Alcohol service can attract patrons and fun, but it also comes with a chaser of complex liabilities. If your restaurant serves alcohol or has a bring-your-own bottle (BYOB) policy, your liability exposure is higher than if you ran a dry operation.
You know you share responsibility for what happens to your patrons while they’re in your establishment. But did you know you could also be held liable for their actions and the damage they cause even after they leave?
Learn about the liability implications of serving liquor, how to insure against them and ways to control your risk exposure.
Liability implications
Alcohol laws vary from state to state. For example, your establishment could be on the line if you serve alcohol to an intoxicated patron who drives home and causes an accident. It depends on your local laws, but most businesses can face litigation for the intoxicated patron’s actions, including property damage, personal injury and death.
And if you serve alcohol to a minor, even accidentally, you could face severe penalties and lose your liquor license. You must understand how applicable local and state laws function, stay compliant and have proper safety measures.
Liquor service and seller compliance laws
Most states have mandatory training programs for servers and bartenders. This ensures they comply with the requirements around serving alcohol. Training programs educate staff about the state’s alcohol laws, the impact of alcohol on the body, techniques to identify and deal with intoxicated patrons, and how to manage difficult situations.
Server compliance is not just a legal obligation. It can also help you establish responsible business practices, protect your establishment from fines and reduce your liquor liability exposure.
Even with a robust compliance program, you still need liquor liability insurance. Liquor liability insurance covers you if an intoxicated patron harms themselves or others. It protects your business from lawsuits.
How state licensure, compliance and training affect your insurance
Your commercial general liability (CGL) insurance includes host liquor liability coverage, which protects you if you host an employee party involving alcohol. However, hospitality businesses that serve liquor on-premises, like restaurants and bars, are excluded. Don’t rely on CGL for coverage. You’ll need liquor liability or dramshop insurance (see below).
In most states, liquor liability insurance is a precondition to holding and maintaining an on-premises alcohol license. For example, your state might require you to carry minimum coverage for bodily injury, property damage or death. The insurance coverage must remain in effect during your license period and be updated or renewed annually. If you don’t have proof of insurance, you won’t be able to maintain your establishment’s liquor license.
Responsible alcohol server and seller training
Employee certification and individual licensing can affect your coverage, too. If your state requires every server to have a liquor service certification, you must comply. If you have a claim and the insurance company discovers your staff is unlicensed, it can negate or limit your coverage. Never allow servers to work a shift if their certification has expired.
Dramshop laws protect the general public from damage and losses resulting from the overservice of drunken patrons; dramshop insurance protects establishment owners and employees. If your employee is found guilty of overserving a patron who later harms another individual, your dramshop policy should cover the settlement. Without it, you could go bankrupt covering the damages alone.
Liability coverage limits
Protection doesn’t extend to the inebriated wrongdoer who injures someone else. In that case, the injured person would sue the wrongdoer and possibly your establishment to determine fault. If you’re found at fault, the wrongdoer might also sue you for overserving them. Your liquor liability insurance would cover your legal defense.
But remember, your insurance will cover you only up to the limits of your policy. If you have $500,000 in liability limits and your court case costs $600,000, you’ll pay $100,000 out of pocket. And that may not leave anything for settlement fees.
Ask your agent to help you select the proper limits. Be ready to provide your agent with safety and compliance information about your establishment, such as:
- Alcohol or liquor server certificates
- Bar logs
- Employee safety training, including preshift safety talks
- Video surveillance systems
- Taxi or ridesharing agreements, including complimentary ride programs
- ID-checking procedures and wristband or stamp protocols
- Claims history
Other coverages for food service establishments
The inherent risk factors associated with selling alcohol make the right insurance critical for restaurant owners. Here are some additional policies:
Business owners policies combine CGL and property insurance into one package. They’re often more cost-effective and manageable than purchasing separate policies.
Employment practices liability insurance covers lawsuits related to employment issues, including claims of wrongful termination, discrimination or sexual harassment. For example, harassment disputes involving management, other employees and patrons could arise. CGL doesn’t cover you if an employee sues you.
Restaurant insurance is a prepackaged insurance program that covers the main liability issues for bars and restaurants. Your agent can help you decide if a restaurant program is right for you. They can also customize it based on your operations.
Workers’ compensation insurance protects employers, including bar and restaurant owners, when an employee is injured on the job. Fights and other issues often arise in establishments with liquor on-site, so it’s essential coverage.
Control your risk exposure
The first line of defense in minimizing liquor liability is employee training. Here are a few tips to guide the training process:
Teach employees to recognize the signs of intoxication. Employees should be able to identify signs of overconsumption and know when to stop serving a patron. Online and in-person classes are available to train your staff. Many states require every server to be certified. Check with your local beverage authorities about training compliance.
Check IDs diligently. Door staff should check IDs to avoid serving alcohol to minors, regardless of how mature a person may look. Implement a wristband or handstamp system for people drinking alcohol. It makes it easier on servers if IDs are checked beforehand. It also reduces the chances of being conned if one person checks throughout a shift.
Use a different handstamp or wristband each night so minors can’t replicate them. If servers are checking IDs, make sure they do it consistently. Train your servers to ask questions if an ID seems suspicious.
Maintain a bar log. Make it a habit to enter information about each shift. If a patron is refused service, enter the details in the log. If it’s a slow night, note it. If you call a cab for someone, enter the details. The purpose is to keep a record of each shift, whether it’s eventful or not. Notes should be professional and detailed in case they’re used by law enforcement or in court. Keep the bar log in a secure area, away from the public.
Promote nonalcoholic options. Encourage servers to promote nonalcoholic drinks and food items to lessen the demand for alcohol. Give complimentary nonalcoholic beverages to designated drivers.
Rehearse how to handle drunk patrons. Some patrons might get belligerent if you refuse to serve them. Train your staff on how to handle these situations, including a signal or code to alert management or bouncer staff when there’s trouble.
It’s important to remain calm and resist the temptation to engage with an angry customer or escalate the situation. A fight could endanger both staff and patrons. Train your staff to respond in a way they’d be proud to have livestreamed (and that could happen; cameras are everywhere). Don’t let your staff be framed negatively because they momentarily lost their cool due to an out-of-control customer.
Stay vigilant during happy hour or two-for-one promotions. These discount initiatives can promote excessive drinking in short periods, leading to overservice. Some states have outlawed happy hours for this reason.
If you run a drink promotion, limit the duration and be firm about start and stop times, such as 4 p.m. to 6 p.m. Impose a drink limit per order or per person. Hire extra staff or security. Watch for signs of intoxication. Document all irregular interactions, like fights, behavioral complaints and verbal threats, along with who’s been cut off.
Use taxis or rideshares. Make getting a ride home easy, fast and painless. When you call a cab for someone, watch them get in the cab and make sure the cab driver knows their address.
It’s important to establish relationships with reputable taxi services that have good track records. Keep a list of trusted companies you can count on to get intoxicated patrons home safely. If possible, drivers should wait to ensure passengers are safely inside their homes, and they should never leave unconscious passengers outside. In the event of a lawsuit, anyone who came in contact with that customer over the course of the evening could be called into question.
Call your agent for a coverage review
Liquor liability is more than just complying with state laws and maintaining records. It’s about cultivating a safe environment for your patrons and staff. The right insurance, staff training and documentation can go a long way to guarding your establishment from legal repercussions. Say cheers to a coverage review to ensure you’re well-protected!
