Successful breweries and distilleries aren’t lucky; they make business-smart decisions. That means protecting your business from unforeseen circumstances isn’t about luck, it’s about having the right insurance. Let’s paint a picture:
In 2013, one of my cafes was the victim of a burglary. The thief came in during the wee hours of a Monday morning, knowing a lot of cash would be on site just after a busy weekend. He also seemed familiar with the space because, in less than 45 seconds, the thief pried open the back door, sneaked into the office, popped open the safe, and grabbed all of the cash before hustling back to his car. Emboldened by his luck, the thief doubled-down at the BYOB next door.
In the end, we maintained business with no losses on the books. The BYOB next door faced a loss that took months to recover from. The difference? Insurance. Same theft, different coverage. Our insurance policy covered $10,000 in cash on site, while the BYOB next door maxed out at $2,000. I wasn’t lucky in picking the right insurance policy. I was covered because I had a good agent, who asked the right questions in order to provide the right insurance coverage. I have to give a shout out to my agent at the time, Lee Satanoff of the Satanoff Agency in Wayne, PA.
So what about insuring a brewery or distillery? The same concept applies: find the right coverage. When shopping for insurance, make sure that your agent understands your current needs as a business, and can also predict what your business might need coverage for in the future.
After working with Death of the Fox Brewing Company last year (DOTF opened in Clarksboro, NJ in August 2017), I learned quite a bit about the special challenges in the craft brewing industry. So, I asked my colleague Kyle at Strickler Insurance, the lead agent for their Craft Beverage Insurance Program for his expertise on budgeting and understanding insurance in the industry:
Kyle Rheiner, a Certified Insurance Counselor (CIC), explains which types of insurance policies are needed for opening and running a brewery or distillery like DOTF. “A good place to start with regards to budgeting your brewery, distillery or craft beverage insurance costs is to keep in mind a figure of $10,000 annually,” suggests Kyle. “Now, your costs may only end up between $4,000 and $7,000 once you’re producing and open to the public in year one, but it’s always easier to overstate your expenses to a lender versus understating and asking for more funds. This will also show that you’ve done your homework.” To help out, here’s a breakdown of different types of coverage and policies a brewery or distillery may need, plus some (hypothetical) examples where a brewery would need that coverage.
Insurance type: Builder’s Risk (Renovation phase)
Cost: ~$500 annually (based on cost of your build-out – and can sometimes be pro-rated if your job is completed before the policy’s expiration date.)
What it covers: Builder’s Risk Insurance covers the loss or damage of any materials, equipment, and/or fixtures used in/to be installed during the renovation or construction. What a business is insured for is contingent upon covered causes of loss.
Why brewers and distillers need it: Buildings housing breweries and distilleries, both new and old, under any type of construction or renovation need to have a builder’s risk insurance, banks even require it.
Example: During the construction phase of your brewpub, a backhoe crashes into scaffolding around the facade, tearing a large portion of it down. No one is hurt, but the scaffolding is beyond salvageable. Builder’s Risk Insurance covered replacing the scaffolding, along with any other damages the building might have sustained from the accident.
Insurance type: General Liability (also known as Business Liability Insurance or Commercial General Liability)
Cost: During your build-out, ~$750 annually, based on square footage and subcontractor costs. It can sometimes be pro-rated if your job is completed before the policy’s expiration date. Once you’re operating, this cost is based on your estimated sales. This could be $2,000-10,000 for a startup.
What it covers: General Liability Insurance covers property damage or bodily injury to a third party, any medical payments or defense costs (regardless of fault) as a result, and personal and advertising injury.
Why brewers and distillers need it: When accidents happen, whether during construction or business operation, the business is held liable. Hence the name “General Liability” insurance; it covers pretty much everything.
Example 1: During renovation, the jobsite isn’t secure and all the workers have gone home. A curious passerby steps into the dark jobsite and trips on stacked flooring.
Example 2: It’s the day of your soft opening. Someone knocks over a glass of water and before anyone has a chance to even react, another patron else slips, falls, and breaks their arm. General liability insurance covered their medical bills and all the other claims that person makes against you.
Insurance type: Property
What it covers: It covers the items affixed to the building (bolted down, bolted to the roof, walk-in coolers, kitchen equipment, etc), tables, chairs, glassware, POS Systems, kegs, raw materials, anything that can fall out of your building if you turned it upside-down. Also included is Business Interruption Coverage, Equipment Breakdown, Power Outages, etc.—the list goes on. Don’t skimp here!
Why brewers and distillers need it: Chances are your success hinges on a lot of equipment. When stills burst or beer goes bad, Property Insurance covers the replacement still, the cost of recalling kegs, and earnings lost due to any mishaps.
Example: Your tap system bursts and you can’t serve beer. Your Property Insurance is quick to pay for the replacements parts, wasted product, and lost income from being unable to sell any draught beer.
Insurance type: Liquor Liability
Cost: Varies. Based on alcohol sales, on and off premises.
What it covers: Liquor Liability Insurance covers accidents and damages costs deemed to be the result of alcohol consumption.
Why brewers and distillers need it: As a result of Dram Shop Laws, any business in New Jersey — well as 42 other states — that produces or serves alcohol is required to have it. Where there’s alcohol, there’s always a greater risk of accidents or injuries. So if a fight breaks out on your property, or if someone crashes their car while driving under the influence after leaving your pub, your business can be held liable.
Example: It’s a busy Friday night and your tasting room is packed. One customer bumped into another, words were exchanged, and punches were thrown. It was a minor scuffle, but charges were filed and since you had served them both alcohol, you get sued. Thankfully, you have a good agent and your policy includes Assault & Battery Coverage (can be difficult to obtain), part of the Liquor Liability Insurance, that covers all subsequent legal fees until it is ruled the two persons involved in the altercation were just jerks with bad tempers.
Insurance type: Workers Compensation
Cost: based on payroll and job duties (some jobs are riskier than others, i.e. bartender vs office employee vs brewer/distiller). This can easily be one of your biggest expenses as this is the policy that has the most claims.
What it covers: When workers are injured on the job, both on- and off-site.
Why brewers and distillers need it: It’s required by law. On top of that, no amount of safety training, anti-slip shoes, or other precautions can prevent an accident. Burns, stitches for cut fingers, caustic chemicals in a brewer’s eyes because they’re not wearing safety goggles, should be avoided, but are bound to happen one way or another.
Example: Kegs full of beer are quite heavy, especially when falling on toes (as one of your employees learns). And since it is a work-related accident, you are responsible for both the employee’s medical costs and their wages during the employee’s recovery. Note: a head brewer/distiller being paid $40,000 annually runs roughly $2,500 in yearly insurance costs.
That’s not all…
Property insurance will make up the majority of your costs and you understand its value when, not if, a breakdown in manufacturing happens. This is because equipment is expensive, and one effective way to save on early opening costs is to use as much second-hand equipment as possible.
Pricing in this post is based on estimates for a brewery in the Philadelphia area. Pricing is dependent upon your location (large city, near a coast, middle of nowhere with no fire hydrants, etc.), cost of renovations and square footage, as well as whatever your lease requires during this phase. Also, breweries and distilleries will tend to have a lower rate for their General and Liquor Liability policies since they’re considered manufacturers and will mainly have off-premises distribution. What does this translate to? Since people are less likely to be consuming at a brewery, there’s a lower chance of accidents due to alcohol. This reduced risk lowers the cost/rates of these two policies.
Commercial vehicles will cost around $1,800-2,800 each annually, again depending on where you’re located. Commercial auto rates are not and will not decrease anytime soon. They continue to rise due to the number of distracted drivers, costs of repairs, computer system maintenance within vehicles, and even bad weather. It’s imperative your drivers navigate the roads with caution. It’s very common for your box truck full of kegs to knock a mirror or bumper of a parked car. It happens–we see it often. That’s why we have insurance.
Your needs and costs will increase as you sell more product, add more equipment, hire employees, add vehicles, and offer vehicles and health insurance for your employees. It’ll be an ever-growing and ever-changing business express. Your insurance costs can be guesstimated around 4-5% of your overall sales and will most likely be a Top 5 expense for your business. All you can do is adapt, communicate, and make sure that you’re working with an agent who specializes in your field. Don’t just settle for an insurance agent. Look for a CIC, a Certified Insurance Counselor.
Thank you to Kyle Rheiner of Strickler Insurance for information on this post! Visit their website at www.craftbrewinginsurance.com, or email Kyle directly at firstname.lastname@example.org