Managing Liability and Premiums

With many bars, dance clubs, and restaurants that serve alcohol facing grim times due to soaring liquor liability premiums, Leader’s Edge asked insurance brokers and other risk management experts for ways to both mitigate the possibility of dram shop lawsuits and reduce the price of coverage.

Among their suggestions were bundling liquor liability coverage with other insurance products to decrease aggregate costs, considering captive insurance facilities and risk retention groups, and continuously training bartenders and waitstaff on how to recognize intoxicated patrons.

“I would emphasize the importance of a long-term risk management strategy that involves investments in risk improvement, loss control, and valuation projects that look at the total cost of risk to enhance their resilience in the face of a difficult future,” says Randi Harwood, senior director and North American food and beverage segment leader at WTW.

Staff training is considered the most important avenue for reducing lawsuit risk. All bars should require servers, bartenders, and managers to complete state-approved Training for Intervention Procedures and Responsible Beverage Service programs to recognize signs of intoxication and discreetly intervene, expert sources contend. “Training and retraining is mandated in most states, but the important thing is to keep up with it, which requires a culture that starts from the top down,” says Jay Gates, managing director of Gallagher’s restaurant practice.

Sources also say that establishments should institute clear policies capping the number of drinks patrons can be served within a specific time frame, ensure bartenders use measuring tools to control the amounts of liquor in different drinks, limit happy hour promotions, and eliminate all-you-can-drink specials. If a patron is visibly intoxicated, bar owners should encourage or even pay for rideshare services.

Tactics to simultaneously reduce liability, increase revenue, and possibly pare insurance premiums include offering a greater array of foods and non-alcoholic beverages. Gates suggests installing video cameras in establishments. “In an investigation of a drunk driving accident involving a patron, if the bar can demonstrate that the person came in, had just a single drink, and was clearly not drunk, its liability in many states will be less,” he says.

Captives that are owned and controlled by the insureds may offer a way to better control liquor liability premiums. Larger restaurant chains that serve alcohol can form a single-parent captive, while midsize and smaller bars and other establishments can pool their resources to share risks and costs. Forming captives for such purposes is on an uptick, according to Brian Wanat, CEO of commercial risk at insurance broker Aon. “It’s a creative solution and an option, but I can’t say it’s a silver bullet for the hospitality industry,” he says.

Gates offered a similar opinion. “Captives are for the good guys, so to speak—the bars and other establishments without lawsuits and [with] exceptional loss control. If you have losses, your insurance is not going to be renewed. You’re pretty much on your own.”

Risk retention groups (RRGs), which offer a way for businesses like bars with similar risks to share and manage their liability insurance programs, are another option, albeit confined to mostly larger enterprises. That is due to the significant financial investment each member must put forth to cover potential claims. “We’re seeing the hospitality kick the tires on some RRGs, but nothing definitive yet,” Wanat says.