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October 1, 2019
Hospitality businesses are exposed to potentially severe liability from the sale of alcoholic beverages. This reality stems from state laws traditionally known as “dram shop” laws, better known today as liquor liability laws. These laws determine who can be held legally liable for incidents, events, or claims that arise from the actions of a guest who has been served alcohol. Their intention is to prevent over-serving alcohol to customers who are already heavily intoxicated, and any subsequent damage they may cause while under the influence. In Washington State, the liquor liability law reads, in part:
The Washington State Supreme Court has adjudicated cases regarding this law and held businesses legally liable for violating these regulations. The rulings allow for businesses to be held financially responsible for claims arising out of their service of alcohol. Because these laws vary on a state-by-state basis, insurance policies providing liquor liability coverage offer different forms for each state.
Given the legal landscape of alcohol service, liquor liability is an essential coverage for hospitality businesses to carry as part of their insurance program. Liquor liability policies respond to third party claims relating to bodily injury or property damage arising out of the sale of alcohol. In addition to primary liquor liability coverage, it is highly recommended that businesses purchase umbrella/excess liability coverage, which provides increased primary liability limits, including liquor liability when scheduled. As jury awards have continued to escalate, primary liquor liability limits may no longer be enough to pay a given claim.
One of the most significant cases in Washington State concerned an April 2000 DUI crash. A man who had spent the evening drinking heavily at a local bar collided with a family driving, killing the man and seriously injuring the entire family. One passenger, a 7-year-old boy, was paralyzed indefinitely. The family sued the establishment and bartender working that evening, and after appeals, the case made it up to the state Supreme Court. A forensic expert testified that the driver had consumed the equivalent of 21 12-ounce beers, pushing his blood alcohol content to .32 (four times the legal limit). The court decided that the man’s extreme intoxication, combined with the bartender’s admission that he was too drunk to drive, meant the bartender should have refused to serve him much earlier in the evening than she did. The family was awarded $14 million in the settlement.2
Buying liquor liability insurance is far from the only step businesses should take to manage this exposure. Proactive risk management and proper employee training can often be the best defense against over-serving patrons, and any resulting costs. Some best practices for safe alcohol service are:
Not all liquor liability policies are created or priced equally. There are several operational factors that can affect coverage availability and pricing, including:
Regardless of whether your company is a full service bar or simply a restaurant serving beer and wine, liquor liability is something you need to address. It is recommended that you talk to your insurance broker about coverage limits and risk management practices for liquor liability.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.