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The CGL Policy Liquor Liability Exclusion

The comprehensive general liability (CGL) policy protects the insured from liability to third parties for personal injury and property damage caused by the insured. However, there are various exclusions from coverage in the standard CGL policy, including Exclusion C for liquor liability.

“Bodily injury” or “property damage” for which any insured may be held liable by reason of:

(1) Causing or contributing to the intoxication of any person;

(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

The exclusion thus appears to bar coverage under the CGL policy for liability of an insured in a liquor-related business that might arise under the common law or under dram shop or alcoholic beverage control statutes for personal injury or property damage of others causally related to providing alcoholic beverages. Policyholders in a business that manufactures, distributes, sells, serves, or furnishes alcoholic beverages will need to consider obtaining separate liquor liability coverage.

Other entities that serve alcoholic beverages but are not normally considered as being in an alcoholic beverage “business” – such as civic organizations or community associations with periodic events at which alcohol is served – may wish to consider whether liquor liability insurance should be obtained in addition to comprehensive general liability coverage. Ambiguities in policies normally are interpreted in favor of the insured and the “in the business of” phrase is not defined in the CGL policy liquor liability exclusion. However, a policyholder may wish to determine the cost and availability of additional liquor liability coverage rather than depend on the lack of a definition of “in the business” in Exclusion C.

Non-liquor related businesses or entities that may serve liquor on sporadic occasions should be alert to the possibility of an optional endorsement to the CGL policy containing an amended liquor liability exclusion that substitutes the following language for the “in the business of” clause in the standard liquor liability exclusion:

This exclusion applies only if you:

(1) Manufacture, sell or distribute alcoholic beverages;

(2) Serve or furnish alcoholic beverages for a charge whether or not such activity:

(a) Requires a license;

(b) Is for the purpose of financial gain or livelihood; or

(3) Serve or furnish alcoholic beverages without a charge, if a license is required for such activity.

Subsection (3), referring to the serving or furnishing of liquor without a charge, “if a license is required for such activity,” appears to apply to, for example, a community association’s annual picnic at which beer may be served, if such service of alcohol would require a one-day permit. This appears to be a much broader exclusion than the liquor liability exclusion in the standard CGL policy. Thus, if an entity will be associated with an event at which liquor is served and that entity’s CGL policy contains the optional liquor liability endorsement, local laws should be checked to determine if a liquor license or permit is required for the event. If so, checking on the availability of a rider to the policy to cover the event may be well-advised.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.