South Carolina Liquor Liability Market ‘Extremely Unprofitable,’ DOI Report Says

February 5, 2024

A report from the South Carolina Department of Insurance confirms what insurers and bars and restaurants have said for the past few years: Liquor liability coverage in the state is “extremely unprofitable” for carriers – and costs are far out of line with surrounding states.

“Combined ratios for the industry make it clear that this sub-line of insurance is being writen at massive underwriting losses,” reads the DOI report, released in January. “The data seem to confirm the anecdotal assertions, made by both insurance companies and small businesses, of a very troubled and challenged marketplace.”

The market conditions may be even worse than the report shows. Other states, including Georgia and Florida, have made changes to their joint and several liability statutes in the last 24 months – liability limitations that were not reflected in the DOI report, said Russ Dubisky, executive director of the South Carolina Insurance Association.

“South Carolina is truly an outlier,” he said.

The DOI analysis was requested by the state Senate Judiciary Committee and comes after two years of outcry from eating and drinking establishments. Proprietors and their insurance agents have said that a 2017 change in state law, requiring at least $1 million in liquor liability policies, is proving so costly that bars and restaurants around the state have been forced to close.

“Things have not gotten any better – not at all,” said Tom Bates, market president of the Stokes-Farnham Insurance Agency in Greenville, South Carolina.

He said one of his well-known restaurant clients saw its liquor liability premiums bubble up to $224,000 this year, and the owner is considering shutting down.

“The liquor sales aren’t enough to cover that,” he said. “They would have to charge so much. How does $30 for a Bud Lite sound?”

Bates said he is now running for the state House of Representatives, partly because he wants to reform the state’s liability laws and attract more insurance carriers to the state.

Changes may be coming in the next few months. Senate Bill 533 saw little movement in the chamber last year, but is likely to be considered again in the two-year legislative session, which resumed in January. The bill would allow juries to apportion fault in more liability lawsuits, instead of forcing the deepest-pocket or best-insured businesses to pay most of the damages. That is something Georgia and Florida lawmakers addressed in 2022 and 2023.

The end effect of South Carolina’s joint liability law was highlighted last year by a high-profile case involving the son of Alex Murdaugh, the attorney who was convicted of murdering his wife and son. Two years before the murder, an underage Paul Murdaugh purchased beer at a convenience store shortly before he allegedly crashed a boat into a bridge, killing a friend. Although several other establishments sold booze to Murdaugh and friends that night, Parker’s Kitchen was facing the bulk of the damages. The store’s insurers agreed to pay a $15.5 million settlement to the deceased woman’s family.

Critics have said the store’s situation exemplifies the issue with South Carolina’s law: The shop was targeted because its owner was well-insured with higher policy limits, and had the means to pay – while others did not.

“It was a tragic case. And a lot of people have been reluctant to make that the poster child for liability reform,” Dubisky said.

The SC DOI report did not delve into the reasons for the troubled liquor liability market in the state. But the numbers show how skewed things appear to be: From 2017 to 2022, insurers lost about $1.77 for every $1 of premium earned on liquor liability policies. In the worst of those years, carriers lost as much as $2.60 for every $1 of premium earned, even though earned premium more than doubled in that time frame.

Combined ratios have ranged as high as 360%, and stood at 290% in 2022. The ratios were much worse than those for the same insurers in the same line of business in the nearby states of Florida, Georgia and North Carolina.

“The experience in our neighboring states for the South Carolina insurers has been much less unprofitable…” the report said.

The number of insurance groups for the market has grown only slightly in recent years, to 48. Liberty Mutual Insurance, Berkshire Hathaway and IFG were the groups that held most of the policies.

Liquor claim frequency and claim severity in South Carolina significantly outpaced surrounding states. The average incurred claim in the Palmetto State was more than $250,000 – double the average for the other states.

The report also looked at other liability markets in the state. Cyber, foster home, commercial auto liability and other commercial liability insurance appeared to be “well-functioning” and in much better shape than liquor liability, with better combined ratios and a slight increase in the number of carriers and in market size.

For commercial auto and other commercial general liability, the combined ratio in South Carolina was above the break-even mark, and was roughly the same as in surrounding states. But the ratio has been rising in the last few years.

Dubisky said those lines, like the liquor liability market, have been affected by South Carolina’s joint liability laws, which have caused unnecessary and unfair expenses for insurers.

The DOI report noted that some of the losses are to be expected, as insurers knowingly write unprofitable lines as a way to increase overall market share.

“It corresponds with the perception that commercial automobile liability is sometimes written as an accommodation so that entire commercial accounts may be written by the same insurer,” the analysis found. “Insurers invest a portion of premiums held as claims reserves until the associated claims are actually paid.”