Brewery Insurance: Liability, Programs, Costs & More
August 25, 2020
- Last edition
August 27, 2020
Brewery insurance programs cover craft breweries of all sizes, including microbreweries, brewpubs, regional craft breweries, craft beer bars, and gastropubs. Looking past Covid-19, the growth potential for the craft brewing market sector and the insurance it needs to operate safely look promising.
In his 1997 book, The 500 Year Delta: What Happens After What Comes Next, futurist Watts Wacker forecast a trend where consumers would turn to value, community, and a yearning for authenticity. The composition of the craft brew business and its loyal clientele make a strong case for the accuracy of Wacker's predictions. Since 1997, in the U.S., small and independent craft breweries have carved a growing percentage of beer production. It's a constant movement that persists today.
Craft Brewery Statistics
In this post, readers will find useful information on the craft brewery market segment and how to properly insure a brewery. Craft brewers continue to tap significant advantages. Their small size, independent ownership, and innovative risk-taking with beer flavors evoke authenticity and brand character. By packaging those attributes with community-building skills, they have made the U.S. the craft beer capital of the world. The following statistics from the Brewer's Association, which represents independent craft brewers, show favorable sales growth and market penetration for the industry:
Overall, U.S. beer volume sales were down 2% in 2019, whereas craft brewer sales continued to grow at a rate of 4% by volume, reaching 13.6% of the U.S. beer market by volume. Craft production grew the most for taprooms.
Retail dollar sales of craft increased 6%, up to $29.3 billion, and now account for more than 25% of the $116.0 billion U.S. beer market.
In 2018 there were 7,450 overall breweries in the U.S. including brewpubs, microbreweries, and regional breweries (Brewers Association)
Since 2010, there has been a 411% increase in overall breweries in the U.S. (Brewers Association)
In 2018 there were 4,522 microbreweries in the U.S., making up nearly 61% of the total brewery market share (Brewers Association)
Since 2010, there has been a 729% increase in microbreweries in the U.S. (Brewers Association)
In 2018, 1,049 new craft breweries opened while 219 closed (USA Today)
Almost a quarter of U.S. breweries were classified as brewpubs that only brew beer for direct-to-consumer sale on brewery-restaurant premises (National Beer Wholesalers Association)
California has the most active breweries of any state in the U.S. at 1,236 (NBWA)
For virus mitigation purposes, restaurants and bars have been mostly closed for months at a time during the 2020 Covid-19 pandemic. Such experience makes growth and sales predictions nearly impossible in the short-term for the craft brewing and brewpub sector. However, because of the communal nature of craft brewpubs, and the allegiance of patrons to craft beers, it is easy to envision a robust rebound for operations that stay afloat until after the pandemic subsides.
What is Brewery Insurance?
For purposes of this post, we focus on brewery insurance for independent craft breweries as opposed to multinational beer companies such as Anheuser-Busch InBev, Heineken, and Molson Coors. As with all multi-faceted market sectors, craft brewers require a mix of standard business and industry-specific coverages. This craft brewery insurance guide provides insights on how to insure a brewery. It details the primary coverages necessary to offer brewery risk management services.
Who Needs Brewery Insurance?
The Brewers Association defines a craft brewer as a small and independent brewer. That is a perfect description of the best prospects for brewery insurance coverage. The association also categorizes the craft beer industry into these market segments:
Microbreweries – produces less than 15,000 barrels of beer per year and sells 75 percent or more of its beer off-site.
Brewpubs – restaurant-brewery that sells 25 percent or more of its beer on-site and operates significant food services.
Taproom breweries – a professional brewery that sells 25 percent or more of its beer on-site and does not operate significant food services.
Regional breweries – brewery with an annual beer production of between 15,000 and 6,000,000 barrels.
Contract brewing companies – hires another brewery to produce its beer. It can also be a brewery that employs another brewery to produce additional beer.
Alternating proprietors – a licensed tenant brewery that physically takes possession of a shared brewery while brewing. Alternating proprietors are the brewery of record for all obligations of a licensed brewery, including record keeping, tax payments, and label or formula approval.
Requirements for brewery insurance vary depending on multiple factors, such as if it serves beer or serves both beer and food to the public. Also, how many locations, if it provides tours, rents location for events, sell beer as a wholesaler, and more.
Business Property Insurance
Also known as commercial property insurance, it protects a company's physical assets such as buildings, contents, stock, and inventory, from fire, explosion, storms, theft, wind, and vandalism. Additional coverage for floods, earthquakes, and other direct causes of loss may be advised. In some areas of the country, such as certain coastal properties, wind damage is excluded.
Additional coverage for some risks is available by endorsement. These include:
Off-site utilities: Direct damage and business income loss relating to off-site utilities.
Leakage: Beer spilling or draining from tanks or other containers.
Contamination: Cleaning fluids, stray bacteria, yeast, and more.
Selling price endorsement: Values finished goods at the selling price, as opposed to the actual cash value (ACV) or replacement cost (R.C.). It covers the profit portion of the price above its R.C.
A commercial general liability (CGL) policy protects from lawsuits or claims arising from negligent actions that cause bodily injury and property damage to others. Brewery liability insurance includes costs associated with damages and legal fees.
CGL craft brewery coverage covers claims occurring on-premises and off-premises, for instance, a brew fest. Examples of brewery liability risks include slips and fall on-premises, or tripping on equipment at a beer festival. Fire damages to surrounding units or buildings. Personal and Advertising Injury, copyright, and trademark infringement on another brewery's existing product. Protection for libel or slander, such as vilifying competitors or other companies or people, is included.
Covers items a brewer may sell, including beer, merchandise, and so forth. Defectively manufactured products are covered for such things as beer or food that causes illness, or, for example, glass is found in bottles. Coverage also includes defectively designed products, such as accidental use of a poisonous ingredient in a recipe, or inadequate on no warning or instructions when peanut, or other ingredients known to cause an allergic reaction in some people, are in food or beer that is served without an allergy warning label.
Equipment breakdown can be severe or debilitating to small craft brewers. By nature of the brewing process, high pressures build up during the fermentation process, which can cause improperly maintained storage tanks and vats to break down or explode. Most policies broaden the definition of "building" to include all equipment used in the production of beer and other craft beverages. In unexpected quality issues, product withdrawal expense coverage is also available. Equipment breakdown coverage helps to cover repairs or equipment replacement costs of properties damaged by broken equipment.
Tank Collapse and Leakage
Tank collapse insurance is designed to protect losses incurred when a tank collapses, including costs of processing water or lost beer. Tank leakage coverage intends to compensate a craft brewery for beer stock lost due to a leaking tank. Typically, it covers accidental leakage of beer stock from tanks, vessels, or barrels due to a covered cause of loss, tank implosion or collapse or errors or omissions by owner and employees. Coverage can extend up to 10% of the beer leakage limit for beer stock processed by a third-party vendor.
Contamination and Spoilage
Contamination and spoilage losses are covered for losses due to such things as when a power substation outage happens because of a lightning strike, which ruins the entire batch brewing at the time. Another example is raw material contamination in refrigeration or storage. The coverage will pay to replace the beer or raw material. It may also cover lost profits in the downtime related to repairing the problem that caused the contamination and spoilage losses
Workers' Compensation, also known as Workers' Comp insurance, is mandated by most states. A workers' comp program is designed to replace wages and provide medical benefits, disability income or rehabilitation, and to pay expenses related to the injury covered to employees who suffer and injury regardless of fault on the job. The trade-off for the mandated coverages means employees who accept it relinquish their rights to sue their employer for negligence.
Liquor liability insurance, also known as dram shop insurance, protects the liability of businesses that serve, sell, distribute, manufacture, or supply alcoholic beverages. Liquor liability coverage is excluded from a CGL for businesses that generate a profit from alcohol. Liquor liability coverage fills this gap caused by the exclusion. Brewers may add coverage as an endorsement to a general liability policy or purchase it separately.
Standard liquor liability insurance coverage includes:
Third-party bodily injury: If a person becomes intoxicated at a business and injures another person, the coverage helps pay immediate medical expenses or legal expenses in the event the injured person sues your business.
Third-party property damage: Liquor liability insurance can pay to replace, or repair property damaged by an individual who became intoxicated at a brewery.
Legal costs: Helps cover attorney fees, court costs, and settlements relating to lawsuits filed against a brewery due to an incident involving an intoxicated patron.
Additional Coverages to Consider
The following coverages are often necessary to protect a craft brewery from loss adequately:
Commercial Auto Insurance
Restaurant Coverage (If the brewery has a restaurant or tasting room attached and open to the public)
Many risks to protect a restaurant are covered with policies issued to a brewery, as indicated above. However, there are additional property coverages a brewery restaurant owner should consider:
Sewer Backup: Covers losses due to sewer water backing up into a restaurant.
Utility Interruption: Covers property damage or losses when services such as electricity, gas, water, or communications to down or are interrupted.
Extra Expense: Pays to cover costs to rent other equipment or move the business to a temporary location after a fire or other peril damages restaurant property.
Electronic Data Processing (EDP): Most property policies afford minimal coverage for electronic data and equipment. EDP covers computers used to create, store, send, and receive electronic documents and related specified electronic equipment, such as table ordering systems.
Fine Arts: Covers paintings, sculpture, memorabilia, and other artwork excluded from general property insurance.
Employee Theft: Theft by employees is excluded under standard property coverage. This coverage pays when restaurant employees steal food, cash, or other property.
Peak Season: Some restaurants generate a high volume of business at peak times. This coverage provides a more upper limit for personal property coverage during a specified period. In some cases, a Business Owner Policy (BOP) automatically includes peak season coverage with an additional 25 percent seasonal increase.
Brewery Insurance Costs
Many factors go into figuring brewery insurance costs. For instance, the brewery's size, experience, and location all make a difference. Tiny microbreweries will pay much less than a larger craft brewery operation. There are too many unique determining factors in the wide variety of craft brewery businesses to provide accurate details on the cost of insurance for them. However, an example we can give is as follows. On average, the cost of brewery insurance for small breweries is $77 – $109 per month for standard $1,000,000/$2,000,000 general liability insurance. Be aware these are simple examples, actual costs will vary depending on location, size, experience, sales, and other factors.
Best Brewery Insurance Programs
Having the right program is the key to success when working to provide craft brewery insurance. You will find a listing for Worldwide Facilities, LLC (WWF), in the Program Business market directory. It is an independent, national wholesale insurance broker, managing general agency and program manager, established in 1970.
Programs offered by WWF provide specialized insurance coverage to address the unique exposures faced by the craft beverage industry. Coverage is available for craft breweries of all sizes, including microbreweries, brewpubs, regional craft breweries, craft beer bars, and gastropubs. WWF's comprehensive program provides coverage for all aspects of these operations, from equipment and production to tasting facilities and special events.