From running the business, handling the purchasing and managing staff to attracting customers, a bar's liability for an intoxicated patron isn't always the first thing an owner considers. However, being too busy to consider what liability risks are associated with operating a restaurant or tavern will expose owners to risk or even financial ruin. Assessing exposure and obtaining the appropriate insurance coverage is as essential to a successful bar business as, well — the beer on tap.
Restaurant, bar, tavern and lounge owners are also known as “dram shop owners.” Often they buy a General Liability insurance policy simply to satisfy their landlord's lease requirements without fully understanding that the standard General Liability policy does not cover claims that arise out of the service of alcohol. Thirty states have dram shop laws which hold licensed establishments liable for the selling and serving of alcohol to individuals who suffer injury or death, or who cause injury or death of others as a result of their intoxication. These laws also commonly impose lower thresholds of liability for the selling or serving of alcohol to minors.
So what are the most common dram shop exposures and how does a business owner protect the business from loss?
- DUIs:The most common type of liability claim stems from the over-service of alcohol to patrons who then get behind the wheel. There were 10,076 fatalities in 2013 from automobile accidents involving a driver with a blood alcohol content of .08 or higher; which accounted for 31 percent of the total traffic fatalities in the year. Claims can also result from intoxicated patrons operating boats or snowmobiles after leaving the serving establishment, and it's not uncommon for an establishment to be named with other establishments in a lawsuit even when the patron admits to having only one drink at an insured's bar. To transfer the risk of over-service related claims onto insurance, the dram shop owner needs to purchase a Liquor Liability policy with adequate limits in addition to a General Liability policy.
- Activity hazards:Dram shop owners expect the occasional bar fight and bloody nose, but what they might not expect are broken ankles from falls off the mechanical bull; head injuries from falls out of the shot chairs, or facial burns from the bartender's flaming alcohol trick. Claims arising out of these types of activities may be covered under the premise liability portion of a General Liability policy or the Liquor Liability policy, but more often these unique risks are excluded. To make sure all activities occurring in the bar are covered, the insured needs to carefully disclose them on the insurance application so the agent can secure appropriate coverage. Typically, the agent can add coverage for these activities by endorsement for additional premium, but the agent first needs to be informed. The insured should then read the policy to confirm for him or herself that no exclusions apply to the types of events that can or may occur at the bar at any time during the policy period.
- No exit zone:A lighted exit sign malfunctioning or an exit door being blocked or locked to prevent patrons from entering the bar is common. This risk shouldn't be underestimated. If there was ever a fire in a nightclub and patrons were unable to exit, the claims for bodily injuries and property damage might easily exceed the aggregate limits of a standard $2 million dollar policy. This risk is easily avoided by proper maintenance of the bar premises and awareness of this potential for risk.
- Flammable Decorations:Like the no exit zone exposure, flammable decorations or patron injuries caused by servers accidentally spilling hot food or beverages can also be disastrous for establishment owners who don't carry adequate limits. Burns are painful and cause disfigurement, so in addition to the special damages associated with the cost of acute and future medical treatment of burn injuries, damages awarded by juries for pain and suffering also tend to be high. Bar owners are wise to consider an insurance company that conducts loss control inspections as part of their underwriting process. Trained loss control professionals can't prevent every risk scenario, but they can spot a great number of potential problem areas and will make recommendations for correction that can stop a loss before it occurs. Bar owners should note that underwriting inspections are not comprehensive safety evaluations and may want to consider utilizing their local fire departments to inspect the bar for hidden fire hazards.
- Fake Out:Try as an owner will, underage patrons with convincing fake I.D.s will enter bars. Bar owners should consider investing in I.D. scanners to help identify false documents because the responsibility for a patron engaging in underage drinking remains with the serving establishment even after the patron has left the premises.
Even with the best mitigation efforts, preventing loss isn't always possible. But where best efforts fail, insurance policies customized to provide adequate coverage and sufficient limits succeed in affording the protection needed to give the dram shop owner peace-of-mind, so he or she can get back to the busy business of running a bar.