Throughout the year, and especially during the summer months, community associations and individual unit owners may wish to host parties or events at which alcohol is served (or brought and consumed by attendees). Whenever alcohol is involved, a “liquor liability” exposure is introduced, and whether that exposure is properly addressed by a standard condo unit owners’ insurance policy (HO-6) and/or the community association’s Master Policy is a common area of confusion.
“Liquor liability” claims are typically characterized by allegations of Bodily Injury or Property Damage caused by intoxicated persons who have allegedly been over-served alcohol. While laws surrounding liquor liability vary by state, it is not uncommon for the establishment, person or group that had furnished alcohol (or in some way facilitated the consumption of alcohol) to be held liable for the actions of these intoxicated persons. In other words, community associations and individual unit owners could end up defending themselves from lawsuits due to the actions of intoxicated individuals who attended a party or event where alcohol was served.
That’s the bad news. The good news is that, depending on the circumstances, a properly structured insurance program could help protect both the association and/or individual unit owners from this liability exposure.
The Condo Master Policy and Liquor Liability
A common area of every Master Policy for a community association is the General Liability section, which is where one could normally find language on the topic of liquor liability. Most often, “liquor liability” is excluded from coverage, however there is typically a “carve-back” that provides coverage for what is commonly referred to as “host liquor liability.” Common language is as follows (excerpt from General Liability ISO Form CG 00 01 12 07):
Insurance does not apply to “bodily injury or property damage for which any insured may be held liable by reason of:
- Causing or contributing to the intoxication of any person;
- The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
- 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.”
Based on this language, the “host liquor liability” exposure is generally covered with respect to social events held in common areas, as most condo associations are not “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.” That said, this exclusion can be triggered if the community association accepts compensation in exchange for alcoholic beverages.
The HO-6 and Liquor Liability
There are a number of homeowner’s coverage (HO) forms available in the marketplace, and each includes differing language to address liquor liability. A brief overview of a few commonly used HO forms follows below, however it is helpful to start by showing some common wording from the Personal Liability section of the 1991 version of the HO form:
“If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” to which this coverage applies, we will:
- Pay up to our limit of liability for the damages to which the “insured” is legally liable. Damages include prejudgment interest awarded against the “insured”; and
- Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when the amount we pay for damages resulting from the “occurrence” equals our limit of liability.”
It is important to know that an insured can be held “legally liable” for either direct actions his/her liability as a result of the actions of others. The 1991 version of the HO form (quoted above) is still commonly used among many insurance companies, however newer versions of the form have been adopted by a handful of companies. Key points surrounding how each form handles liquor liability are as follows:
- The 1991 version of the homeowners policy clearly affords coverage for suits alleging bodily injury or property damage, and there is no exclusionary language with respect to alcohol or “liquor liability” in any section of the policy form. “Host liquor liability” coverage is provided on a broad basis; the only exclusionary language that can be applied to this topic relates to business-related activities (e.g. one is not afforded coverage if alcohol is sold for profit).
- Newer versions of the homeowners’ policy form (2000 and 2011) provide similar language regarding Personal Liability, and similarly do not exclude “liquor liability” in any section of the policy form. That said, there is some exclusionary language surrounding motor vehicle liability that does not exist within the 1991 form. For instance, while the 1991 form excludes only “motor vehicle liability” associated with vehicle(s) the insured owns, operates, rents, borrows or entrusts to another, the newer forms exclude “motor vehicle liability” resulting from the use of any motor vehicle. In practice, consider a situation in which an intoxicated party guest drives his/her own vehicle home and causes bodily injury or property damage on the way. The 1991 HO form will generally provide coverage for the host’s vicarious liability in this situation, while the 2000 and 2011 forms may not. It is important to note that many carriers that offer the newer versions of the HO form do not intend to limit coverage in this type of scenario, and have issued statements or otherwise amended coverage to specify this stance.
In short, “host liquor liability” coverage is most commonly afforded for community associations (via the General Liability section of their Master Policies) and individuals (via the Personal Liability section of their HO policies), subject to normal policy terms and conditions. That said, different insurance companies will handle the issue of liquor liability and host liquor liability differently, and it is very important to consult with a qualified insurance agent when clarifying coverage implications associated with specific scenarios.