Alcohol-selling insureds face a number of liabilities under dram shop laws

The microbrewery market is built on innovation — innovation in flavors, business models and even beer names. Yet this modern, clever and adaptable industry is beholden to some comparatively old rules, regulations and laws. So-called dram shop laws determine to what degree a bar or other seller of alcohol is liable for injury caused to or by their intoxicated patrons. These laws vary state-by-state, which means businesses in different states assume different levels of liability when they serve wine, beer and liquor. No matter the state, there are a few things insurance professionals should know about these laws and regulations to help limit insureds’ liability.

According to FindLaw, 43 states in the U.S. allow businesses to be held liable in cases in which they serve alcohol to individuals that end up causing injuries or death from intoxication. The most common of these laws prohibit establishments from serving minors or intoxicated customers. They also tend to prohibit serving outside of legal hours and outside the bounds set by their liquor licenses. There are other notable differences among dram shop laws. For example, Illinois and Minnesota have caps on settlements.

Related: Liquor liability exposure and coverages

Where’s the exposure?

It is important to know the different exposures that can lead to lawsuits under dram shop laws. Consider the growing popularity of “wine trails.” Groups of people hop from winery to winery in one area — following a local “wine trail.” These become all-day drinking events, which carry all the usual risks associated with large groups of intoxicated people: slips and falls, DUIs, etc. Plus, participants have started adding more and more distilleries and wineries to their itineraries — adding higher quantities of and higher-octane beverages to the mix.

It’s key for these business owners to know that if someone was injured at the hands of a drunk wine trail trekker; each winery that person visited could get named in a suit brought against him or her by a third party. Additionally, while tasting rooms tend to sell at higher margins because of direct to consumer sale; owners need to be aware that this increased consumption on premises often leads to more intoxicated consumers. Owners and employees need to take measures to manage risk in advance.

This is just one example of how a winery, brewery or another establishment can be implicated in a lawsuit. However, it demonstrates some risk factors: large parties; drinking in multiple places; drinking too much; drinking without much food.

Prior and current cases impact future cases, particularly in a local area. In other words, finding one bar liable means others in the area may soon be implicated. If another local bar has been found liable in this type of case, local scrutiny is bound to increase, meaning that increased attention to risk management is crucial.

Related: Beers at work after hours may be a ‘function’ for insurance purposes

Loss control for “dram shops”

One line of thinking may ask, “Why would tasting rooms and microbreweries be interested in taking on this risk? There will always be a patron that inevitably drinks too much.” Though this may be true, leadership can take steps to ensure employees are properly trained and that the business has the right policies and procedures in place to limit liability.

1. Identification checks: A fastidious and thorough ID check is standard practice for many taprooms, bars and wineries. This policy should be written and clear, as should the policies regarding false identification.
2. Training: Training for servers should also be required for any establishment that serves alcohol. A respected alcohol service training program like TiPS can go a long way toward minimizing overserving and injury. 
3. Incident log: Bar managers should maintain a log of alcohol-related incidents that occur at their bar. For example, if a customer is visibly intoxicated and a bartender refuses to serve them and helps them return home, this should be noted. A log can be used as proof that bars are employing best practices and have taken steps to care for the customer, whether it’s offering them food and water or calling for medical help.
4. Employee records: Maintain detailed records of employees, their training and their shifts. This can help clarify who may have made questionable sales or prove that a server acted in good faith, within knowledge gained through training.
5. Video surveillance: Video provides a way to observe patron and staff behavior and prove what occurred, when necessary. It can help demonstrate when a server “cut off” a customer, what led to a slip and fall and what time someone left the bar. However, businesses must have policies in place for storing footage; many systems default to constantly overwriting old footage, rendering the needed surveillance footage useless.

These elements are tied together with staff awareness and observation. This is particularly important in fraud cases. For example, at a brewery, a gentleman left the taproom and stumbled outside. He walked to the edge of a landscaped terrace, peeked over the edge and launched himself over. The fall was small but substantial enough to result in bodily harm. However, a taproom employee witnessed the episode. By serving as a witness, the employee could provide a stronger defense for the brewery when presented with a lawsuit by explaining that the gentleman did not accidentally fall over but rather launched himself off the terrace.

For agents and brokers new to the liquor liability space, it is important to understand the liability facing alcohol-selling insureds under dram shop laws. In addition, agents and brokers should:

1. Know the individual business with which they are working. Agents and brokers should be able to present underwriters with a full breakdown of how alcohol is sold and consumed at a business seeking coverage. This is critical to understand, as this liability and exposure can differ based on the type of business. A brewpub has different risks than a taproom.
2. Ask insureds about training and policies. Do they use a trusted training program? Do they have a protocol in place for dealing with overserved customers? These policyholders should have fully trained staff and policies that address overserving customers.
3. Familiarize themselves with state laws. Dram shop laws vary from state to state and even the most subtle of differences can be incredibly important. Some states have different types of training specific to their regulations that need to be followed as well. With the proper knowledge, agents and brokers can point their clients toward the appropriate state resources, demonstrating their value to the insured.

As the brewery and winery space continues to innovate, new risks and exposures will enter the market. Variations in dram shop laws will prove tricky for existing business owners and newcomers. This presents a ripe opportunity for agents and brokers to demonstrate their value as a knowledgeable resource in this industry niche — a resource that understands the latest on their state’s dram shop laws and related loss control best practices.

Related: Studying beer to sell insurance: A lesson in sales and marketing

Larry Chasin (larryc@pakprograms.com) is president of Pak Programs, a provider of customized insurance programs for wineries and vineyards, breweries, wine and liquor retailers, cideries, distilleries and more.