If your business sells alcohol to the public, whether it’s a bar, tavern, nightclub or restaurant, it is a wise move to assess your exposures and make sure you choose the proper insurance coverage to protect yourself from lawsuits and property loss.
Some assessment questions:
What is the value of the property, fixtures and contents of the bar?
Consider what it would cost to replace the building, fixtures, coolers, stock, decor, and operations equipment tomorrow.
What percentage of the bar’s sales will be alcohol?
Insurers will require evidence of your sales. Generally, if alcohol accounts for 50% or more of your total sales, your risk (and your premiums) will be higher. Keep track of this percentage.
Will you have recreational games or diversions at the bar?
If you do, your premiums will be much higher and you may even be excluded from coverage by some insurers. For example, United States Liability Company does not allow “pyrotechnic displays, moon bounces, trampolines, rock walls, swimming pools, foam machines.”
Will you have employees?
If employees will work at the business, then you will need workers' compensation insurance and may consider health insurance benefits.
What are the dram shop liability laws in your state?
State laws differ as to the liability of the bar owner for injury to a third party caused by an intoxicated patron. You should discuss this potential liability with knowledgeable restaurant and bar counsel in your area.
Will a vehicle be used in the business?
Vehicles used for commercial purposes are not covered by personal auto policies.
Is the business in an area prone to natural disasters?
The beach may be a nice place to visit, but hurricanes can wipe out beachfront patios and bars. Consider if your bar is subject to natural disasters such as flooding or storms.
Do you have the documentation you need?
The size of your bar or club, gross receipts, and percentage of gross receipts attributed to alcohol sales will dictate the types of insurance you need and what it will cost to maintain coverage.
Property Insurance
The business will need property insurance to protect the building and contents. Often the most affordable way for a bar owner to secure this insurance is as a part of a business owner's policy. There are also insurers who offer specialized products that are tailored for bar owners. These policies will have state-specific features, but are generally similar to a standard business owner's policy. Because bars often have a large amount of glass, make sure the policy covers glass breakage.
Replacement Cost Insurance vs. Actual Cash Value Policies
A primary consideration will be whether to obtain replacement cost or actual cash value property insurance. Actual cash value coverage deducts depreciation from any claim. Replacement cost insurance provides the current value of the replacement of damaged property. Replacement cost coverage is more expensive, but, in reality, most bars cannot return to operation if they do not have replacement cost coverage. Opt for replacement cost coverage and make sure your policy will pay for necessary upgrades caused by new building code compliance.
Protect the Things that Make Your Place Unique
Consider having unique bar décor (the moose head, license plate collection, etc.) evaluated and separately scheduled to avoid disputes over the cost of replacement. Do not assume your standard property policy will cover such items. Most property policies exclude glass breakage, signage, and landscaping. You’ll need separate coverage for these items or a bar owners’ policy that includes such coverage.
Natural Disaster Coverage
If your business is in an area subject to natural disasters, remember that flooding, some wind, earthquakes, wild fires, and other risks may need a separate endorsement to be covered and the premiums will be much higher.
Liability Insurance
Liability insurance for the bar is the most important and expensive part of the risk management program. A bar cannot have “too much” liability insurance. Patron injuries, injuries to third parties by patrons or employees, and employee theft are just some of the risks that bar owners face. Liability insurance provides the owner with a lawyer and will pay the judgment, if covered under the policy. Good insurers also have substantial resources to show you how to conduct a safe operation, such as “safe server” programs that can reduce premiums. Consider umbrella coverage on top of the liability policy.
Assault and Battery Coverage
This coverage is used to protect against liability for bodily injury and property damage caused by alleged acts of assault and battery. Depending on the insurance company providing the coverage, assault and battery can be defined differently in the insurance policy.
Although most standard Commercial General Liability policies do not exclude assault and battery claims, many carriers will specifically exclude this exposure for bars or dance clubs where confrontations between employees and patrons can lead to allegations of excessive force.
Product Liability and Liquor Liability Insurance
If your bar sells products or food to its guests, consider product liability insurance. This insurance protects you from liability caused by injury to guests from products your business sold or supplied. It goes without saying that a bar owner must carry liquor liability insurance in proper amounts based upon sales and patronage. In fact, some jurisdictions mandate such insurance before it will issue a liquor license.
Employee Theft Coverage
Employee theft is one of the largest sources of risk for bar owners. Minimum-wage employees typically cannot make restitution for stealing a night’s receivables from a cash register. Employee theft insurance can provide coverage for such losses.
Workers Compensation Insurance
Your state department of insurance determines if your business needs workers compensation coverage. Do not assume you don’t need this coverage because your business is family owned or has few employees. Your state law will dictate the coverage required if you have employees.
Commercial Auto Insurance
If your bar/club uses a vehicle, then that vehicle must be covered by commercial auto insurance. Personal auto policies generally do not cover losses caused when a passenger vehicle is used for commercial purposes.
Other Insurance
Bars are profitable only while open and filled with patrons. If there is a substantial disruption of your business, such as a fire, remember property insurance will only replace the property, not the lost income. Business interruption insurance can help alleviate this loss. Because bars are increasingly computer dependent and rely on point of service computer networks, you should also consider specific network risk coverage.