Is auctioning alcohol at your event breaking the rules?

Ohio has very specific rules when it comes to serving alcohol, but you regularly see fundraising events for not-for-profits across the state — some with open bars, some with drink tickets and some with cash bars.

And more and more, there are cases of wine, or the silent auction gift basket with a bottle of Johnny Walker Blue and a couple of nice crystal glasses, intended for consumption once you leave.

“So the question I asked myself is I know that there are specific rules that allow alcohol to be given away at events, as giving it away means you are not in the alcohol business. But what about when it is sold by the glass? How about the auction for a basket or case of wine or spirits?” says Karl Henley, vice president at SeibertKeck Insurance Agency.

Smart Business spoke with Henley about what you can and can’t do with alcohol at your events, and whether your insurance is covering these activities.

What does the Ohio Revised Code say about consuming alcohol at events?

The answer is simple — the code permits the consumption of drinks by the glass for no charge at events. In general, you don’t need a permit.

But if you have a cash bar, or sell tickets that can be redeemed for drinks, you need a permit.

Will your insurance policy cover this, or do you need to buy a liquor policy?

The evidence here is even less clear. The new industry standards’ liquor liability exclusion on commercial policies leaves some room for interpretation. At first read this 2013 revision seems to say that if someone brings alcohol, and consumes it, for a fee or for free, because they are not in the business of alcohol, the exclusion does not apply.

It certainly would seem to apply to a bring-your-own-beer party to grant what is called host liquor liability. However, there is a lot of room for interpretation of what is considered to be ‘in the business of’ alcohol.

And when things are subject to interpretation — that is usually where the courts come in.

How have the courts recently interpreted the liquor liability exclusion?

In Mustard v. Owner’s Insurance Co. (2014), the essence of the case was that the court found that a not-for-profit American Legion was in the business of alcohol. But the court went one step further.

The court explained that ‘nonprofits engage in various profitable business activities to accomplish their permitted purposes; their corporate status does not act as an ipso facto declaration that the nonprofit cannot be ‘in the business of’ a specified profit oriented activity.’

It asserted you have to look if there is a ‘profit motivation’ in the sale to determine if the not-for-profit is ‘in the business.’

Clearly, a not-for-profit hopes to generate profit from the sale of drinks at special events, and certainly from the auction of alcoholic beverages. Both of these require a permit and are subject to the activities outline by the Ohio Department of Liquor Control. (For more information, visit www.com.ohio.gov/documents/liqr_TempFAQChart.pdf.)

So, what do you recommend that organizations, especially Ohio not-for-profits, do regarding their insurance?

Knowing that the lines are blurry and what the courts have ruled, you might try to follow this litmus test: If you need a liquor permit for your event; you need to buy liquor liability for that same event.

The idea being that if you qualify as a seller that would require a temporary liquor permit under Ohio law, the court will most likely say you are engaged ‘in the business’ of selling alcohol.

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