By the end of 2014, the number of craft breweries in the U.S. topped 3,400—up more than 19% since 2013, according to the Brewers Association.

Meanwhile, Wines & Vines magazine reports a 6.3% increase in production at more than 8,300 U.S. wineries in 2013-2014.

Although they all belong to the craft beverage establishment niche, wineries, breweries and distilleries pose distinct challenges for the liquor liability insurance market, which has remained relatively unchanged when it comes to more traditional clientele like restaurants and bars. Interested in entering this burgeoning market? Here’s what you need to know.

Different Animals

The manufacturing class code for a winery entails tasting rooms on the same premises where manufacturing takes place. But “off-premises tasting rooms—locations where no manufacturing is done—are rated as beverage stores,” explains Paul Martinez, program manager at Winery/Brewery/Distillery/Cider Pak Insurance Programs.

For each scenario, “the manufacturing class gets a liquor liability charge and the beverage store gets a liquor liability charge because they are two different types of exposures,” Martinez says. “Those rules also apply to hard cider manufacturers, which are rated as sparkling wine manufacturers—they’re made in a similar fashion [as wine], just using apples instead of grapes.”

Liquor liability exposure for wineries, hard cider manufacturers and distilleries, then, lies largely on the manufacturing end. “If you’re not consuming it on-premises, it’s kind of hard to prove that a server was negligent,” Martinez points out.

But breweries are a different animal—patrons are far more likely to spend significant time drinking beer than they are tasting wine. At a winery, “usually it’s a couple of tastes and you buy your bottles and you go home,” Martinez says. “Same deal with the hard cider and even distilleries—you’re not going to sit there and spend three hours drinking spirits.”

A Class All Their Own

Because visiting a brewery tends to be more of a social gathering, it poses the greatest liquor liability exposure of all craft beverage establishments, Martinez says.

But different types of breweries involve different levels of risk, too. A production brewery, for example, makes most of its revenue from off-premises beer consumption. On the other end of the spectrum are restaurants that brew their own beer, making most or all of their revenue from on-premises consumption.

Agents may also encounter brew pubs, which make 100% of their profit from on-premises consumption and may or may not produce their own beer and serve wine and spirits as well. That’s “getting into being more of a bar or tavern than an actual production brewery,” Martinez explains—and it’s a tough one to insure. “We don’t want that bar/tavern exposure. We don’t want tasting rooms that are open until 2:00 in the morning. If it’s a true brewery with a tap room, more likely than not the tap room will not be open that late.”

Brewery insurance needs will vary depending on when and where the beer is being consumed. Like wineries and distilleries, they have liquor liability for manufacturing, but they also often receive a restaurant code for liquor liability for on-premises beer consumption.

“With the larger breweries, we’re seeing more and more that they have their own restaurants,” Martinez says, citing examples like Stone Brewing and Firestone Walker in California. “In addition to their huge manufacturing facilities, they have full-service restaurants where they’re selling food and beer for on-premises consumption as well as growlers to go—which are considered off-premises consumption, so the revenue would be lumped into the manufacturing class code.”

That means whether patrons are drinking the beer on or off the manufacturing premises will “determine which class code would be most appropriate,” Martinez explains. “A lot of times when I get a new agent looking to write their first brewery and I’m trying to explain how we break up the revenues between on-premises vs. off-premises consumption, the concept can get confusing for them. But that’s really what our primary concern.”

Another important factor is the age of the business. “If it’s a new venture, when you’re starting you want to get your brand out there, so you have to do a lot of on-premises serving in the beginning,” Martinez says. “That’s the reason we ask for business plans for new ventures so we can see where they’re going to steer their ship.”

Dram Shop Law

As with any liquor liability exposure, the most important element to watch as an independent agent is dram shop law—not only in your state, but in any other location for which you’re writing business.

In British Columbia, Ontario and the 42 U.S. states where Pak Insurance Programs provides liquor liability, regulations range far and wide. “In a state like California, the dram shop law is super specific: the server is found negligent only if he serves a visibly intoxicated minor,” Martinez says. “A state like Colorado will have similar language, but they’ll have a limit on their judgment of $150,000. On the other side of the coin, Alabama poses a very strict liability on alcohol servers and does not require patrons to be visibly intoxicated for the server to be found negligent.”

Considering some patrons may opt to make a day of visiting various craft beverage establishments, hopping from brewery to winery to distillery over an extended time period, understanding your commercial clients’ unique liquor liability exposures is vital to providing them effective service and coverage. What if someone leaves a craft beverage establishment, drives a car and causes a fatal accident?

“Patrons visiting several craft beverage establishments in a given period of time complicates a loss immensely because now you have to go through timelines,” Martinez says. “What time were you here? What time were you there? What time did you leave here? Did you eat something in between here and here? It can get very convoluted. The major problem is you as the client can get dragged into the lawsuit, and at the end of the day the court might find that you were not negligent, but that doesn’t mean your insurance company didn’t pay $100,000 in legal fees.”

Jacquelyn Connelly is IA senior editor.