Liquor Licensing & Insurance 101

What Establishments Selling Liquor Need to Know

By: David DeLorenzo

When you’re operating an establishment that serves food and alcohol, being properly licensed and insured is crucial to the safety and the success of your business. Even if you’ve been in business for some time, it’s vital to stay abreast of ever-changing laws as they apply to serving liquor, specifically. Read on for some liquor licensing and insurance tips to keep your business running strong, while you protect yourself and your staff.

  First of all, it’s important to consider the type of license that you have and the insurance that will cover it. A lot of people may have a misconception about the type of license they have and the dictation for what type of insurance that is needed. For example, a No. 6 license (subject to Arizona law), which is generally a bar license that is 100 percent liquor that will have some dictation on the type of insurance that you will need. You will have to go to markets that are fully vested in the ability to write 100 percent liquor or 50 percent or more liquor, because of that No. 6 license.

  However, the license itself is not as important as the percentage. It only matters that you have a license when it comes to insurance. For example, consider a No. 12 license, which is a restaurant license that allows you to serve 60 percent of your sales in alcohol and at least 40 percent of your sales in food. The insurance agency will look at that No. 12 license, but what they really want to know is how much you are actually serving in alcohol and how much you are serving in food.

  The reality is that most No. 12 businesses may serve 30 percent alcohol or five percent — a lot less than that 50 percent (which is generally what a No. 12 license allows for). All the insurance company really cares about or looks at is the actual percentage of liquor to food. However, if you served 60 percent alcohol and 40 percent food, the insurance company may still classify you as a bar and you will likely have a higher rate even though you have a restaurant license. It’s the percentage of food to alcohol sales that really matters when it comes to your insurance coverage and rates, not necessarily the license itself.

  In the insurance world, if you serve 30 percent alcohol and 70 percent food, for example, that is generally the threshold and the maximum for you to get the most positive and beneficial insurance rate in Arizona because your liquor is 30 percent or lower. Once you exceed that 30 percent threshold, it puts your business in another category of insurance that basically does not allow you to go to those direct markets for your coverage.

  You will need to go to a secondary market, generally a more expensive market, because your liquor liability is increased when you have more people drinking liquor. You have to be insured differently the more liquor you serve and typically those direct markets don’t want to take on that risk. However, there are other markets for that.

  If at least 30 percent of your sales are attributed to liquor, you should look into an umbrella to go over your primary coverage. This umbrella will give you another layer of protection over what you’ve already purchased in terms of your insurance.

  It’s also important to carefully analyze the amount of entertainment your establishment provides and the hours of operation if you’re getting into heavy liquor service. Those two factors will impact on your rate just as much as serving more alcohol than a standard restaurant would.

  There is nothing wrong with entertainment or later hours, but you do need to understand that those factors put you in a different classification at that point. Based on that you will need to adhere to higher rates. This is because the companies that write these have actuaries that have determined what they need to charge in order to create an actual rate that makes sense for the carrier to write the business.

  When it comes to selling to-go alcohol, it hasn’t really come to full fruition as many thought it would after COVID. There are insurance companies that write liquor stores, convenience stores or even grocery stores, which is basically to-go alcohol. When you look at those types of establishments, to-go alcohol is already being sold. It hasn’t really changed the stance from an insurance perspective when restaurants are selling to-to alcohol. They just look at the total amount of alcohol sales coming out of that establishment. For example, if a restaurant is selling only three percent alcohol and the rest is food, the insurance company won’t really look at whether that three percent is from to-go liquor sales or not.

  Ultimately, it is up to the establishment to perform in the act of not overserving a customer and not serving a customer that is already noticeably intoxicated. That is regardless of whether the alcohol is served at their establishment or purchased to-go. While selling to-go liquor as a restaurant or bar is legal, is it important to be properly licensed for that.

  For any business selling liquor, it is important to review your policies once a year with your insurance agent to ensure there aren’t any changes that would necessitate an adjustment to your coverage. It is also vital to adequately train your staff, particularly in the awareness of not overserving or not serving a customer that appears to be already intoxicated.

  Documentation of this training is also extremely important. Keeping that and all other documentation in a place that is safe and yet accessible can help protect your business if something were to go awry. If you hear of an incident, even if you don’t

know whether that person was at your establishment, collect your camera footage from that evening and save it in the event of a law suit. You may or may not be liable, but it is good to have, particularly if there was a wreck or even a death near your business. It’s a good idea to collect that data just in case. Security cameras with time-stamped data can be a lifesaver to your business and your staff.

  It’s always important to work with an insurance agent that specializes in the bar and restaurant industry. They will have the knowledge to support your needs and also ensure that you have the coverage you need to protect your business, your staff

and your clientele.

  Out of his passion to serve the restaurant and hospitality industry, David DeLorenzo created the Bar and Restaurant Insurance niche division of his father’s company The Ambassador Group, which he purchased in 2009. For more than 20 years, he has been dedicated to helping protect and connect the hospitality industry in Arizona. For more information visit our website:

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