Product liability for craft breweries: What your insurance covers

Craft brewing is all about creativity, quality and a love for the craft. But behind every great beer, there are risks that could threaten the future of the brewery business that gave it “life.”

In today’s industry, one of the most common drivers of brewery business challenges and costs is product liability. If one batch of a bold new IPA has a contaminant, or if a customer consumes a stout with an allergen, or a brewery mislabels a new beer, the business could be held liable and suffer from significant reputational damages, lost inventory and major costs.

The right insurance coverage can help protect a craft brewery from product liability challenges and a knowledgeable insurance specialist can help brewery owners and operators not only identify their unique risk exposures but understand what coverage will best suit their needs. Understanding what the policy covers, what is not covered and what support an insurance partner can offer is critical as breweries navigate the range of product liability risks.

What’s covered in product liability policy?

A product liability policy can protect a brewery from losses involving the products the business sells, distributes or makes. Most commonly, this would include:

Bodily Injury: If a customer gets sick or injured from consuming a brewery’s beer, the brewery would be covered by their policy. This includes allergic reactions and contamination incidents.
Property Damage: A product liability policy also protects against damage caused by beer or packaging. For example, if a brewery served a customer with a faulty growler that exploded and damaged a customer’s property, the resulting reimbursement would be covered.
Legal Defense Costs: In a product liability case, a brewery can be sued by the damaged party, even if the claims are unfounded. Product liability coverage can assist with legal expenses.
Settlements and Judgements: If a brewery is found liable for injuries or damage caused by their product, the insurer will assist with the brewery’s payout.

Other product liability examples

But product liability coverage also kicks in a variety of other instances. For example, product liability insurance can cover manufacturing defects where a flaw during the brewing or bottling process leads to harm.

A craft brewery we worked with at PAK Programs suffered from contamination issues during the fermentation process. When the beer was sold and distributed, several customers reported symptoms of food poisoning. Fortunately, the brewery’s product liability policy covered the ensuing damages and ensured their business could weather the reputational and financial challenges.

Similarly, product liability coverage can protect breweries from losses related to design defects. Here, injuries resulting from beer packaging or design, like shatter-prone bottles or faulty cans, can be covered. Product liability insurance can also provide coverage if a brewery fails to provide adequate warnings on products, such as not listing high alcohol content or allergen cautions on labels.

Finally, coverage is available in the event a defect causes harm, and the product has been distributed to bars, restaurants or liquor stores or if injuries or damages happen accidentally, such as if a fermentation issue causes over-carbonation resulting in exploding bottles.

What is not covered by product liability policy?

Understanding what is covered by a product liability policy can help business owners ensure their brewery is protected in the event of a claim. Just as important, a brewery owner should take steps to understand what types of losses are not covered by insurance.

Here are a few common situations where product liability losses might not be covered:

Intentional Acts: If a brewery knowingly sells contaminated or defective beer, the resulting damages are not covered by an insurance policy.
Contractual Liability: If a brewery assumes liability under a contract, such as a distribution agreement, that liability is not covered by the insurance company.
Product Recall Costs: Typically, a product liability policy does not cover the costs of recalling defective beer unless the craft brewery has a recall expense endorsement in place. A recall expense endorsement is additional coverage you can add to your general liability policy to help cover the costs associated with recalling defective or unsafe products, such as beer.
Expected or Intended Injuries: In the event a brewery is aware of a defect and fails to act, the resulting injuries to staff members or customers are not covered.
Professional Services: Occasionally, customers may ask servers for dietary advice when purchasing beer. Any claims that come from professional advice provided by brewery staff, such as dietary recommendations, are not covered under a standard insurance policy.
Product in the Brewery’s Possession: Product liability coverage usually applies only after the beer has been sold or distributed, not while it is still in storage.

Ensuring the right coverage for your brewery

An uncovered loss can lead to severe financial stress, reputation damage and in some cases ultimately shutter a business. Working with the right insurance partner can help ensure brewery owners and operators have the coverage they need to prevent uncovered losses. An insurance business that specializes in the craft brewing industry can help create risk mitigation processes for brewery owners to identify and prevent potential product liability incidents – particularly those that insurance won’t cover. They can also offer training tips and practices to ensure staff are practicing productive safety measures and review any contractual agreements, so brewery owners and operators do not incur any unnecessary liability.

While avoiding product liability cases entirely may not be possible, a brewery owner who has an insurance policy in place and understands what is and is not covered can better prepare their business for whatever the future holds. Take the time to review your insurance coverage with an insurance specialist who knows the craft brewing industry and confirm your brewery is prepared to respond swiftly in the event of a product liability incident.

Paul Martinez is program manager and insurance brewmaster for Brewery PAK Insurance Program. Martinez has 20+ years of commercial insurance experience and 10 years of experience underwriting breweries. He can be reached at 888-386-5701 or [email protected].