Underwriting liquor liability coverage means that underwriting is done at a distance. The action an insured takes or does not take is the trigger to an accident that may or may not occur. Underwriters cannot do anything to lessen the impact of an accident because they do not have a relationship with the person who causes it. The only thing they can do is to try to reduce the chance that the insured will initiate the triggering action.

LIQUOR LICENSES

One of the first underwriting considerations is the type of liquor license the business holds. Neither of the liquor liability coverage forms provides coverage if the establishment does not have the appropriate liquor license. Every state has different rules and requirements concerning issuance of liquor licenses but the following are the most common licenses:

• Manufacturing
• Distributing and wholesaling
• Off premises consumption only–beer and wine
• Off premises consumption only–beer, wine, and spirits
• On premises consumption–beer and wine
• On premises consumption–beer, wine, and spirits
• Special events licenses

BRING YOUR OWN ALCOHOL ESTABLISHMENTS

Restaurants and other establishments may not actually provide alcohol. However, they can provide an environment where alcohol consumption is not only permitted but is encouraged. They may provide the non-alcoholic set-ups, entertainment, and other furnishings and arrangements for drinking. Underwriting this exposure is difficult because the liability laws are not as explicit as to when licenses are required. It is very important to carefully examine the activities that take place at the establishment, the age of patrons, and hours of operations. It is also very important to determine if the named insured chooses to not serve alcohol or is forced into this activity because its liquor license was revoked.

LIQUOR LIABILITY GRADES

• 0: States with this grade do not have a cause of action against any party that supplies, furnishes, vends, or sells liquor for bodily injury, property damage, or death that an intoxicated person causes. Manufacturers, wholesalers, and distributors are always graded as 0.
• 1-9: States with this grade range impose varying degrees of moderate liability on parties that supply, furnish, vend, or sell liquor. Causes of action in these states can be brought against the liquor vendor for bodily injury, property damage, or death that an intoxicated person causes under certain circumstances.
• 10: States with this grade impose strict liability on parties that supply, furnish, vend, or sell liquor. Simply furnishing liquor in these states is considered the proximate cause of the bodily injury, damage, or death.

PRICING

Underwriters use their company underwriting guidelines, state grades, and judgment to determine the appropriate premium to charge for a particular risk. Some insurance companies have filed and published rates.

Licenses for special events that involve serving alcoholic beverages are based on specific limited time periods. This is why a judgment rated flat premium charge is usually made instead of using the standard rating formula. This charge should be based on the type of exposure and the state grade.