insurance costs for a restaurant may be $5,000 while the same coverage for a bar can be over $15,000. The reason…Classification. Most companies limit their “restaurant” classification to 25%-35% of alcohol sales to gross sales with some companies allowing up to 50%. Once you move from “restaurant” to “bar” classification, the rates increase significantly due to claims increasing significantly.

Liquor Liability that costs $1,000 for a restaurant may now cost $5,000+ if classified as a bar. Understanding how classifications are made for each company can come in very handy when acquiring insurance. Rates and classifications may vary greatly between companies. If your agent doesn’t have access to certain companies, they may insure you as a bar when you could be classified as a restaurant by another company and pay much less. This classification may also apply to Workers Compensation premiums. Maintaining accurate receipts of food, drink and alcohol sales can help monitor these percentages.

Even if you are classified as a “bar”, the percentage of alcohol sales can affect rates. Establishments with 90% alcohol sales may pay more for liquor liability than one with 60% alcohol sales. Also, the cost per average drink can affect the cost of Liquor Liability in some cases. You may have two operations with $1,000,000 in alcohol sales, but if one of those establishments serves high end cocktails at $15 per drink while the other is a college bar averaging $3.00 beer, the cocktail lounge is serving less people, therefore, a lower risk and potentially lower premiums. It’s important to have these conversations with your agent each year as these details can reflect thousands in savings.

For states where the laws are written to favor patrons, rates can vary drastically among carriers. Often a carrier will write Liquor Liability one year and the next no longer offer it due to profitability issues. It is common to have different Liquor Liability companies each year due to the underwriting appetite and pricing per company. If your agent isn’t shopping rates each year for this coverage it could be costly.