By: James Sanborn, The Insurance Beer Guy
Opening a craft brewery is a dream many people have turned into a reality. Getting to do all the fun stuff like branding new brews, using all the shiny new equipment, and networking with those who share the same passion. But then there are all the other, not-so-fun tasks that need juggling, like maintaining property and equipment, getting licenses, fitting out the brewery, ordering supplies and hiring staff. Only after wading through all this can a brewery finally get to the reason for it all: making great beer to be proud of.
Keeping motivations firmly in sight and visions on track is important, but so is being realistic about the potential risks business owners face. One bad batch. One slip and fall. One severe workplace injury. All of a sudden, a claim has occurred causing disruption, an interruption in the brewery’s operation, or even worse, there’s no coverage under any of the insurance policies in effect. There’s lost time, lost revenue needed to fuel the brewery operations, and — depending upon the nature of the claim — diminished customer confidence.
Easing the blow when any of this happens is simple: have the right insurance in place. The right coverages that are crafted to the needs of a specialized industry that cover a broad range of exposures.
“It is important to choose an insurance agent that has worked with many different breweries” says Colleen Croteau of Maine Beer Company. “James and the staff at GHM Craft provide exemplary customer service and a high level of industry knowledge. Maine Beer Company relies on GHM for our comprehensive business insurance needs, state compliance bonds, and general questions related to our employees, a recent expansion project, and routine business operations. Their experience in the brewing industry is evident in the knowledge and recommendations they provide.” Selecting an agent who understands the uniqueness and complexities of brewery operations and who can identify and fix coverage gaps is essential – it is important to understand that fixing coverage gaps is not necessarily reducing risk; instead, it is transferring risk to the insurer and away from the brewery.
This article will run through the most common brewery insurance gaps, explain how different types and levels of insurance can protect a business, and show how important it is to get the right insurance.
Insuring The Prized Possession: Beer
There are lots of upsetting things in the world, but for a brewery, a ruined or bad batch of beer – or worse, batches – is right up there. It can hit a pocketbook hard. Inventory will need to be replenished by brewing more and, naturally, bad beer can’t be sold so there won’t be any revenue coming in.
In this scenario, you need the right coverage, which can protect against contamination, spoilage, and tank leakage. Understanding how beer is insured will help determine proper limits and make sure everyone is on the same page if something goes wrong.
Keeping The Doors Open After A Claim Happens
When a loss to property happens, it is important to have the right coverage to help keep brewery doors open. Having a revenue stream, even if production is halted, is critical. Say, for example, a brewery closes unexpectedly due to a fire and production is shut down for weeks or months. Revenue ceases or significantly reduces. There will be no beer for customers today. What happens next could be a make or break situation.
While things are being repaired or rebuilt, breweries will need coverage that provides a continued flow of revenue to be able to pay key employees, cover overhead, debt service, and other ongoing operational expenses that will continue even though revenue from beer sales cease. And having coverage for extra expenses like temporary offices, warehousing, and other expenses a brewery will incur while rebuilding its facility is essential. There are coverages breweries can purchase to cover these exposures. If a brewery already has these coverages, limits should be reviewed, at least annually, to keep up with growing sales. Failing to do this means the level of coverage originally purchased may be outdated as the brewery has grown and expanded.
Understanding How Property Is Defined
One of the biggest assets in a brewery is where the magic happens: the property of a brewery (building, improvements, brewing equipment, etc). So, it needs to be insured correctly. Problems may arise because all property insurance policies define business property differently than the brewery owner, his or her contractors or accountant may define it.
Understanding the definition of what constitutes a building, as defined in an insurance policy, is critical. The definition of brewing equipment is also critical. If space is leased, understanding the definition of tenant fit-up is critical too. When writing a policy, it is important to have an agent who will work as part of the team to properly classify property.
Correctly classifying brewery property means a) getting the right level of insurance in each category, b) potentially saving money since insurance rates on the building can be lower than rates on other types of property and equipment, and c) properly classifying property increases the chances a claim will be settled fairly and satisfactorily.
The Complexities of Liability Coverage
Getting into the fine details of liability insurance is like individually counting every grain of barley put into making beer – there’s a lot to it. For broader liability coverage, having the help of an experienced brewery agent who can tailor the policy for a brewery’s specific operations can make a big difference. As an example, anyone who has a tap room or attends brewfests needs to pay attention to his or her liability coverage.
Opening the doors of a tap room to the public is a great source of revenue. However, breweries with tap rooms have more risk. Unfortunately, customers occasionally have a slip, trip or fall. And then there’s the person who visits a brewery at the end of a pub crawl for one last beer. He leaves and get into an accident on his way home and hurts himself and others. Will this brewery have the right coverage, and enough coverage, for these exposures?
Another tricky exposure to navigate is insurance for events and brewfests. It’s great exposure for any brewery but how is the insurance impacted? Event organizers routinely ask to be named as ‘additional insured’ on general liability insurance and, possibly, liquor liability. Typically someone from the brewery contacts the insurance agent to request a certificate of insurance and off it goes. What this now means is that the brewery’s general liability policy will be sharing its limit with the event organizer – and others who may be asked to be added to the policy – should a claim be made. In this scenario, imagine someone trips and gets hurt at the brewfest and it’s the brewery’s fault!
This person then sues the brewery and the event organizers. Again, since the event organizers are an ‘additional insured’ on the policy, the brewery is now sharing its limit with them, which means there may be less coverage to protect the brewery. Now, imagine if the brewery is asked to add the city/town, license holder, or others to its policy and everyone gets sued. Now the brewery’s limit may be shared by multiple parties. Where does that leave the brewery? A brewery insurance expert can offer solutions to this concerning situation.
Correctly Classifying A Liability Policy Matters
Different aspects of a brewery need to be classified differently, and correctly. These are called ‘liability classifications.’ Similar to property, brewery owners need to understand how liability classifications apply to the business and make sure sales are assigned correctly. These classifications need to be kept up to date as the brewery evolves and grows.
To give an example, the liability classification for beer sold in bottles is rated differently than beer sold in cans, and kegged beer is different again. Merchandise sales have a separate class too. Do brewery owners want to pay the higher rate on the sale of a t-shirt as they would for the sale of a beer? Probably not! Most breweries have four or five different liability classifications, but there could be more, and if there is a missing classification, coverage could be in question should a liability claim occur!
When policies are classified incorrectly, issues surface when an insurance company audits the policy. Because sales are estimated at the beginning of the policy term, if the final sales end up higher at the end of the policy term, the brewery will get a bill it did not budget for. And if sales are incorrectly classified, the audit could cost the brewery even more.
Making sure liability classifications are correct and up-to-date is important, something that is easily done with the help of a craft beer insurance specialist.
Navigating Employee Related Insurance
Employees are one of the greatest assets of any business, but they can also be one of the biggest exposures to every business:
Workers’ Compensation – Protecting a brewery and its employees for workplace injuries means getting workers’ compensation insurance. But like liability coverage, there are different classifications for the different jobs and roles in every business. Getting this right ensures there won’t be any surprises with a big audit, and that employees will be covered if they get hurt on the job. Another important note about workers’ compensation, if there are family or friends who volunteer at the brewery, there may not be coverage for this exposure.
Employment Practices Liability – Employees bring other exposures to businesses such as claims related to harassment, discrimination, salary disputes, or wrongful termination. Neither general liability nor workers’ compensation policies cover these exposures. An experienced brewery insurance agent can give advice and information needed to make well informed decisions on handling these exposures.
Navigating Vehicle Insurance
As a small brewery, having a delivery van may be a ways off. For larger breweries, using a distributor means someone else is delivering brew. In both cases it could mean that a brewery does not own any vehicles, but there could still be auto related exposures the business may be subjected to.
For example, many brewers use personal vehicles to deliver beer, run to the bank or commute to events. These are all business journeys. If there’s an accident while doing official beer business, anyone injured as a result can bring a suit against the owner of the vehicle and the brewery. This is because the vehicle was operating on behalf of the brewery at the time. Without the right type of auto insurance, the vehicle owner and/or the brewery may not be covered.
So even if the brewery doesn’t own a van, truck or car, it could be exposed when using other people’s vehicles for company business. It’s worth discussing this exposure with an agent who has expertise with insuring breweries.
The Added Extras
These areas of insurance are just the froth on the pint. When it comes to insuring a craft brewery there are other potential gaps:
- Flood damage
- Pollution liability
- Data protection and cyber security
- Employee benefits
- Theft — both physical & of intellectual property.
And Let’s Not Forget A Non-Insurance Exposure … Human Resources
As if there aren’t already enough exposures facing brewery owners but the importance of solid HR protocols are just as important and should never be overlooked. Things like properly completed I-9 forms, ADA compliant job applications and job descriptions, and a properly written personnel manual are just a few of the priorities when it comes to HR compliance.
All of this may feel overwhelming but building the right team of advisors, including an insurance agent who has expertise with insuring breweries, can make the process much less complicated so at the end of the day, after a couple cold brews, brewery owners can go to bed feeling comfortable that should something bad happen at the brewery the right insurance is in place to put the pieces back together and get back to brewing great beer. Cheers!