Risk on Tap for Craft Brewers in a Pandemic World

By Paul Martinez | March 22, 2021

Over the past decade, the craft brewing industry has been thriving. From big cities to small towns, niche breweries are growing into cult favorites or mainstream staples, and small taprooms are growing into brewpubs.

You might be able to guess what I’m going to say next: the COVID-19 pandemic has disrupted that trend.

Their taprooms may be closed, but craft brewers are still finding ways to survive, and maybe even thrive, while maintaining their connections to customers. Craft brewers have rapidly changed their business model to the new reality of shutdowns, limited capacity and a need for infection control. But many of these adaptations expose or exacerbate common brewery risks.

Maintenance Concerns

One of the immediate impacts of the COVID-19 shutdowns was a reduction in the number of staff members in a building. With these temporary closures, we have found that routine maintenance is getting missed and having major consequences for taprooms and brewpubs. For brewing operations, brite tanks, fermenters and hoses must receive routine maintenance. In the taproom, draft lines and taps must be regularly cleaned and repaired.

One huge piece of equipment is particularly important to the brewing process: the boiler. This not only heats the grains at the very beginning of the brewing process but plays a role in maintaining proper temperatures and sanitizing equipment at various points during brewing. This means the consequences for boiler failure are high.

Maintenance is imperative to avoid costly, uninsured repairs. Equipment breakdown and related coverages are available for breweries, but neglect and wear and tear are not covered. Plus, nothing can give these businesses back the time and energy needed to replace a broken boiler or other critical pieces of equipment. In some instances, the facility was essentially built around the boilers. This can mean major modifications to the building in order to install the new equipment, such as removing a portion of the roof.

Liquor Liability

Craft brewers adapted quickly to the pandemic, switching to curbside pickup and delivery. As the economy has begun to reopen, they are putting up tents on sidewalks and converting parking lots to outdoor seating. This has created a three-tiered system of service: taproom, pickup and delivery. At all tiers, liquor liability is almost as much of a concern as it is for seated, indoor service.

Each state has different versions of “dram shop laws,” which are meant to determine who is responsible for serving alcohol to underage or intoxicated customers. In 35 states, the bar, brewpub or restaurant is held responsible for the actions of those to whom they have served alcohol. This is true whether service happens in the taproom or through curbside pickup.

This is why craft brewers have liquor liability coverage, but these claims can be severe. Some states have no cap on liquor liability cases, while others have caps as high as $1 million. That means it is just as important as ever for our clients in the craft brewing industry to check IDs for age verification and to monitor patrons for signs of intoxication. In addition, with businesses operating under a patchwork of pandemic measures governing seating capacity and hours, business owners should be cautious that staff is not serving alcohol outside of legal business hours.

Delivery Risks and Non-Owned Auto

Many small craft brewers did not have extensive canning or bottling operations prior to the pandemic. In order to continue selling products, many have shifted their focus to canning. But many of these brews were not made to be canned. We have seen instances of beer fermenting further in the cans and exploding, potentially causing product loss, property damage and bodily injury.

However, the most significant risk we have seen emerge during the pandemic is non-owned auto. In the scramble to adapt, many craft brewers reassigned employees to beer delivery duty. As smaller breweries do not have large fleets of vehicles suitable for local deliveries, this means that employees are using their own cars.

‘As the economy has begun to reopen, they are putting up tents on sidewalks and converting parking lots to outdoor seating. This has created a three-tiered system of service: taproom, pickup and delivery.’

Many breweries have non-owned auto coverage to cover their expenses related to an employee accident. However, this does not cover the employee. The employee will have to depend on their personal auto insurance policy, which may have a business use exclusion. This can leave the employee on the hook for collision damage to their vehicle, damage to the other party’s vehicle and the cost of lost product, as well as any litigation costs.

Brewery owners are not comfortable leaving trusted employees in that position. The reality is that, as we continue through this pandemic, many breweries’ survival depends on these deliveries. They do not have a lot of other options. However, we have received phone calls from business owners and brokers concerned about the risks of deliveries. Umbrella coverage is a potential solution. Brewery owners and managers can also take measures to ensure their safest drivers are on the road. They can conduct motor vehicle record checks, monitoring for a history of DUIs or frequent speeding violations. They can also create distracted driving policies that have clear guidelines and consequences.

Cybersecurity Wake-Up Call

Many businesses brought their back-office operations home during the beginning of the pandemic shutdowns. Accounting, accounts payable/receivable and employee data were, in some cases, being handled on private devices or unsecured Wi-Fi networks. In addition, more transactions were happening remotely as customers placed online orders for delivery or pickup of packaged products.

Taken all together, this raised some concerns among cybersecurity experts (and insurers) about cybersecurity risks. Cybersecurity incidents and data breaches have expensive and reputation-damaging consequences for businesses.

The good news is that we have not seen a huge spike in cyber liability claims during the pandemic shutdowns. However, we have been using this as an opportunity to remind craft brewers of the potential consequences of cybersecurity claims. The craft brewing industry seems to be underinsured for this risk, but specialty insurers can connect them with appropriate coverage. Many are celebrating a light at the end of the pandemic tunnel, but we can expect the consequences for businesses to be lasting. At this challenging time, the cost of a claim may spell disaster for a craft brewery. Now more than ever, these businesses will need the expertise of agents, brokers and insurers to help them navigate the risks of operating during shutdowns.

Topics COVID-19

About Paul Martinez

Martinez is program manager and insurance brewmaster for Brewery PAK Insurance Program. He has 20-plus years of commercial insurance experience and 10 years of experience underwriting breweries. Phone: 888-386-5701. Email: Paulm@pakprograms.com.

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