Risk Management for the Food Service Industry

Chapter 4: Managing Risks as a Food Business Owner
Part 2: Dram Shop Laws and Your Food Service Business

Earlier, we mentioned that dram shop laws are the statutes that hold alcohol-serving establishments (or even hosts) partially accountable for the harm or damage caused by patrons who became intoxicated at that establishment.

Even if the bodily harm or property damage happened off your premises, certain states may still find you guilty of wrongdoing if the injured party decides to sue your business. The laws also forbid selling alcohol to minors.

These laws were created to help reduce liquor-related accidents, injuries, and assaults. The logic is that if your bar or restaurant has a personal stake in the matter, then you will be less likely to over-serve. Plus, it gives your establishment an incentive to properly train employees to refuse alcohol sales to minors and visibly intoxicated persons.

Dram Shop Laws and State Compliance

Dram shop laws differ depending on where you live. While some states impose liability on any establishment that serves alcohol, others don't. Some states require you to carry Liquor Liability Insurance if you furnish alcohol or have a BYOB policy.

The one unifying law across the land is that serving alcohol to minors is illegal in all 50 states. In Texas and New Jersey, minors can even sue your bar or restaurant for their injuries if they became intoxicated at your establishment.

Do All States Have a Dram Shop Law?

Though serving alcohol to minor is illegal in all 50 states, not all states have adopted dram shop laws that hold establishments liable for over-serving patrons. Currently, the following states have no dram shop liability laws:

  • Delaware.
  • Kansas.
  • Louisiana.
  • Maryland.
  • Nebraska.
  • Nevada.
  • South Dakota.
  • Virginia.

For most states, the plaintiff can only sue for recovery when you know (or should have known) the customer was intoxicated. This is called the "obvious intoxication test." In other words, you or your employees should have reasonably known by looking at the patron that they were so intoxicated that more alcohol could lead to harm for themselves and others.

Of course, this "test" is not without subjectivity problems. In an attempt to clarify dram shop liability and what it means to be "obviously" intoxicated, some states have created more specific criteria. For example:

  • Missouri requires proof that the patron demonstrates "significantly uncoordinated physical action or significant physical dysfunction."
  • Massachusetts allows a bar to be sued for damages if the patron exhibiting "drunk, loud, and vulgar" behavior was determined to be "visibly intoxicated."
  • Illinois allows bar owners or restaurants to be sued after demonstrating that…
    • The defendant sold alcohol to the plaintiff.
    • The plaintiff sustained damages.
    • The sale of alcohol was the proximate cause of the intoxication.
    • Intoxication was at least one cause of the plaintiff's damages.

Dram Shop Immunity: The Safe Harbor

In Texas, you can qualify for dram shop immunity through what's known as "The Safe Harbor." Through this clause, your food service business can shield itself from liability claims if you prove that your employees have completed a TABC Seller / Server Training Program. If the employee accused of over-serving an intoxicated patron attended the program, then the plaintiff can only successfully sue your establishment if they prove that you encouraged the employee to violate the Texas Dram Shop Act.

Meanwhile, in New York, an intoxicated person who injures themselves isn't allowed to sue the bar or restaurant that served them. However, if that person dies due to intoxication or a liquor-related accident, the person's children can sue the drinking establishment for loss of parental consortium.

For a complete rundown of each state's dram shop liability laws, check out the National Conference of State Legislatures article, "Dram Shop Civil Liability and Criminal Penalty State Statutes." There's a full list at the bottom of the page that details each state's specific statutes and penalties.

Next: Part 3: Tips for Limiting Liquor Liability Lawsuits

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