Understanding Dram Shop Laws & Liquor Liability Insurance.

Kristy DonahueLiquor Liability

What are Dram Shop Laws?

Dram Shop Laws pertain to bars, taverns and other establishments that serve alcohol. The laws strive to achieve two main goals. First, to discourage the sale of alcohol to minors. Second, to hold accountable businesses who, by over serving a patron, have contributed to the injuries of innocent parties.

The liability of a business is determined by considering if the establishment served or sold alcohol to an intoxicated person. This means the person’s intoxication was either “reasonably apparent” (viable, evident and easily observed by employees) or the business had actual knowledge that the person was intoxicated.

While the damages that can be awarded in a case are capped, the dollar amounts are still large. Currently, the caps are $50,000 per person or $100,000 per accident. Damage to property is capped at $20,000. Keep in mind that the statute of limitations allows for a 36-month window from the time of the accident for dram shop liability claim to be filed.

Aside from being named a party to a costly lawsuit should an accident or injury occur; a business can also be cited. These citations can run as high as $10,000 and may lead to the business’s liquor license being revoked.

Read about the real life dram shop drama that played out at Tiger Wood’s restaurant in Florida by visiting the Law 4 Small Business blog Here

What is Liquor Liability Insurance?

Liquor Liability Insurance is critical for owners of establishments that serve alcohol. It is extremely important that business owners understand then need for insurance policies specifically designed to cover clients or patrons who sue for damages related to their intoxication. Assuming that a general liability policy will cover these instances would be incorrect. They do not.

Most businesses carry a general liability policy, which covers claims against the business for bodily injury, property damage or personal injury. While these general policies often include host liquor liability coverage, it will only provide protection related to the incidental service of alcohol; it does not protect a business that sells alcohol as part of its business.

What Should My Liquor Liability Policy Account For?

When it comes to protecting a business from any kind of liability, it’s critical that common risks are accounted for.  In order to secure the right level of coverage, keep in mind the following policy enhancements when shopping for liquor liability insurance:

  • Assault and battery coverage. When alcohol is involved, fights are a common risk. However, many liquor liability policies exclude coverage for assault and battery. Therefore, it is important to consider this protection when building your policy. It should be noted that assault and battery coverage can also be extended to include specific incidents such as sexual assault, stabbings, and shootings.
  • Defense costs. Legal fees from liquor-related claims can easily exceed tens of thousands of dollars. Ensure that your policy accounts for defense costs outside of the policy limit.  
  • Employees included. Even if you forbid your employees to drink on the job, there is a chance that they may disregard your instruction. Look for a policy that will cover your employees as patrons to better protect your business from liquor-related incidents.
  • Mental damages. In the event of a lawsuit, claimants may allege they were injured in nonphysical ways. In these instances, patrons could sue you for stress, mental anguish, or psychological injury. Ensure that your policy accounts for these types of injuries.

It should be noted that liquor liability insurance will not cover claims that arise from the sale of alcohol to minors or similar illegal transactions. Be sure your employees are instructed to verify patrons are of legal drinking age.

What Determines Pricing?

The underwriting process for liquor liability insurance can differ depending on the type of business you conduct. In general, the following four factors determine the rating and pricing of coverage:

  1. Type of venue. When examining a business’s risk, underwriters look to identify the primary purpose of a venue. If you own a restaurant, the primary purpose of your venue is to serve food, so you are generally considered to have less risk than a nightclub or tavern.
  2. Location of the venue. Liquor laws can vary drastically depending on the jurisdiction. Each state has its own scoring system based on the nature of local dram shop laws. Dram shop laws impose certain liability standards on area venues that serve alcohol. Because the strictness of these laws may change from location to location, where you operate your business can have a major impact on how your liquor liability insurance is priced.
  3. Percentage of liquor sales. As a rule, the more alcohol sales you make, the higher your premiums will be. This factor tends to have more of an impact on pricing than venue type, as a restaurant that has a high percentage of alcohol sales may be priced like a bar.
  4. Individual traits of the risk. There are several miscellaneous variables underwriters will take into consideration when pricing out policies, including the following:
    • Types of entertainment offered.
    • Experience level of management
    • Formal loss control measures
    • Security measures and procedures for dealing with intoxicated patrons.

Serve Your Patrons Responsibly

Businesses can actively avoid being held accountable under Dram Shop Laws and avoid lawsuits by simply being proactive. First and foremost, ensure all employees have been properly trained regarding the serving of alcohol and how to spot intoxicated individuals. It is important to revisit this training regularly during employee meetings and training sessions. It is also a good rule of thumb to have information regarding taxi service and ride share programs posted in visible areas throughout the establishment. Going the extra mile of not only cutting off intoxicated customers but making it easier for them figure out a safe way home is the key to avoiding potential liability.

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