This article highlights the important issues regarding liquor liability and the CGL's liquor liability exclusion. A more comprehensive and detailed discussion of this topic is contained in the Casualty volume, Public Liability M.13 pages; see Liquor Liability.

The Liquor Liability Exclusion

The current CGL forms (both the occurrence type and the claims-made type) contain a liquor liability exclusion that eliminates coverage for insureds if liability is imposed in any of three ways: due to any insured's causing or contributing to the intoxication of any person; because of the furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or due to the violation of any statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages. This exclusion applies only if the named insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.

The liquor liability exclusion today has a somewhat different reading than its predecessor, the exclusion found in the 1973 comprehensive general liability policy. Under the 1973 liability policy—and in policies where the liquor liability exclusion is grounded in the language of that form—the exclusion eliminates coverage for insureds in the business of manufacturing, distributing, selling, or serving alcoholic beverages, or if not in the business, as an owner or lessor of premises used for such purposes if liability is imposed by violation of a statute or regulation.

The exclusion could be amended by the broad form comprehensive general liability endorsement, in which case the exclusion did not apply to liability arising out of the giving or serving of alcoholic beverages at functions incidental to the named insured's business, provided the named insured is not engaged in the alcoholic beverages industry. By this means, host liquor liability coverage is provided.

Despite the different language, the liquor liability exclusion in the current commercial general liability form is basically the same as that in the 1973 policy with the broad form endorsement. But there are two exceptions: 1) the current exclusion is specifically stated to apply only to the named insured in the business of manufacturing, distributing, selling, furnishing, or serving alcoholic beverages; it no longer applies to the statutory liability of a premises owner who is not engaged in the liquor business (thereby broadening coverage); and 2) by deleting the reference to the insured's indemnitee that is contained in the 1973 version of the exclusion, today's coverage is broadened to provide contractual liability coverage of the liquor liability exposure to any insured not in the liquor business.

Note that there are optional endorsements adopted by ISO for discretionary use by insurers to change the exclusion as it appears in the current CGL form.

A common problem of interpretation of the CGL liquor liability exclusion and an issue that has often found its way into court, is deciding what is, and what is not, being in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic businesses. In order to remove the uncertainty connected with this phrasing, the Insurance Services Office (ISO) developed two optional endorsements, CG 21 50 09 89 and CG 21 51 09 89.

Under CG 21 50, there is no change in the acts that trigger the exclusion: coverage is eliminated if the insured causes or contributes to the intoxication of any person; furnishes liquor to a minor or a person under the influence of alcohol; or if liability is assessed through statutory scheme. The major revision under the amendment relates to whom the exclusion applies. The often litigated phrase “in the business of” is eliminated. Instead, the exclusion applies only if the insured 1) manufactures, sells, or distributes alcoholic beverages, 2) serves liquor for a charge, regardless of whether or not the activity requires a license or is for the purpose of financial gain, or 3) serves liquor without charge, if a license is required for such an activity.

Endorsement CG 21 51 is identical to CG 21 50, with the exception that this version makes provision for excepting scheduled activities from the scope of the exclusion. To be covered, specific activities that would normally fall under the exclusion may be listed in the endorsement or the policy declarations as exempt from the liquor liability exclusion.

Regardless of the liability form used, the liquor liability exclusion means that persons or organizations in the alcoholic beverages industry insured under general liability forms are not sufficiently protected against several types of liquor-related exposures. For example, the general liability insurer would be relieved of liability imposed on a tavern keeper due to an automobile accident resulting from the serving of liquor to an already inebriated patron or to a minor. Therefore, these concerns have a need for liquor liability insurance.

Note that social hosts, including businesses that occasionally provide liquor in the course of business entertaining, are not usually deemed in the business of alcoholic beverages, and so should not be touched by the liquor exclusion. Organizations or institutions that occasionally provide liquor at fund-raisers and other noncommercial events may be treated differently and are discussed later.

Statutory and Common Law Liability

Liability for alcoholic beverage-related incidents may be imposed in varying manners. The dram shop acts of several states impose strict statutory liability upon alcoholic beverages businesses. These acts create a specific right of action against entities in the alcoholic beverages industry for a person injured or whose property is damaged through the actions of an intoxicated person or of a minor who has been served alcoholic beverages. Jurisdictions vary in who is granted this right of action.

Other states have enacted alcoholic beverage control regulations that also impose liability in certain circumstances; however, these are somewhat more limited than dram shop acts. ABC regulations generally prohibit the sale or gift of liquor to a minor, a habitual drunkard, or an intoxicated person. Liability may also be imposed without specific statutory treatment under the principles of common law negligence. In cases where liability is imposed under dram shop or ABC provisions, it is apparent that the general liability insurer would be relieved of responsibility because of the violation of a statute, ordinance, or regulation. Where common law principles are involved, the insurer may be relieved of liability due to the “causing or contributing to the intoxication of any person” provision.

As can be seen, the liquor exclusion is broad enough to eliminate coverage entirely in some situations, and to at least raise questions about coverage for any business connected to the alcoholic beverages industry. Included in this category are taverns, convenience stores, drive-thrus, restaurants, private clubs, motels, hotels, package stores, breweries, distilleries, distributors, and (under the provisions of the 1973 CGL policy) owners, lessors, and trustees of premises used for liquor-related operations. All of these businesses have special liability problems where alcoholic beverages are concerned, and as a result, are prime prospects for liquor liability insurance coverage.