The Commercial General Liability (CGL) policy provides an exclusion for commercial operations involving various aspects of the distribution of alcoholic beverages. The exclusion is muted to some degree by a caveat restricting the exclusion to named insureds that are “in the business of” distributing alcoholic beverages (adult beverages). This caveat to the exclusion is often referred to as “host liquor liability” coverage. By restricting the liquor liability exclusion to only named insureds who are “in the business of,” the presumption is that if a named insured is distributing adult beverages for a purpose other than business, then the distribution of adult beverages in a social setting would not be excluded.
Many years ago, ISO published two endorsements that modified the liquor liability exclusion in the CGL policy.
- Amendment of Liquor Liability Exclusion – CG 21 50
- Amendment of Liquor Liability Exclusion – Exception for Scheduled Premises or Activities – CG 21 51
The first endorsement removes the “in the business of” language from the exception to the liquor liability exclusion and replaces it with specific conditions which come under the exclusion. The specific conditions are:
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.
The problem with this endorsement is there could be social situations where an event charge is made which includes the cost of adult beverages, i.e., a Chamber of Commerce banquet. Additionally, there could be a large social gathering that requires a permit. Thus, the characteristics of “host liquor liability” coverage become less general, more specific, and more limited under CG 21 50.
The second endorsement restored the “in the business of” wording, but only for the scheduled premises or activities.
In the 2013 revisions to many CGL forms and endorsements, ISO added another condition to the CG 21 50 endorsement that broadens the exclusion and further restricts the “host liquor liability” coverage. It is:
(4) Permit any person to bring any alcoholic beverages on your premises, for consumption on your premises.
This added condition addressed the “bring your own bottle” (BYOB) exposure. Since the endorsement does not differentiate between BYOB in a commercial environment and BYOB in a social environment, we must conclude the intent is to exclude BYOB exposures from the liquor liability coverage provided in the CGL when CG 21 50 is attached. This fourth condition is used in the CG 21 51 endorsement which is a buy-back of the broader “in the business of” wording for scheduled premises and events.
Agents should be vigilant to the presence of the CG 21 50 endorsement on any CGL. If it is present, then named insured should be made aware of its presence and the degree to which the social distribution of adult beverages is limited. If the insurer will not remove the CG 21 50 endorsement, there are limited options. First, the CG 21 51 provides coverage limited to declared premises or activities. Second, a primary liquor liability coverage form is the optimum solution. Finally, there is risk avoidance. Dry social events may be in the named insureds’ future.
Stuart Powell, CPCU, CIC, CLU, ARM, ChFC, AAI, ARe, CRIS, has over 40 years experience in the industry, both as an independent agent and as IIANC’s resident insurance guru for the last 20 years. A valuable resource for IIANC members providing technical information, Stuart is well-known across the country for his vast insurance knowledge. He regularly teaches for numerous insurance organizations and is on the national faculty for the Society of Certified Insurance Counselors.
Questions? Contact Stuart at firstname.lastname@example.org or 888-275-8914.