The Insurance & Risk Management Bar and Restaurant Owner’s Beginner’s Guide

Seemingly small choices you make daily can impact the risk you allow into your business. Most of the time, it’s done unknowingly because of habit or a lack of knowledge on the topic; such as allowing a bartender to drink on the job when no legislation is in place to deter it. Or choosing not to attend your local government's policy meetings and you miss the potential impacts on your business. Filing your latest insurance policy update and not reading it through. We know what you’re thinking: ‘I’m already too busy to read every last line of the insurance policy.’ But it’s crucial that you at least have a basic understanding of insurance & risk management.

 

Explaining liquor liability insurance

First and foremost, let’s establish some baseline vocabulary. Insurance, by definition, is simply an agreement between an insurance provider and, in our case, a business owner to provide financial compensation when unforeseen actions take place. The insurance required for bars is typically based on alcohol and the potential risks it can bring. So it’s frequently called liquor liability insurance, bar insurance, alcohol liability insurance, or dram shop insurance. This agreement or liquor liability coverage is based on certain conditions like natural disasters, death, loss, and damage. The insurance company will provide the policyholder with financial compensation known as liquor liability coverage limits. In general, this insurance covers your liability (responsibility for something by law) when something happens out of your control or could be preventable under your control (such as taking alcohol seller-server training).

 

How much does liquor liability insurance cost?

Liquor liability insurance costs range from $$$$. The insurance price depends highly on the level of risk that your business will absorb and your business location. Looking for insurance? Check out Investopedia's 6 Best Liquor Liability Insurance Companies of 2022.

 

What is risk in insurance?

For the purpose of insurance, risk is defined as a chance of loss. We’ll focus on the three most common types of bar insurance risk a bar or restaurant owner may face; property, contractual, and practical. 

  • As mentioned before, it’s common for property risk to revolve
  •  around what will happen to your property when a natural disaster or unforeseen event strikes. It is very similar to home insurance.

  • With contractual risk, you may find yourself penalized for not completing what the insurance provider asked (think agreeing to take alcohol seller-server training and then never following through). If you signed on the bottom line, you agreed to all terms the provider has written up. 
  • There is also practical risk where the insurance provider puts into action some activities for you (or your staff) to complete or documentation to maintain that help counter specific laws and help you implement best practices. 

 

There are more terms, and if you’re interested, I recommend you check out Investopedia’s article on the Elements of Insurable Risks: A Quick Guide.

 

Bar insurance and practical risk

When it comes to bar insurance, there is usually some type of preventative and diagnostic policy regarding common federal and state laws that affect the business. The bar insurance policy requirements include dram shop (serving to someone intoxicated or a minor), the minimum age to purchase or consume alcohol, driving while under the influence, acceptable types of ID, and documentation (keg tag). Since insurance can heavily rely on dram shop policies put into place by the state (48 of the 50 states have some type of legislation regarding dram shop), insurance policies may be referred to as dram shop insurance. These are actions or documents that you should create, fill out, or save in case of state or federal inquiry. By completing these tasks, you are engaging in risk management.

 

Principles of risk management and insurance

To successfully navigate risk, you must engage in risk management or risk mitigation. Our alcohol seller-server training courses, which can be purchased at a discount using a Business Account, focus on minimizing the server’s risky behaviors. However, this must also be enforced by management and policy. 

 

Principals of risk management and insurance are commonly taught to include four steps:

  1. Identify
  2. Assess
  3. Treat
  4. Monitor

 

Identifying liquor liability insurance risks

During identification, you review your business for liquor liability insurance risk and opportunity. Risk should be moved through the process quickly. Opportunities should not be forgotten but can be done less urgently. This step is the hardest to complete.

 

There are many techniques you can use to identify risk. At the bare minimum, you should review your liquor liability insurance policy, review the material thoroughly with your agent, and implement anything that you agreed upon or was recommended. It may also be helpful to request a checklist from your provider. 

 

Below is a small sample of a self-assessment available for free with a risk consultation with our Co-Founder, Robert Pomplun. He has over 30 years of consulting experience conducting risk, liability, and enforcement audits. Each risk factor is weighted 1-3 points, and depending on your final score, you will know how much risk you are currently carrying. Answer the following questions honestly and then tally up your total to find which category you fall into.

 

Posting, “Proof of Age Sign”                                                                _____   1 point   

Posting, “No Drinks Beyond this Point”                                               _____   1 point   

All employees requesting valid I.D                                                      _____   2 points

Maintain a manager log book                                                              _____   1 point

All employees are trained                                                                    _____   1 point

No happy hour deals after 10:00 P.M.                                                 _____   3 points

Managers regularly test employees on their knowledge                     _____   1 point

Managers attending community meetings                                          _____   3 point

Fire exit plan and employee test on fire procedures                           _____   1 point

Interventions should be made using the “buddy system”                    _____   3 points
Food sales to liquor sales ratios:
50% to 50%                                                                                        _____   1 point
60% to 40%                                                                                        _____   2 points
70% to 30%                                                                                        _____   3 points
Closing time is one hour before the regular state closing time.         ______   2 point

 

0 - 5- You’re not doing enough to mitigate risk and should work with a professional. You should expect to receive fines from the state due to dramshop or other issues. You can also expect an increase in your insurance rates.

 

6 - 15 - You’re doing more than most. You should expect minimal fines and an average insurance rate. Talk to a professional to learn how to reduce fines and increase savings on your insurance policy.

 

16 - 22 - You’re doing great! Talk to your insurance provider about a discount. The checklist items are only part of a complete risk mitigation checklist. 

 

Additional manager training is available through our Responsible Alcohol Manager course.

 

Assessing bar liability insurance risks

When assessing bar liability insurance risk, you will be determining the cause of the issue. The risk could be an oversight, out-of-date policy, lack of enforcement, or inadequate training. During this step, it’s important to ask staff why they feel the risk is worth taking and how you can encourage them to stop.

 

Treating alcohol liability insurance risks

During the third step, you will be treating the alcohol liability insurance risks. Treatment can include writing a new policy, updating an old one, enforcing expected behaviors, providing training, or purchasing equipment such as cameras. You should make sure that documentation and training match. Then work it into onboarding or continuous training opportunities. If needed, you can implement a rewards system for keeping the policy withheld without punishing staff.

 

Monitoring risk management and insurance

Once the previous steps are complete, you must monitor risk management and insurance. Once the documentation and training have been implemented, has the issue gone away? Has it reduced enough to be no longer considered a risk? Should the documentation or training be updated? Did you submit everything necessary to your insurance agent?

 

For more information on scheduling an insurance risk management consultation, please contact

Expert Witness
James M Schaefer, Ph.D.
Schenectady, New York

518-488-4273 -- Skalkaho42@gmail.com

  • Drunk Driving
  • Bar Patron Behavior
  • Alcohol Server-Manager Training
  • Habitual Addiction to Alcohol

(Case Law: Roster vs Moulten)
FL, NY, PA, TX, WY, MT, WI, MN

 

References: 

https://rmas.fad.harvard.edu/pages/liquor-liability-risk-discussion

https://www.abc.ca.gov/education/licensee-education/laws-and-liability/

 

https://www.insurancebusinessmag.com/us/guides/what-is-liquor-liability-insurance-216798.aspx 

 

https://www.migso-pcubed.com/blog/pmo-project-delivery/four-step-risk-management-process/ 

 

This article is not meant for legal advice. Please contact a legal advisor if you have questions.

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