Dram Shop Liability

What is Dram Shop Liability?

Dram Shop Rules are civil statutes that hold an establishment which sells alcohol to an intoxicated (or almost intoxicated) individual, or an underage customer, legally responsible/liable for any harmful activity (e.g. injuries, accidents, fatalities) caused by said person.  Liability under these laws is tricky to prove because causality must be shown - i.e. a direct connection between the sale of alcohol to an individual, resulting in an incident. 

Fun Fact - A “Dram Shop” is a term dating from the early 1700s, referring to an
establishment that served shots of liquor.  A “Dram”, originally from the Latin
“drachma” then French “drame”was a small unit of measurement for spirits.
The 15th century English definition was “a small weight of apothecary’s
measure” (kind of like a spoonful).

How are These Laws Applied?

Dram shop statutes, as mentioned above, are civil statutes, but cross the line into criminal law under what’s called “Vicarious Liability”.  We’ll talk about that in a minute. Currently there are Dram Shop laws in 43 states and the District of Columbia.  The states with no Dram Shop laws are Delaware, Kansas, Louisiana, Maryland, Nebraska, Nevada, South Dakota and Virginia. Every state varies greatly.  For example in California, dram shop liability has been strictly limited under California Civil Code section 1714.  It states the responsibility for any accident falls to the intoxicated individual, not the establishment who sold the alcohol.  In another example, In Texas, Dram Shop laws were tightened in 1987 in El Chico v. Poole.  After a fatal car accident by a patron of the restaurant and bar “El Chico”, the deceased’s family sued for negligence and won a substantial settlement.  And changed Texas Dram Laws! For business owners, check your state’s laws to be informed as to the extent of your liability.   

What does Dram Shop Liability Mean for Your Business?

1. Potential Lawsuits - Civil Court. Many states only enforce dram laws if the customer who caused an incident was underage, or was knowingly served alcohol while obviously intoxicated. 
2. Vicarious Liability - Criminal Court.  Some states also have Vicarious Liability laws, which is the shared responsibility between a drunk driver, for example, and the establishment that overserved - creating a possible criminal negligence case.
3. Fallout from Liability Cases. Fiduciary liability could cost your business hundreds of thousands of dollars.  Many states have “damage caps” but the amount is determined by a jury if the case is not settled out of court. 

How Can You Protect Your Business? Mitigate Your Risks

• RVP Membership - Joining your state’s Responsible Vendor Program is a great way to proactively show authorities that you’re serving alcohol in a safe environment!

• Training - In some states, for both civil and criminal proceedings, if you can show that you have a rigorous employee training program, your business can avoid liability. Be sure to have a tight recordkeeping and reporting system to prove it.

• Compliance Checklist & Audits - Make sure you have a compliance checklist and regularly scheduled audits for your business.  Keeping your employees knowledgeable and at the top of their game will save you a lot of headaches!

• Dram Shop Liability Insurance - Also called “Liquor Liability insurance”, this type of coverage (and the need to purchase it) will partly depend on your state’s laws and how they’re applied.  However, even in states with NO dram shop laws, you can still be taken to court over an intoxicated customer’s actions. 

Conclusion

Dram shop liability can be complex and can vary greatly from state to state.  Be aware of what your state’s laws are and how they’ve been applied in case law.  Plan to factor this into your business’s risk management strategy, because accidents DO happen.  Make sure your business is prepared and protected!

Click here to download our eBook “Challenges & Opportunities: Regulatory Compliance Training in the Food & Beverage Industry” to deepen your knowledge about the array of risks, challenges, and consequences - and let us help you create training, tools, and an action plan to mitigate any danger to your business!

Sources

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