Purchasing insurance for a bar, tavern or nightclub requires some planning. Any business that sells alcohol to the public, whether a bar, tavern, nightclub or restaurant should take the time to assess their risk exposures and make sure they choose the proper insruance coverage to protect themselves from laswsuits and property loss.
Some important questions to ask yourself are:
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. You must keep track of this percentage.
Will you have recreational games or diversions at the bar?
Your premiums will be much higher and you may be excluded from coverage from 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 beach front patios and bars. Consider if your bar is subject to natural disasters such as flooding or storms.
Will the business serve food?
Consider if your bar will prepare and serve food.
The size of bar, gross receipts, and percentage of gross receipts attributed to alcohol sales will dictate the types of insurance necessary for the bar and the amount of premium required to maintain coverage. When meeting with an insurance professional you will want to make sure and review our document checklist and make sure you have all of the necessary documents.
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 similar to the business owner policy, but are specially tailored to 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.
The primary consideration will be whether to obtain replacement cost or actual cash value property insurance. Actual cash value coverage deducts depreciation from any claim. While replacement cost insurance provides the current value of the replacement of damaged property. Replacement cost coverage is more expensive. In reality, most bars cannot return to operation if they do not have replacement cost coverage. Opt for replacement cost coverage. Further, make sure your policy will pay for necessary upgrades caused by new building code compliance.
Consider having unique bar décor (the moose head, license plate collection, etcetera) 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 will need separate coverage for these items if they are necessary or you will need to look into bar owners’ policies that include such coverage. Finally, if your business is in an area subject to natural disasters, remember that flooding, some wind, earthquakes, wild fires, and some other risks may need a separate endorsement to be covered and the premiums will be much higher.
Liability insurance for the bar is the most 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 will provide the owner a lawyer and pay for the judgment if covered under the policy. Good insurers also have substantial resources for the bar owner to learn 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 & Battery Coverage
This coverage is used to protect against Bodily Injury and Property Damage arising out of 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 claims of this nature many carriers will attach specific exclusions addressing this exposure for certain types of businesses such as bars or dance clubs where confrontations between employees and patrons can often times 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
It is disappointing, but employee theft remains 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 coverage can provide coverage for such losses.
Workers' Compensation Insurance
You must check with your applicable state department of insurance to determine if your business will need workers' compensation coverage. Do not automatically assume you do not because the business is family owned, or has few employees. Your state law will dictate the coverage necessary and required if you have employees.
Commercial Auto Insurance
If the bar will use 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. This will be necessary insurance if vehicles are used in the business.
Bars are only profitable while open and filled with drinking 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. The bar owner should consider business interruption insurance. Bars are increasingly computer dependent and rely on point of service computer networks; consider specific network risk coverage.