Is Your Insured’s Restaurant Protected From a $2 Million Liquor Liability Loss? Are You?
With so much to celebrate in the summer months – warm weather, graduations, weddings, people will raise more than a few glasses at local restaurants or watering holes. It is all in good fun until someone is over-served with tragic results. In the face of tragedy, unfortunately, the search for responsible parties begins.
Gen Re regularly draws upon our experience with $9 billion of commercial umbrella claims to assist clients in assessing their exposure to severity and to spot large loss trends. Not surprisingly, in our latest Commercial Umbrella Loss study, restaurants/bars/taverns generated enough losses to land in the Top 10 costliest umbrella classes. Further review of losses falling within this class indicates that over 50% were associated with alcohol. While some of these losses involved bars or taverns where liquor is a significant factor, the majority were simply restaurants where liquor is one of many exposures present.
High Frequency and Severity
Currently 45 U.S. jurisdictions impose dram shop liability. Historically, the term “dram shop” referred to any establishment where alcohol was sold. The scope of these laws varies widely but ultimately they hold establishments with liquor licenses accountable to their patrons and third parties for acts of the patrons when they leave the premises. Most laws impose responsibility when the establishment serves a minor or any patron who is visibly intoxicated. A handful of states still hold onto the minority view that the drinker is solely responsible for his or her own acts.
According to the most recent analysis by the National Highway Traffic Safety Administration (NHTSA), drunk driving accidents accounted for 31% of the total traffic fatalities in 2014 or an average of one alcohol-impaired driving fatality occurred every 53 minutes. This is in spite of an 80% reduction in the number of weekend drunk drivers on the road between 1973 and 2014.
Our own loss data illustrates that the unpredictability of events associated with those who drink and drive can lead to catastrophic injuries and thus high dollar awards. The average ground up loss associated with liquor liability is just under $2,000,000. Of course, we often see verdicts and settlements in excess of this amount, including two publicly reported losses discussed in our last Casualty Matters publication.
How would a $2,000,000 loss impact your restaurant book’s profitability?
Claims and Coverage Trends
A surprising number of umbrella losses involved employees drinking during working hours or after their shift ended and then getting behind the wheel of a vehicle. One tends to think of liquor exposure coming primarily from the patron. Unfortunately, the establishment can be held liable no matter which party is drinking. How an insured deals with the potential for employees to drink on site can make a difference in loss experience. Smaller, non-chain establishments could be more exposed here as they might lack the stringent corporate rules and guidelines of larger chain establishments. Is your application addressing this exposure? Is your Loss Control rep asking questions to ensure awareness of this exposure?
Recently, Bring Your Own Bottle (BYOB) has been adopted by some mainstream establishments and top restaurants. While many restaurants do not openly advertise this option, there is little doubt that allowing BYOB can be beneficial to keeping tables full and attracting new customers. When restaurants provide set ups and pour the wine, are they serving alcohol or not? BYOB laws vary by state and are complex and full of caveats. ISO coverages have changed over time to keep up with this trend, and older exclusionary wording can be nebulous because it hasn’t kept pace with changing regulations.
Add to this mix the reality that dram shop liability rules can and do change on a dime. A risk in a “safe” state could be handed a big surprise when a court or legislature makes a 180° turn. We are watching this play out in Maryland, a state hanging on to its “no dram shop liability” status. The state’s supreme court recently diverged from decades of precedent to create social host liability. That set the stage for a test of liability for commercial service. Insurers writing personal lines now have an exposure that did not exist in Maryland before the ruling, and that could happen to commercial writers, too.
Our view of severity losses, often unavailable from public data, can benefit companies writing restaurants and other business involving alcohol. We can also help you analyze insurance forms to ensure they are addressing the areas that could lead to unintended losses. Call your dedicated umbrella product team or your Gen Re representative today to discuss liquor liability.