The Wilson Fire Department holds a fundraising festival once a year and calls it “Wilson Daze.” The festival has contests and games and also includes food and beer. The fire department always purchases a one-day liquor permit for the event and also purchases a liquor liability policy.

One inebriated individual was sold additional beer at the festival. Even through he was drunk, he drove his car, ended up striking another car, and injured that car’s two occupants. The injured individuals sued the Wilson Fire Department for their injuries and Wilson asked their liquor liability carrier, Minnesota Joint Underwriting Association (MJUA) and their commercial general liability carrier, Mutual Service Casualty Insurance Company (MSI), to respond. MJUA participated, but MSI denied coverage because of the liquor liability exclusion.

MSI argued that since the Wilson Fire Department had purchased a liquor permit and a liquor liability policy, it was in the business of selling alcoholic beverages and therefore, based on the liquor liability exclusion in the CGL, coverage was excluded.

The courts decided against MSI. Their reasoning was that a one-day activity is not sufficient to change the business of an insured.

Click here for more detail on this court case.

The Wilson Fire Department took a belt-and-suspender approach to their liquor exposure and suffered some adverse consequences. If they had not purchased the temporary permit and the liquor coverage, MSI would not have had as strong an argument against coverage, but is that right. When a client takes extra steps, shouldn’t they be praised instead of punished? Could the CGL policy have been endorsed to clarify the situation?

Click here for discussion on the liquor liability exclusions and the various liquor liability endorsements that are available within the ISO Commercial General Liability Coverage Form.

Do you always ask your customers about their liquor exposures? Many businesses and organizations serve alcohol at parties and events or may sponsor activities where liquor is served. Although there may be coverage under a CGL, there may not be.

Click here for the questions that are part of many Survey/Commercial Lines questionnaires and also a typical liquor liability questionnaire that could be used if there is a potential exposure.

Don Malecki wrote a risk management article in the Rough Notes Magazine in 2004 that puts everything in perspective – Don’t Let Clients Gamble with Liquor Liability. Maybe they are willing to gamble with their assets but should you? Not asking about liquor liability exposures could prove very costly to your agency.

Click here to review the Rough Notes article.

Have you looked at Coverages Applicable lately? It was totally updated in 2006 and provides coverage recommendations for over 600 commercial classifications plus farms, ranches and personal risks. The index of classifications include both the SIC and NAICS reference.

Have you found what you need in the Producer OnLine? Is there a classification to add to the Producer's Commercial Lines Risk Evaluation System or a subject that you would like to see covered in PF&M?  Contact us now.

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