Insurance for a happy holiday season

Liquor liability: Insurance for a happy holiday season

Schiff, Samuel

The approach of Thanksgiving marks the beginning of the year-end holiday season. Shopping, parties, visiting friends and relatives and dining out are all part of the tradition that continues through New Year’s Day. But along with the joyful spirit of the season is the serious problem of a party-goer becoming over-enthusiastic and overindulging. If the party or gathering takes place in a restaurant or bar, the most important question for sellers and servers of alcoholic beverages is: Does your establishment have the proper insurance coverage?

Not too long ago, especially in the mid-1980s, getting liquor liability insurance was difficult and costly for those businesses serving or selling alcohol products. That’s all changed in the past few years, and a more favorable market has developed for those establishments seeking liquor liability insurance.

Among the most important factors that have combined to create a more favorable market include a greater degree of responsibility undertaken by owners and operators of restaurants and bars, enactment and enforcement of stricter state liquor laws, and the passage of the Risk Retention Act of 1986, which makes it easier to form risk retention groups that can provide insurance coverage outside the traditional market.

All that’s well and good, of course, but providers of alcohol are still not out of the woods. Court decisions continue to go against the sellers. According to industry observers, since 1988, wrongful death cases decided against sellers have increased four times and the average judgment has risen to $500,000.

While establishments that serve liquor are liable for the actions of their customers, many state laws or recent court rulings have included provisions that make drinkers more responsible for their actions and thus offer some relief to owners. Many states have enacted measures that limit liability to specific circumstances and provide better definitions of terms such as “apparent intoxication.”

Along with more favorable laws and court rulings, a number of organizations have undertaken the development of alcohol server training programs. These programs are designed to help servers recognize a patron who may have had too much to drink, and the appropriate action to take in such a situation.

One of the most successful of these efforts–and one that continues to be enthusiastically supported by the insurance industry is TIPS–Training for Intervention Procedures by Servers of Alcohol. Available evidence indicates that TIPS training is successful. As a result some insurance companies now offer lower liability insurance rates to owners and operators of bars and restaurants where more than 75% of the employees are TIPS-trained.

Regardless of whether or not there is a premium reduction, it makes good sense to provide server training, since it can significantly reduce the risk of being involved in a liquor liability lawsuit. It goes without saying that besides damages and defense cost, a liquor liability lawsuit provokes bad publicity and requires a lot a staff time for court depositions and testimony.

Building on the success of TIPS training in retail establishments, the program is also available to those who serve or sell alcoholic beverages in such diverse places as stadiums, arenas and other public facilities; employees of grocery, convenience and package stores; servers at country clubs, catered affairs, college fraternity and other social events.

TIPS is not the only training program available. Others are offered by the National Safety Council, Bartenders Against Drunk Driving, and the American Hotel and Motel Association along with some state associations.

While individual restaurants can usually obtain liquor liability insurance through their local agent, being part of a larger group offers another angle. Among the more established larger group programs is the Express Protection Liquor Liability Program available exclusively to restaurants accepting the American Express Card. Proposed by American Express, the program is underwritten and insured by the National Union Fire Insurance Company of Pittsburgh, a member company of the American International Group (AIG).

Group benefits

It is offered both through independent agents and via direct mail.

In order for a dining establishment to participate it must enroll (at no charge) in the Select Establishment Purchasing Group (SEPG). Express Protection features include availability in all 50 states; competitive rates determined by the experience of all the restaurants in the group and not negatively influenced by insurance market cycles; insurance that is provided under an occurrence policy form; policy limits of up to $2 million; a “nondeductible” option, and dividends to policyholders if the claims experience of the group is favorable.

“Express Protection is not designed to be cheap coverage,” according to Carline Kloskowski, vice president-property/casualty in New York for Seabury & Smith, a Marsh & McLennan Company which serves as administrator for the Express Protection Program. “History has shown very clearly that coverage which is ‘bargain priced’ is doomed to disappear, offering no effective solution. The intent of Express Protection is to stabilize both the affordability and availability of liquor liability insurance.”

Whether or not an establishment’s employees have completed an alcohol awareness program plays an important role in the premium. “We offer a premium discount of 20% to an establishment,” says Kloskowski, “provided half of its employees have successfully completed a certified alcohol awareness program approved by the Express Protection underwriters. For example, such a discount is available to those establishments whose employees have completed the TIPS program.”

There is a further incentive to exercise care in the serving of liquor by a restaurant participating in the Express Protection Program, and that is the possibility of premium savings should claims and losses be better than anticipated. “Obviously, no one can predict what the claims experience will be,” says Kloskowski. “However, in the event that the Express Protection claims experience is better than assumed during a single year, National Union will consider passing this savings along to the establishments taking part in the program in the form of a dividend. The dividends are not guaranteed, but must be declared by National Union’s board of directors.”

Kloskowski notes that the program was begun in 1987, and while it is a national program, the majority of establishments are in the Mid-Atlantic region, primarily New York and New Jersey.

“American Express is very satisfied with the program,” says Kloskowski, “and we continue to write new business at a steady rate. It’s designed primarily for upscale restaurants, including many in the area’s leading hotels.”

Out on the West Coast, primarily in California, Unifax Insurance Systems continues to provide a strong competitive market for restaurants, taverns and bars, as well as liquor stores, junior markets and neighborhood markets. “Because of our familiarity with the California market, we believe we have a distinct advantage over other companies, when it comes to liquor liability insurance,” says Roberta Homans, general manager for Unifax and underwriting manager for Crusader. That familiarity includes a knowledge of the market place as well as the liability laws that exist in the state.”

The company’s liquor liability coverage is part of a “larger, commercial package policy that we offer,” explains Homans. “Many of our customers are mom and pop operations, who might be compelled to go bare if a liquor liability policy were not included in their commercial policy.” Unifax insurance coverage is offered not only to those business that have experience, but new ventures as well. In addition, coverage for inner city risks is also available, says Homans.

While the company currently concentrates its sales almost wholly in California, “we will be looking to expand into other states in the near future.” Although its coverage is extensive and includes a wide variety of businesses, at this time Unifax does not offer discounts to those establishments whose servers have completed an alcohol awareness program. Coverage is placed through Crusader Insurance Company. Both Crusader and Unifax are subsidiaries of Unico American Corporation. “Our liquor liability coverage is available to $1 million per occurrence, with no aggregate limit (which provides more rather than less coverage), while property coverage is available up to a $1.5 million limit,” says Homans.

The need for liquor liability insurance cannot be understated. While court decisions continue to offer some needed relief to bars and restaurants, there is still no end to the lawsuits as well as the variety of court decisions that exist when it comes to fixing responsibility. It is thus very clear that having insurance will go a long way towards have a happy and healthy new year.

Copyright Rough Notes Co., Inc. Nov 1994

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