A Look At Liquor Liability Insurance
It’s no secret that serving beverage alcohol creates unique risks and exposure for businesses. Costly claims and litigation can arise because of alcohol service and damage or injury caused by an intoxicated person. Even if your bar is not liable in these complicated situations, your legal defense costs can add up quickly.
Insurance policies can help in such cases, provided you have the right coverage. The folks at Society Insurance provide an overview and a few examples how adequate general liability and liquor liability insurance coverage can protect your bar business.
For starters, laws regarding the selling and consumption of alcohol are not established by the federal government, so it is best to check to see if your state has liquor liability laws. Local authorities establish and enforce these laws, which means the specific guidelines as to who can sell, purchase, and consume alcohol and under what conditions – as well as the punishments for violation – vary widely across jurisdictions.
Although all 50 states have a minimum drinking age of 21 and maximum limit for blood alcohol content allowable to operate a vehicle, that’s where the similarities end and differences begin. Mismanagement of the commercial sale of alcohol at your bar could threaten the success of your business due to increased liability exposure — both criminal and civil.
Penalties Associated with Liquor Liability Laws
A variety of laws and regulations might impact your business in relation to service of alcoholic beverages. One such law enforceable in many states is a liquor liability law or Dram Shop Act that may allow first or third parties or others to recover for damages caused by alleged overservice of alcohol.
In addition to Dram, some states allow for the criminal prosecution of the servers in cases where the alleged alcohol overservice caused damage to property or injury to people. Failure to follow the appropriate laws and regulations for your bar could result in fines, jail, license revocation, civil lawsuits and bad publicity.
To provide an example of what liquor laws can look like – to showcase how tricky and specific they can be – below we break down one states’ legalities as well as the nearby states’ laws that affect them.
In Wisconsin, it is generally held that the person consuming alcoholic beverages is responsible for injuries to a third party, not the person or business that served the alcohol. But there are times when the person or business serving the alcohol could be sued for injuries to a third party caused by an intoxicated bar patron.
Common scenarios for when a bar could be held liable for serving alcohol in Wisconsin include:
1. Serving alcohol to a minor.
There is an exception in Wisconsin code for procuring alcohol for or serving alcohol to a minor, when the person serving the minor knew or should have known that they were not of legal drinking age. In those cases, if it can be proven that the consumption of alcohol by the minor was a “substantial” factor in causing injuries to a third party, the person/business serving alcohol to the minor can be held liable for damages sustained by the third party.
2. Serving a patron that is involved in an auto accident in a neighboring state.
This scenario is most likely to occur when the location of the bar/tavern is near one of Wisconsin’s neighboring states. The patron of your Wisconsin bar leaves and is involved in an auto accident in a neighboring state. The injured third party retains legal counsel and they file a lawsuit in the neighboring state where the accident took place.
The court will likely allow the lawsuit to remain in the neighboring state if it feels your bar meets certain criteria such as advertising and seeking to do business with the residents of that state. You are then subject to the laws of that state, including the liquor liability laws of that state.
It’s critical to be knowledgeable of laws governing alcohol service and the agency responsible for enforcement. It’s equally important to take an active approach to responsible alcohol service by modeling the proper behaviors and developing policies and procedures for ensuring staff adherence to applicable laws.
But knowing the laws in your state may not be enough — especially if your bar is located near a neighboring state, liquor liability/Dram Shop laws in that state could have an impact on your business. Are there laws in Wisconsin’s neighboring states that would hold your bar liable?
The Illinois Liquor Control Act, known as the Dram Shop Act, gives any person who is injured by an intoxicated person the right to sue any person licensed under the laws of Illinois or any other state to sell liquor, who by selling or giving liquor cause the intoxication of the person who causes the injury. Any person who owns, rents, leases or permits occupation of a building or premises knowing that alcohol is sold on the property, and who permits the sale of alcohol on the property that causes the intoxication of any person, is liable along with the person selling or giving the alcohol.
Iowa’s liquor liability law provides that any third party who is not the intoxicated person who caused the injury at issue, who is injured in person or property or means of support by intoxicated person or resulting from the intoxication of a person, has a cause of action against the bar that sold and served alcohol directly to the alleged intoxicated, provided that the person was visibly intoxicated at the time of the sale or service.
A Minnesota statute referred to as the Civil Damages Act provides a right of action against those that illegally sell alcoholic beverages to individuals who, due to intoxication, injure third parties. An illegal sale includes any sale of alcohol to a minor under age 21 or individuals who are obviously intoxicated.
3. Having a fight or altercation occur on your premises.
We have seen an increase in the number of insurance claims involving fights and altercations. Many times, a fight can break out quickly and serious injuries can occur from just one punch. The medical bills can be staggering, and the injured party will most likely seek legal representation to recover their expenses and damages.
The attorney will allege that you have failed to maintain a safe premise and question the training and supervision of your employees to handle these situations. If the situation involves gross negligence on the part of your employees, the attorney may even seek punitive damages in an effort to punish the bar for their actions or failure to act when the fight broke out.
In this situation, your general liability policy would likely provide coverage as long as it does not contain a punitive damage exclusion and/or an altercation/fight exclusion. Punitive damages are not insurable in many states and cannot be paid under your insurance policy. If the attorney only alleges the overserving of alcohol as the cause of the fight, your policy would likely provide for the defense of the matter and likely result in a favorable outcome under Wisconsin law.
These are just a few examples how adequate general liability and liquor liability insurance coverage can protect your bar business. Liquor liability insurance will often cover your legal expenses to defend against these types of claims and pay damages if they are awarded. When reviewing your state’s liquor liability laws and reviewing liquor liability insurance options, make sure your policy provides coverage for all states and not just for the state you are in. The right liquor liability insurance can help mitigate risks and protect the longevity of your establishment, not to mention provide peace of mind.
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