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| July 2007, Volume 7 |
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270.6-11 LIQUOR AND THE COMMERCIAL GENERAL LIABILITY POLICY The Liquor Liability Exclusion The standard Insurance Services Office (ISO) commercial general liability policy specifically excludes coverage for liquor liability if the insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. This liquor liability exclusion applies to one of the more important loss exposures that these types of operations typically face, leaving a potentially substantial gap in their liability insurance protection. The coverage form stipulates that there is no liability coverage for bodily injury or property damage for which any insured may be held liable by reason of:
Host liquor situations, on the other hand, are not excluded, as long as the insured is not in one of the prohibited forms of business listed. So, business lunches, parties, and social functions where alcoholic beverages are provided and that are sponsored by such an insured are covered for host liquor liability. Example: The insured is a small retail store specializing in handcrafted artwork. On the first anniversary of the store's existence, the insured holds a wine and cheese anniversary party. Attendance is by invitation only and there is no charge for the guests at this party. This is a covered host liquor liability situation. Example: The insured is a medical equipment distributor. One of the marketing people takes a client to lunch and pays for a round of beer to go with the lunch. If injury should result from this host liquor situation, coverage would apply for the insured. This is a covered host liquor liability situation. Example: The owner of a small publishing firm wants to show his appreciation to his employees by holding a sit-down dinner, complete with wine and other alcoholic beverages. This is a covered host liquor liability situation. Example: A computer software company gives cases of imported beer to some of its larger clients as a "thank-you gift" at the Christmas season. This is a covered host liquor liability situation. Example: A company sponsors a fund-raiser where food and alcoholic beverages are available for a charge. As long as the insured is not in the business of manufacturing, selling, distributing, serving or furnishing alcohol there is coverage. This is a covered host liquor liability situation. Available ISO CGL Endorsements That Address The Liquor Exclusion Several endorsements are available for use with the liquor liability program developed by ISO. The first ones that will be reviewed are those that further restrict the policy and the coverage provided. CG 21 50—Amendment of Liquor Liability Exclusion This exclusion extends the liquor liability exclusion to apply to businesses that serve alcoholic beverages and that are required to have a license to do so. No premium credit or reduction normally applies but any credit or premium reduction for the application of this endorsement is at the discretion of the insurance company. CG 21 51—Amendment of Liquor Liability Exclusion—Exception for Scheduled Activities This exclusion is identical to CG 21 50 above but permits specific activities to be exempt from the exclusion (such as a company picnic or year-end party) by listing the activity(ies) in the schedule. No premium credit or reduction normally applies but any credit or premium reduction for the application of this endorsement is at the discretion of the insurance company. There is one endorsement available to completely eliminate the liquor liability exclusion and broaden coverage. CG 24 08—Liquor Liability This endorsement completely removes the liquor liability exclusion from the policy and restores the very broad liquor liability coverage to the policy. Commercial General Liability Policy with Form CG 24 08 Versus a Separate Liquor Liability Policy Attaching form CG 24 08 to a Commercial General Liability policy is a very simple way to provide liquor liability coverage within the CGL policy for customers with this type of exposure. However, caution is needed in applying and using it. It is only recommended for use in situations where the insured, the agent or broker and the insurance company are fully informed and completely aware of the liquor liability operations and exposures and are comfortable with them as they exist. The coverage restored to the policy is very broad and virtually eliminates the entire liquor liability exclusion. To the insured or the agent, this may seem to be a simple solution to the liquor liability problem. Closer scrutiny reveals several possible problems with this approach that should be considered. The combination of any liquor liability losses with other general liability losses could result in adverse loss experience for the entire general liability portion of the policy. This experience could cause the application of an experience or scheduled debit to the entire general liability section of the policy. It could also result in a risk that is undesirable to most standard insurers and makes the entire liability exposure difficult or very expensive to place with an insurance company. For these reasons, businesses with moderate to high liquor exposures should consider a separate liquor liability policy. Liquor Liability, Endorsement CG 24 08, should be used only with accounts that have a comparatively minor liability exposure that should not produce losses that will adversely affect the underwriting desirability and pricing of the entire liability portion of the account. Insurance companies use form CG 24 08 sparingly, apply adequate pricing and underwrite the exposures carefully. Remember that it does not exclude manufacturing exposures, events where a fee or charge is made, events that are regulated or ones requiring a license. Since this endorsement removes all liquor liability limitations and exclusions, most standard insurance companies restrict its use to businesses with only extremely minor liquor exposures. Alternate Policy or Coverage Form Businesses with higher liquor exposures can arrange to purchase a separate liquor liability policy using one of two available coverage forms. Form CG 00 33 provides coverage on an "occurrence" basis and CG 00 34 on a "claims-made" basis. Please refer to PF&M Section 277.4-2, ISO Liquor Liability Coverage Forms Analysis for more information on this subject. Businesses should consider a separate liquor liability policy or coverage form whenever there is a definite exposure to one or more of the excluded liquor liability hazards (manufacturing, distributing, selling, serving, or furnishing alcoholic beverages). One important reason for this approach, mentioned earlier, is to retain the integrity and separation of the general liability loss history. In addition, many insurance companies are willing to provide general liability coverage for a reasonable premium but will not cover the liquor exposure. Separating coverages into different policies allows both the insured and the agent to take advantage of more favorable pricing on the more desirable liability portion of the account. Court Case References Three court cases address the liquor liability exclusion.
Available Markets Insurance agents and brokers with customers involved in the liquor business can refer to the sections listed below, for sources for the placement of liquor liability coverage, found in The Insurance Marketplace, a publication of The Rough Notes Company, Inc.
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