Liquor License Suspension: Insurance Implications and Business Continuity

A liquor license suspension can be devastating for restaurants that rely on alcohol sales. Whether from over-service incidents, underage sales, or regulatory violations, losing your ability to serve alcohol - even temporarily - can cripple your business. Understanding what insurance can and can't do during a suspension helps you plan for this worst-case scenario.

Common Reasons for License Suspension

• Serving intoxicated patrons: Documented over-service that leads to incidents
• Underage sales: Selling or serving to minors
• Hours violations: Serving outside permitted hours
• Location violations: Serving in non-approved areas
• Tax or fee delinquency: Failure to pay state or local fees
• Criminal activity: Drug sales, gambling, or other illegal activity on premises
• Repeated violations: Accumulation of lesser violations

What Insurance Can't Cover

Standard insurance policies do not cover:

• Fines and penalties: Government-imposed fines are uninsurable
• Criminal defense: If you're criminally charged, insurance doesn't help
• License reinstatement costs: Fees to get your license back
• Intentional violations: If you knowingly violated rules, coverage is excluded

What Insurance May Cover

Some coverage may help during a suspension:

Business Interruption Insurance

Standard business interruption covers lost income from covered perils (fire, storm, etc.). License suspension from regulatory action is not typically a covered peril. However, some specialty policies offer 'civil authority' coverage that might apply in limited situations.

Liquor Liability Policy Defense

If the suspension stems from an incident that's also an insurance claim (over-service leading to an accident), your liquor liability policy covers defense of the liability claim but not the license proceeding itself.

Administrative Proceeding Coverage

Some EPLI policies and specialty coverages include defense costs for administrative proceedings, including ABC hearings. Review your policies carefully.

Prevention: Your Best Insurance

Since insurance provides limited help during suspension, prevention is critical:

1. 1.
   Training: TIPS/ServSafe certification for all staff
2. 2.
   ID verification: Strict ID checking, electronic verification systems
3. 3.
   Documentation: Incident logs, refusal documentation
4. 4.
   Compliance audits: Regular self-audits of license requirements
5. 5.
   Legal relationship: Liquor attorney on retainer for immediate response
6. 6.
   Secret shopper testing: Test your own staff for compliance

What to Do If Facing Suspension

1. 1.
   Contact your liquor attorney immediately: Time is critical in administrative proceedings
2. 2.
   Document everything: Training records, incident logs, corrective actions
3. 3.
   Review your insurance policies: Understand what coverage may apply
4. 4.
   Notify your insurance broker: They may be able to help navigate or advocate
5. 5.
   Prepare for business impact: Cash flow planning, staff communication
6. 6.
   Consider settlement: Sometimes negotiated resolution beats fighting

Frequently Asked Questions

Will my liquor liability premiums increase after a suspension?

Almost certainly. A suspension is a major underwriting red flag. Some carriers may non-renew your policy. Others will increase premiums significantly. Shop the market through a broker familiar with impaired risks.

Can I get insurance that covers license suspension?

Specialty coverage exists but is expensive and has significant limitations. Some business interruption policies can be endorsed to cover regulatory closures, but exclusions and conditions apply. This is a specialty product - work with a broker experienced in liquor liability.