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The trouble with drunk friends

home insurance liabilities

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If you serve alcohol to your friends when they visit your home, you may be taking on a large risk.

In most states, you can be held responsible for what happens to your drunk guest. It doesn't matter if he lands in the hospital after falling down a flight of stairs or if he drives away drunk and causes a car crash. If you allow your friend to get drunk, you could find yourself in court.

Even if your friend doesn't sue you for damages, a person he injures in a car crash could.

If you have assets to protect and live in a state that makes social hosts liable, it's important to have adequate liability insurance coverage.

According to the Insurance Information Institute, 37 states have adopted some form of "social host" law or set a legal precedent that allows you to be found liable if a guest injures himself or someone else as a result of alcohol consumption at your party (see list). Some social-host laws have conditions. For example, in South Carolina and Nevada, liability applies only if your guests are under age 21.

Does your state hold you liable for alcohol-related incidents?

States that observe social host liability: Alabama, Alaska, Arizona, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Washington, Wisconsin and Wyoming.

States that do not observe social host liability: Arkansas, California, Delaware, District of Columbia, Hawaii, Kansas, Kentucky, Maryland, Oklahoma, South Dakota, Tennessee, West Virginia and Virginia.

Source: Insurance Information Institute, as of October 2008

Surprisingly, many people are not aware of these laws. A study by a survey by the Independent Insurance Agents & Brokers of America (IIABA) and its local Trusted Choice member agencies discovered that one-third of homeowners do not think or do not know if they could be held responsible for an alcohol-related accident in their home.

"We found that people didn't understand what their homeowners insurance covers and that they could be held responsible when someone leaves their home intoxicated," says Margarita Tapia, spokesperson for IIABA.

Your home insurance policy will come to the rescue in the event that you are sued — even if you overserve your guest and allow him to drive away drunk. Here are two common scenarios of what can happen and how your home insurance would kick in.

A perfect party turns sour

You're hosting a cocktail party at your home in Pennsylvania. One of your guests, who spent much of the night courting Jack Daniels, decides to drive home. You don't object because he doesn't appear sauced and you didn't keep tabs on how much each guest drank. While driving home, your friend crashes his car and lands in the hospital for a few days. Because he doesn't have any insurance, he decides to sue you for his medical bills and car damage that totals $80,000.

Pennsylvania has established a legal precedent that makes it easier to find "social hosts" liable. Fortunately, you have home insurance with a liability limit up to $100,000. Your insurance company will investigate to determine if you were negligent (in this case, you were, because you didn't pay attention to how much your guests drank).

"In most scenarios, you'd be found at least partially negligent," says Terry McConnell, manager of personal lines underwriting for Erie Insurance. "It would be up to the court to decide damages. Bottom line is that for any judgment against you, your insurance will pay up to the limit."

If a claim is filed against you, your insurer pays for your legal representation and either fights the case in court or settles. But if you were sued for more than the limits of your policy, you'd be responsible for paying the remainder. Most insurance agents recommend buying liability coverage between $300,000 and $500,000.

If you have many assets to protect, such as a house, savings or investments, consider buying an umbrella policy. Umbrella coverage, which provides liability coverage above and beyond your car and home insurance, typically starts at $1 million. This coverage is especially helpful when you're sued by more than one person. In some states, if your drunk friend causes an accident that injures other people, and his drinking is linked to you, those third parties may sue you for negligence too. You could be held responsible for their medical bills, vehicle-repair costs, lost time from work or even wrongful death.

"That's when the umbrella policy becomes vital," McConnell says. "If you have assets to protect, it becomes more viable to carry an umbrella."

In some circumstances, you may find yourself facing criminal charges — especially if a death is involved. These criminal charges would be in addition to any negligence charges that are handled in civil court. Your insurance company will not represent you in criminal court; it will only handle the civil aspect of your case.

The trouble with kids

Let's say you leave your Texas home for a two-day business trip and your teenager decides to throw a "kegger party," where beer flows freely from a keg. An underage girl drinks too much and must be taken to the hospital to have her stomach pumped. Afterward, her parents sue you.

"It can cost several hundred or thousands of dollars, depending on how long she's in the hospital," says Scott West, spokesperson for the Independent Agents of Texas.

home insurance liabilities

Texas has both legal precedents and state laws that make it easier for you to be held responsible for accidents and damage resulting from drinking at your home. In this case, your home insurance would cover your court costs and pay for any judgment amount up to your liability limits (lawyer fees are not deducted from your level of coverage). Your home insurance would also pay for any property damage to your home caused by your child's guests.

"Your homeowners has you covered," West says. "But you may not get your policy renewed. Insurance companies don't like that."

But don't feel safe yet. If your child charged his guests money to cover the cost of the keg, you're in big trouble.

"If your child charges, then your homeowners may not pick up for that," West adds. If you or your child charge money — even a nominal fee to cover the keg — home insurance companies do not consider it covered under your policy because it is interpreted as a business venture.

If you serve your guests alcohol:

  • Encourage guests to pick a designated driver who will refrain from drinking alcohol.
  • Limit your alcohol intake so that you can better judge your guests' sobriety.
  • Make nonalcoholic beverages available and always serve food. Food helps counter the effects of alcohol.
  • Never continue to serve guests who are visibly intoxicated.
  • Stop serving liquor toward the end of the evening. Switch to coffee, tea and soft drinks.
  • If your guests drink too much or appear too tired to drive, call them a cab, arrange a ride with a sober guest or allow them sleep at your home.
  • Encourage all your guests to wear seatbelts when they drive home. Studies show that seatbelts save lives.
  • Source: Insurance Information Institute

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