Liquor, liability and the law
Sports and recreation organizations that serve or furnish beer, wine, or liquor may be held liable for injuries to patrons or other third parties when:
- the patron was under the legal drinking age
- the patron was obviously intoxicated
- statutes, regulations, ordinances or case law impose “strict liability” for the sale of alcoholic beverages, even if it can’t be proved that the serving of the alcoholic beverage was the proximate cause of the injury.
Common examples of alcohol related incidents resulting in potential liability for sports and recreation organizations include auto accidents with injuries to the intoxicated driver, passengers, or other third parties, fights resulting in injuries to participants, and vandalism damages to property. The frequency of these incidents tends to be low but the severity potential is very high.
Host liquor liability coverage
The standard General Liability policy form has an exclusion for insureds “in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.” The key is to correctly interpret the meaning of in the business of. Some courts have ruled that nonprofit organizations are not in the business of, even if they regularly sell alcoholic beverages and as a result have what is known as “host liquor liability” coverage under their existing General Liability policy. However, there is at least one high profile decision that reached the opposite conclusion based on a number of additional factors. Also, claims adjusters are hesitant to provide host liquor liability coverage for the sale of alcohol because they believe that it is contrary to what the drafters of the policy form intended. As a result, some experts advise that nonprofits that sell alcohol or that are required to take out a liquor license or permit should not rely on the host liquor liability coverage under their General Liability policy.
Furthermore, some General Liability policies include endorsements that amend the terms of the standard policy form which has the effect of definitively taking away the host liquor liability coverage for organizations that make a charge or if the event requires a liquor license or permit.
Sports and recreation organizations should closely examine their policy form with their insurance agent and review case law in their state before relying on host liquor liability coverage.
Sports and recreation organizations that can’t rely on the host liquor liability coverage under their General Liability policies should purchase Liquor Legal Liability insurance. This coverage may be purchased as either a stand-alone policy or as an endorsement to the General Liability policy.
Organizations may sell alcoholic beverages to patrons on a direct basis with their own staff or may contract out the sales of alcoholic beverages to a vendor. Primary Liquor Legal Liability insurance is needed in the event that the staff of the organization makes the alcohol sales. On the other hand, Contingent Liquor Legal Liability insurance is needed if a vendor that holds the liquor license makes the alcohol sales.
Estimated Premium Costs
A leading source for Liquor Legal Liability insurance for sports organizations, K&K Insurance Group, Inc., provides the following guidelines for premium indications:
Minimum Premium: Range from $300 to $1,000 depending on the type of risk, the state where risk is located, and risk management controls.
Rate Per $1,000 of Beer, Wine, and Liquor Sales For Primary Liquor Legal Liability: Varies from $5 to $25 depending on past loss experience, state where sports organization is located and the type of alcohol served.
Rate For Contingent Liquor Legal Liability: The rates are the same as for Primary except that the sales are based on the percentage that is received by the sports organization. For example, if the contract provides that the sports organization is to receive 25% of the alcohol sales made by the vendor, the rate would only be applied to such 25%.
The following are additional considerations if a vendor sells alcohol for sports or recreation organizations.
- A written contract should be in place to protect the legitimate interests of the organization.
- A contract should include strong indemnification/hold harmless language in favor or the organization and its directors, officers, employees, and volunteers against any and all claims, damages, and expenses (including reasonable attorney’s fees) arising out of the sale of alcoholic beverages.
- In addition to providing evidence of the normal insurance policies that are required of vendors such as Workers’ Compensation, General Liability, Business Auto, etc., the vendor must provide evidence of current Liquor Legal Liability coverage with an insurance carrier that is rated at least A- by A.M. Best. The vendor’s policy must have a limit of at least $1 million Each Claim (though a limit of $5 million or more is recommended). The sports/ recreation organization should be named as an additional insured on the policy.
Why Contingent Liquor Legal Liability is needed
Even if the vendor provides an indemnification/hold harmless provision in favor of the sports organization and carries its own Liquor Legal Liability policy, things can still go wrong. For example, the vendor’s insurance policy may be canceled due to non-payment of premium or its aggregate limit may be exhausted by a prior claim during the policy year.
Sports and recreation organizations that contract out the sales of alcohol are usually shotgunned into liquor liability lawsuits under the following theories of recovery:
- The organization was negligent in its hiring and retention of the alcohol vendor that was known to cut corners and turn a blind eye to safety rules in serving patrons.
- The security provided by the organization should have noticed that a patron was intoxicated and been ejected him before purchasing additional drinks.
- The ticket taker provided by the organization should have noticed that a patron was intoxicated and denied admission.
Please visit our risk management library for additional risk management controls to protect against liquor lawsuits, including our article “Liquor Liability for Sportsplexes.”