For landlords, property managers, or companies that have multiple commercial tenants, another important aspect of ensuring proper insurance coverage pertains to serving and selling alcohol.
Most food-based businesses that aren’t quick-serve or coffee-oriented will usually have a need to acquire a specific liquor license that goes above and beyond what a general liability (CGL) policy will cover.
In addition, it’s quite possible that some non food-based tenants may host an event, such as the common cocktail party or holiday party in which wine or beer is served. According to IRMI, those scenarios should lead to the question “What is the extent of coverage provided in the commercial general liability (CGL) policy for claims related to selling, serving, or furnishing of alcoholic beverages?”
In this post, we’ll examine what to look for as it pertains to insurance coverage of tenants—especially those that serve alcohol on a regular basis—as well as the potential risks involved, and finally, tips for how to minimize the risks.
Which Tenants Need a Liquor Liability Policy, and Why?
First of all, it’s important to understand the difference between a liquor liability policy and a general liability policy (GCL). While a GCL will often cover special events, such as cocktail parties and one-off events where alcohol may be served, a special liquor liability policy may be required for tenants that serve alcohol on a regular basis. But what tenants need this special coverage?
Tenants including restaurants serving alcohol, taverns, bars, and nightclubs need a Liquor Liability policy. The terms surrounding a liquor liability policy will vary state by state, but often include:
- Most states require restaurants, bars, taverns, dram shops, nightclubs, and any other type of establishment that sells alcohol to carry liquor liability insurance.
- Most liquor liability policies are additional add-ons to general liability policies, or can also be purchased stand-alone.
- Most liquor liability policies because void if the sale of alcohol is made illegally, such as in the case of serving or selling to a minor.
A liquor liability policy protects establishments from scenarios such as liquor-induced fights, altercations, battery, and assault. In addition, fees required to hire an attorney and all court costs are also covered under the protection of a liquor liability policy.
As a landlord, you must structure your leases to include specific language around requiring a liquor liability policy for all tenants that fit into the above category. In addition, it’s absolutely critical to review tenant’s certificates of insurance and ensure that they do, in fact, have the correct policies in place to protect all involved.
Social Host Liquor Liability
It’s important to keep in mind that Social Host Liquor Liability is not excluded under CGL policies. These liability policies protect tenants when they host parties and events where alcohol is served but not sold by them. According to Rue Insurance, “No matter where the party is actually held, their liability insurance goes with them. However, if they rent or lease a location from you, a landlord, they must add that location to their policy temporarily as an “insured location” for premises liability and medical payments to apply. The act of hiring a caterer to serve food and alcohol does not exclude host liquor coverage. However, if they cater the event and the venue or caterer sells the alcohol, then they assume the liquor liability exposure.” As a landlord, it’s important to verify that they have liquor liability Insurance coverage by requesting a certificate of insurance.
IRMI explains that commercial real estate leases often require the tenant to add the landlord to the commercial general liability (CGL) policy of the tenant as an additional insured as well as hold harmless and indemnify the landlord for liability arising out of the tenant’s acts or omissions in connection with the leased premises. This ensures that you, as a landlord, remain protected should something take place.
The Liquor Liability Exclusion
IRMI outlines a liquor liability exclusion, which states that the third exclusion of the standard Insurance Services Office, Inc. (ISO) CGL policy applies to “liquor liability.” Unchanged since the mid-1980s, this liquor liability exclusion wording contains three main parts, none of which apply at all unless a named insured on the policy is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.
But, what does “in the business” mean? Of course, these words are vague and could be misinterpreted, which can be a danger in the world of insurance. The article explains that courts have interpreted these 3 words, “in the business”, to mean a commercial enterprise with a profit motive, resulting in the inapplicability of the liquor exclusion. In some instances, the court found the phrase “in the business of” to be ambiguous because “it may be defined as any regular activity that occupies one’s time or activity with direct profit objective.”
This is yet another reason why it’s critical that landlords obtain a certificate or proof of insurance from tenants that may be in the business of working with liquor in some capacity. It’s important to ensure that the exclusions are correctly applied to the policies and that they have proper Liquor Liability Insurance coverage to keep all parties adequately protected.
Why CGL May Not Be Enough
Finally, landlords and property managers should keep in mind that if the tenant is in the business of making, selling, serving, or furnishing alcohol, as we outlined above, the CGL excludes any liability the insured may have because of bodily injury or property damage resulting from the alcohol.
For example, if a bar doesn’t have coverage listed in its CGL for a claim that might be brought against the bar by a driver who is struck by an “overserved” customer after they leave will be held liable.
IRMI points out that many insurers add an exclusionary endorsement to the CGL policy that substantially expands the reach of the liquor exclusion. “The liquor exclusionary endorsement eliminates coverage for not only those ‘in the business’ but also anyone who sells alcohol for a charge or if the serving of alcohol requires a license, even if no charge is made. A not-for-profit sponsoring a fund raiser in which the cost of dinner includes two drink tickets may well be considered to have sold alcohol for a charge and thus have no coverage under its CGL for the serving of liquor.”
This presents an opportunity for a tenant that is in the business of liquor to be excluded from a CGL policy, requiring them to have a specific liquor liability policy. Yet again, as a landlord or property manager, you must verify that the tenants have proper liquor liability Insurance coverage.
Minimize Risk With Insurance Tracking Services
Property managers and landlords have a lot of considerations when it comes to their real estate insurance protection. Utilizing insurance tracking services backed by an expert insurance team will help ensure you have proper protection across all of your properties and tenants.
Certificate of insurance tracking services like myCOI exists for one reason: to help organizations handle the everyday tasks of managing certificates of insurance and protect against underinsured claims, costly litigation and failed audits. The software is an easy-to-use, cloud-based solution developed and supported by a team of insurance professionals and is built on a foundation of insurance industry logic to automate the certificate of insurance communication process and ensure you remain protected.