Liquor liability and you

Thousands of lawsuits are filed every year involving the sale,  serving or distribution of alcohol. Every year some of those lawsuits are successful  and someone pays the price – big time.

The lawsuits are usually not brought by the person drinking the alcohol, but usually by someone who wasn’t even in the room when the cork was pulled…sometimes by someone who wasn’t even directly involved! What’s this all about and how is this allowed to go on?!        

SURGEON GENERAL’S WARNING: “. . . (2) CONSUMPTION OF ALCHOHOLIC BEVERAGES IMPAIRS YOUR ABILITY TO DRIVE A CAR OR OPERATE MACHINERY, AND MAY CAUSE HEALTH PROBLEMS.”

Heres the distilled version –  the laws in most (if not all) states impose special responsibility on those who “are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.”  Alcohol has been used by human beings for over 4,000 years and regulated for over 2,000 years. Here’s a quick look at the (long) history. From here on in, the term “alcohol” will mean beer, wine, hard spirits and any of its many forms. 

Alcohol has been a major source of income (private & public) and problems for thousands of years.   

  • 2300 B.C.  The code of “Hammaurabi” refers to the dispensing controls for alcoholic beverages.
  • 1700 England encourages the production of gin and then imposes taxes and regulations regarding the production and sale of hard liquor.
  • 1774 The Whiskey Rebellion in Pennsylvania is put down by 13,000 Federal troops sent by President George Washington.
  • 1779 Connecticut had passed 80 laws concerning alcoholic beverages.
  • 1918 The U.S. Congress adopts the 18th Amendment prohibiting the sale of alcohol in the U.S.
  • 1933 The U.S. Congress adopts the 21st Amendment, repeals the 18th amendment and states start passing “dram shop” liability laws (referring to the unit of liquid measure used in the US during the colonial period).

The connection between the effects of alcohol on people and those who would profit from the sale of alcohol is clear and memorialized in law. In states where “dram shop acts” are on the books, the common scenario is that you, as the one who sells, distributes, serves or provides alcohol, are responsible not only to the person you directly serve, but also to:

  • 3rd Parties directly injured as a result of the “service.”
  • 3rd Parties indirectly injured as a result.

Example:  John drinks at XYZ restaurant.  John leaves and has an auto accident injuring Sam. Sam can (and will) sue XYZ restaurant. Sam’s family can (and will) sue XYZ as well for the injury to Sam.

Hey, as a group, human beings like to have a drink now and again.  And, as a group, human beings like to have that drink while they eat. So, the path leads right to the door of you and your pizzeria if you are “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.” This is not necessarily a bad thing. This is a business risk that we need to explore, understand and deal with. Oddly enough, the wording above is from an insurance policy exclusion commonly found in pizzeria owners’ insurance policies. That wording makes it clear that ‘Liquor Liability” is not covered by the policy. 

Whoa…you mean that as a pizzeria owner, if I sell, serve, distribute etc. alcohol, the law says I’m responsible and then the insurance companies say I’m not covered? Yes, that’s right, but there’s a reason. The law imposes special responsibility on you in this case. A general rule of thumb is that anytime the law places a special responsibility on you, there is a special insurance coverage to address it.  Some examples are: hairdressers, architects, lawyers, veterinarians, doctors and massage therapists.

Standard off the shelf polices won’t cover special responsibility, but specific policies do.  You must buy the specific policy that contemplates the special responsibility involved, in this case Liquor Law Liability.

These policies will provide liability insurance, but as part of the application and qualification process, you must have in place systems and methods that deal with the risk. A typical application question is: “Are servers trained in recognizing drunk patrons? What program do you use? TIPS, Barcode™ etc.” Part of the requirement to get the insurance is being prepared to deal with the risk.

You can be responsible for serving an already intoxicated person, serving an underage person, serving an impaired person and more.  You’re responsible both for injury to the person you serve and for damage to others done by the person you serve.  The reasonable thing to do is have your servers trained by a recognized program and stick to the guidelines for safe handling of alcohol service.

  • Some of the points covered in these programs are:
  • General application of the law in your state.
  • How to recognize an intoxicated patron.
  • How to say ‘no more’ to a patron.
  • How to properly verify age/identification.

Once you’ve got the procedures nailed down, getting the insurance is a matter of shopping around.  The insurance is readily available, but pricing varies widely from company to company and forms are not standard.

BYOP: Bring Your Own Problems!

The more troublesome area is the “bring-your-own-bottle” issue. This is a twilight zone of interpretation and circumstance. Usually, you can’t buy Liquor Law Liability Insurance unless you have a liquor license. Yet, most business owner’s policies issued to pizzerias contain the wording that excludes this coverage if you are: “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.”

Question:

  • If you allow patrons to bring their own bottle and you provide glasses, are you engaged in the serving or furnishing of alcohol?
  • If you charge a corking fee for chilling and pouring wine, are you engaged in the serving or furnishing of alcohol?
  • If you have a deal with the local liquor store to bring in wine ordered by patrons, are you involved in the serving or furnishing of alcohol?

Answer: It depends. It depends on things like:

  • Case law in your state.
  • The circumstances of a claim.
  • The inventiveness of the plaintiff’s attorney.

And, sorry to say, the size of the claim.  My personal maxim:  The size of a claim is directly proportional to the level of scrutiny of policy language at the time of a loss. I would not bet my business and my family assets on this proposition.  Either get the license and the insurance or steer clear of the issue. The sober truth is that the sale, service or furnishing of alcohol is neither a good nor bad thing. Like any business activity, done well and ethically, it can bring a good return to your business.  Done any other way, it can be more trouble than it’s worth.