CHAPTER 12
Liability and the Sale
of Alcohol
CONTENTS
A. Chapter Competencies
B. Introduction
C. Alcoholic Beverages and the
Hospitality Industry
D. Alcohol Vendors’ Liability under
Common Law
E. Alcohol Vendors’ Liability Greatly
Increases under Dram Shop Acts
F. Liquor Liability Insurance
G. Strategies to Avoid Liability
H. Miscellaneous Liquor Regulations
I. Sexually Explicit Entertainment
J. Answers to Case Example
Questions
K. Answers to End-of-Chapter
Questions
Chapter Summary
An inherent part of the food and beverage sector of the hospitality industry is the sale of alcohol. As a result it
is seen as an important area of study for hospitality students.
Businesses that dispense alcohol must have a valid liquor license and should avoid sales to patrons who are
visibly intoxicated, underage, or known habitual drunkards. Illegal sales can result in revocation of a liquor
license, criminal sanctions, and dram shop liability, requiring the licensee to compensate a third person injured
by the patron. In some states, the licensee might also be liable to compensate the illegally served patron.
Employee training programs addressing service of alcohol and identification of intoxicated drinkers are nec-
essary to help limit liability. This in service training should be reinforced with frequent refresher courses. Dram
shop insurance should also be considered.
Each state has adopted various regulations relating to the sale of alcohol. Liquor licensees should determine
the applicable laws and strictly comply.
A. Chapter Competencies
After studying Chapter 12, the student should be able to
1. identify the consequences of driving under the influence of alcohol.
2. identify the limitations included in alcohol regulations.
3. explain the process of obtaining a license for the sale of alcohol.
4. identify the requirements for applicants to qualify for a liquor license in most states.
5. identify the categories of people to whom the law prohibits the sale of alcohol.
6. identify the penalties states impose for illegal sales of alcohol.
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 127
7. state the rules and procedures recommended to ensure that proper proof of age is obtained.
8. discuss the liability of the licensee when a person of legal age purchases alcohol for an underage
person.
9. discuss the rationale behind the law imposing a minimum age for legal drinking of alcohol.
10. state the factors that qualifies the sale of alcohol illegal to a person of legal age.
11. identify the signs or behavior that indicate an intoxicated person.
12. identify ways to prove visible or noticeable intoxication.
13. define “habitual drunkard.”
14. explain the alcohol vendor’s liability under common law.
15. explain the concept of dram shop liability.
16. identify three strategies for limiting dram shop liability.
17. explain the alcohol vendor’s liability to a patron.
18. discuss the liability imposed in states without dram shop acts.
19. identify the factors that determine the cost of liquor liability insurance.
20. explain the “hold harmless” provision.
21. identify at least five strategies to avoid liability for the illegal sale of alcohol.
22. identify the responsibility imposed on alcohol sales in hotel guest rooms.
23. identify five regulations some states impose on liquor licensees.
24. identify the reasons a municipality might not want a business in town that provides adult
entertainment.
25. explain the source of the rights of businesses that provide adult entertainment.
B. Introduction
❊In an attempt to limit bloodshed and fatal accidents resulting from drunk driving, each state highly
regulates (restricts) the sale of liquor.
❊Regulations include limitations on who can sell liquor (a liquor license is required), who can buy
it, and even the days and times liquor can be sold.
C. Alcoholic Beverages and the Hospitality Industry
❊Restaurants and bars have various goals concerning the sale of alcohol, some of which are
conflicting.
■When enforcing liquor laws, the government shows no leniency.
■Violation of liquor regulations can result in substantial liability.
■With serious penalties at stake, a liquor establishment is well-advised to strictly follow the
law.
■An additional concern for sellers of alcohol is that intoxicated persons are frequently belligerent
and cause disturbances that interfere with other patrons. If injuries result, the bar or restaurant
might be liable.
❊License to sell liquor.
■No business can sell alcohol without first obtaining a liquor license from the state.
■The agency will typically have a name like The Alcohol Beverage Control Board or Liquor
Licenses and Control.
❊Illegal sales.
■You may think that the law imposes liability only on those people who wrongfully imbibe; for
example, the underage drinker. This is a misconception of the law.
■Because the effects of alcohol are potentially so dangerous, the law strives to motivate not just
the consumer, but also the server to strictly comply with the law.
■Therefore, the restaurant or bar that wrongfully provides alcohol to a person not legally entitled
to drink risks harsh penalties.
■Great care should be taken to avoid illegal sales.
128 ■Chapter 12
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 128
Liability and the Sale of Alcohol ■129
■Sales to underage patrons.
•Individuals under 21 years of age often try to finagle their way into a bar to be served.
•It is the responsibility of the bar or restaurant to ask for an acceptable form of identification.
Management must determine what type of identification will be acceptable.
•Verify the identification. For example, the enforcer might ask patrons their middle name and
see if it matches the one on the identification card.
•State statutes often provide a defense to a charge of serving someone under 21 where the young
person displayed to the licensee an identification card with a photograph “apparently” issued by a
governmental entity, and the licensee implemented a written policy requiring such identification.
•In many states it is illegal for people under 21 to misrepresent their age or present false iden-
tification. In such states, young people presenting false IDs or otherwise claiming to be older
than they are face fines and, in some states, more serious penalties.
•Sometimes a person of legal age purchases alcohol and gives it to someone underage. Is the
licensee liable in these situations? The answer is, it depends. If the licensee had no reason to
know that the underage person would gain access to the alcohol, the seller would not be liable.
•If, however, the circumstances are such that the licensee should have known that an adult pur-
chased the beverages for a minor’s use, the sale may be illegal.
•Failure to detect such unlawful buys can result in liability and loss of license. Bars and restau-
rants must always be vigilant.
■Academic exception.
•Often state laws that prohibit underage drinking include an exception for an academic course
in which tasting alcohol is required for instructional purposes. For example, your curriculum
may include a course on bartending.
■Sales to people who are visibly intoxicated.
•Absent proof that a patron is noticeably intoxicated, service of alcohol to him or her is not
illegal. If proof of visible intoxication is presented and the bar or restaurant is unable to refute
it, the bar will be responsible for the illegal sale. A factual determination of intoxication can-
not be made solely on the basis of how much alcohol a person has consumed, as the effects of
alcohol differ greatly from person to person. Thus, the fact that a patron had four alcoholic
drinks within an hour is alone insufficient to establish visible intoxication.
•Although intoxication is sometimes difficult to detect, that may not be a defense to a charge
of illegal sale. While the sale is illegal only if the customer is “noticeably” or “visibly” intoxi-
cated, bartenders and wait personnel are expected to be familiar with indicia of intoxication.
Servers must be trained to identify them.
•Good training videotapes, other training materials, and frequent refresher courses are an
important component of alcohol-service training. Staff meetings provide a good opportunity
to reinforce the message that alcohol must be served responsibly and to remind servers of the
indicia of intoxication. Some states, (for example, Maryland) have laws that require all estab-
lishments that serve alcohol to be certified in an alcohol awareness training program.
•Errors regarding who a licensee serves not only put at risk the license to sell alcohol, but also
can lead to liability for injuries caused by the wrongly served patron.
■Proving visible intoxication.
•Visible or noticeable intoxication can be proved at trial in several ways.
•If the intoxication is observed by fellow revelers, the bartender, or servers, it can be proved.
•If the amount of time between when the person left the bar and when the test occurred is known,
expert witnesses can extrapolate backwards to determine the person’s level of intoxication while
still in the restaurant.
•Indicia of intoxication, such as the smell of alcohol, bloodshot or watery eyes, slurred speech,
and unsteadiness or staggering can also be used.
■Sales to known habitual drunkards.
•A habitual drunkard is someone who regularly imbibes alcohol and frequently becomes
intoxicated.
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 129
130 ■Chapter 12
■Proof of visible intoxication.
•The BAC is determined by a device that analyses the blood, breath, urine, or saliva of the per-
son believed to be intoxicated.
•A growing trend is to reduce the BAC level to .08.
•As the number of alcohol-related accidents increases, more states are considering lowering the
percentage rates. Another impetus for lowering the BAC level was a federal law, which provided
that a portion of federal highway-construction funds be withheld from states that did not adopt
a .08 BAC standard by 2004.
•The second way intoxication can be proved is by the indicia of intoxication discussed previously
in this chapter. Witnesses can include anyone who observed the patron in an intoxicated state.
D. Alcohol Vendors’ Liability under Common Law
❊An issue that has long troubled liquor licensees is potential liability for injuries caused by a customer
who was illegally served alcohol.
❊If a wrongfully served customer left a bar or restaurant, drove a car, and on the way home caused
an accident in which the patron or someone else was injured, the bar was not liable. The injured
person could sue only the drunk driver.
❊As the number of alcohol-related accidents grew, most states found the common law rule
unsatisfactory.
❊The law came to recognize that another party able to prevent alcohol abuse is the licensee; that is,
the bar or restaurant.
❊Another weakness of the common law rule was that many intoxicated persons who cause injury
have little money with which to compensate those they injure. The owner of a restaurant or bar is
more likely to have insurance and assets.
E. Alcohol Vendors’ Liability Greatly Increases under Dram Shop Acts
❊Over time, public policy came to demand more responsibility on the dispenser of alcohol,
resulting in legislation in many states called dram shop acts (dram shop is an outdated term for
a bar).
❊The potential liability is very significant. Some illegal sales have resulted in verdicts that have
financially ruined the bar or restaurant involved.
❊It is particularly evident in current times, when traveling by car to and from the tavern is so com-
monplace and accidents resulting from drinking are so frequent, that alcoholic beverages sold by a
tavern keeper to a minor or to an intoxicated person present an unreasonable risk of harm not only
to the minor or the intoxicated person but also to members of the traveling public that may read-
ily be recognized and foreseen.
❊The increasing frequency of serious accidents caused by drivers who are intoxicated is a fact that
must be well-known to those who sell and dispense liquor. This lends support to those cases that
have found the automobile accident to be the “reasonably foreseeable” result of furnishing liquor
to the intoxicated driver.
❊Alcohol vendor’s liability to the patron.
■When a licensee makes an illegal sale and the person improperly served (as distinct from a
third person) is injured, is the licensee liable to the patron? The answer varies, depending on
the state.
■One court explained the reason as follows: “In our view, a rule which allows an intoxicated
individual to hold a tavern owner liable without regard to his own actions in continuing to con-
sume alcohol promotes irresponsibility and rewards drunk driving.”
❊Minority rule.
■One who stands behind a bar and serves drink after drink to a visibly intoxicated customer
engages in behavior which is as opprobrious as that of the customer. Insulating tavern owners
from liability does not send the message that they, as well as their patrons, must be accountable
for their actions.
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 130
Liability and the Sale of Alcohol ■131
■Note that the bar can assert the defense of comparative negligence (see Chapter 5), thereby
requiring the jury to allocate the relative liability for the accident between the tavern and the
intoxicated patron.
❊Alcohol vendor’s liability to third parties.
■Although licensees in most states will not be liable to a wrongfully served patron injured by
the use of alcohol, the bar may be held liable to others who are injured from the patron’s
intoxication.
■Dram shop liability also applies where numerous guests at a private function held at a hotel are
wrongly served alcohol and thereafter, while dancing, they fall, causing a “chain reaction.” The
plaintiff, in this case who was involuntarily pulled onto the dance floor, was knocked down, and
suffered a broken wrist.
■The potential liability under dram shop acts is very significant.
❊Alcohol vendor’s liability to passengers in patron’s car.
■Often when injury results from a car accident, the injured party is a passenger in the patron’s car.
If the passenger purchased alcohol for the driver or encouraged the latter to drink more than he
could tolerate, most states will not impose dram shop liability.
■The passenger will have to absorb a percentage of his or her damages equal to the percentage of
liability attributed to him or her.
❊Two licensees serving one patron.
■More than one bar or restaurant may be liable in a given case.
❊Apportionment of liability where plaintiff is negligent.
■Where the person injured by the illegally served drinker negligently contributed to the cause of
the accident, the injured person’s recovery will be reduced accordingly. As in a comparative neg-
ligence case (see Chapter 5), the jury will allocate a percentage of the liability to the plaintiff. His
recovery against the bar will be reduced by that percentage.
❊States without dram shop acts.
■A few states do not have dram shop acts.
F. Liquor Liability Insurance
❊A licensee can purchase insurance to cover dram shop liability.
❊The cost is based on numerous factors.
❊Emerging liability.
■An example of emerging liability is a corporation-sponsored holiday party, special-event recep-
tion, or retirement party held at a party house or restaurant.
■Companies planning events at a restaurant or bar are well-advised to negotiate terms in their con-
tracts obligating the licensee to supervise the liquor service, follow responsible alcohol dispens-
ing procedures, serve alcohol only to those legally entitled to drink, and hold the company
harmless (compensate the company) for any liability incurred as a result of alcohol at the func-
tion. Hospitality facilities may want to resist the “hold harmless” provision.
G. Strategies to Avoid Liability
❊As we have seen, liability for illegal alcohol sales can lead to money verdicts against a bar or restau-
rant and revocation of the liquor license. All licensees must take this liability very seriously. We have
already discussed important steps to help reduce liability. These include employee training and re-
fresher courses, oversight of sales by a supervisor, and providing transportation home to intoxicated
customers.
❊Other practices that can contribute to reduced risk of liability.
❊Alcohol sales in hotel guest rooms.
■Many hotel licensees sell alcohol through vending machines or other mechanical devices in guest
rooms. Access to the liquor is restricted by means of a key or magnetic card. The prohibition
against illegal sales applies to these devices. The innkeeper must not provide the key or magnetic
card to anyone who is under 21, visibly intoxicated, or a habitual drunkard.
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 131
132 ■Chapter 12
H. Miscellaneous Liquor Regulations
❊States have gone to great lengths to control the sale of alcoholic beverages. The purpose of these
laws is to foster and promote temperance in the consumption of alcohol, and respect for and com-
pliance with the law.
❊These regulations vary from state to state.
❊Age of alcohol servers.
■Most states specify a minimum age (usually 18 or 19) for certain workers in establishments that
serve alcoholic beverages. No one under that age can be on the wait staff or sell, dispense, or
handle alcoholic beverages. Lower minimum-age requirements apply to dishwashers or busboys.
The objective of these regulations is to limit the exposure to alcohol of young people.
❊Restrictions on alcohol sales on Sunday.
■In many locations, alcohol cannot be sold on Sunday before noon. Also, sales for off-premises
consumption, such as purchases from a liquor store, may be prohibited all day Sunday. The ob-
jective of these laws is to further the recognition of the Sabbath day.
❊Warnings to pregnant women.
■Licensees must display a sign close to where alcohol is dispensed stating the following: “Gov-
ernment Warning: According to the Surgeon General, women should not drink alcoholic bev-
erages during pregnancy because of the risk of birth defects.” The objective of this law is to
caution pregnant women about the risks to the fetus from drinking alcohol.
❊Prohibition of illegal gambling.
■A licensee cannot permit the bar or restaurant to be used for illegal gambling. The objective of
this law is to prevent illegal conduct from occurring where alcohol is sold.
❊Prohibition of disorderly conduct.
■A licensee cannot permit disorderly conduct, such as fighting, solicitation for purposes of pros-
titution, or lewd or indecent sexual acts or performances, in the bar or restaurant. The objective
of this law is to minimize the disorderly and illegal conduct that may occur where alcohol is
served.
❊Maintenance of prescribed records.
■A licensee is required to maintain records of its suppliers, documenting the extent of its daily al-
cohol purchases and information about the vendor. The objective of this law is to permit the
liquor authority to track liquor purchases and sales and determine the volume of sales of partic-
ular licensees.
❊Restrictions on the type of alcohol sold.
■States usually offer various types of liquor licenses, including licenses for on-premises consump-
tion, the type a restaurant would likely have; licenses for off-premises consumption, which a liquor
store would have; licenses authorizing the sale of beer and wine only; licenses authorizing sales of
alcohol for one day only; and other categories. A licensee with a limited right to sell must abide
by the limitations. For example, a licensee with a wine and beer license cannot sell mixed drinks.
❊Limitations on sales promotions.
■The licensee may be restricted from utilizing specials such as “two for ones” and novelties such
as gifts or prizes to encourage the sale of alcohol. The purpose of these laws is to encourage mod-
eration in the intake of alcohol. For that reason, these practices should be discouraged even
where they are legal. Under discrimination laws, bars are restricted from having a “ladies’ night”
or “men’s night” during which drinks are offered at a reduced price to one gender but not the
other. Many bars nonetheless disregard this prohibition.
❊Prohibition on celebrity endorsements.
■The licensee may be forbidden from displaying signs that suggest athletes or other celebrities re-
commend drinking alcohol. The purpose of this law is to discourage overindulgence.
❊Proximity to school or church.
■A licensee cannot be located within a certain distance, such as 200 feet, from the entrance of a
school or place of public worship. The objective is to protect the well-being of students, and the
sanctity and tranquility of churches.
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 132
Liability and the Sale of Alcohol ■133
I. Sexually Explicit Entertainment
❊Some bars provide nude or sexually explicit dancers (sometimes called “adult entertainment”). The
mechanisms used by governments to deter these establishments are regulations or ordinances that
restrict these business’s operations. Among regulations towns have adopted are prohibitions on to-
tal nudity, limitations on the hours of operation for sexually oriented businesses, prohibition of spe-
cific sexually explicit dance movements, and requirements that such businesses be located outside
residential areas.
❊Courts have determined that nude or nearly nude dancing is a form of speech that conveys eroti-
cism. As such, it is entitled to some protection by the constitutional right to free speech.
❊To pass constitutional muster, the restrictions must further an important government interest un-
related to suppression of free expression (such as protecting public health and safety), and must not
be broader than is necessary to achieve the stated government interest. Among permissible regu-
lations are the requirement that dancers wear minimal clothing such as a G-string or panties; a lim-
itation on the hours of operation, provided the limitation does not unreasonably constrain the
times the business can open; and restrictions on the geographical areas within the town an adult
entertainment business can be located, provided locations exist where the adult entertainment busi-
ness can operate.
J. Answers to Case Example Questions
12-2-1. Why was plaintiff’s opinion that his assailant was intoxicated when he hit plaintiff
not sufficient evidence of the attacker’s intoxication for purposes of dram shop
liability?
The court saw no proof of intoxication, voiding utilization of New Jersey dram shop law.
Key Terms
Dram shop act Imposes liability on a restaurant or
bar for certain injuries resulting from illegal sales of
alcohol.
Liquor liability insurance Insurance to protect a
licensee against dram shop liability.
K. Answers to End-of-Chapter Questions
❊Review Questions
1. The law prohibits the sale of alcohol to certain categories of people. Identify those cat-
egories. What penalties do states impose for illegal sales?
The laws vary from state to state, but in most states a liquor licensee cannot serve minors, those
who are visibly intoxicated, and habitual drunkards. Penalties include suspension or revoca-
tion of the liquor license, civil liability for resulting injuries, and criminal liability for serving
alcohol to an underage patron.
2. What is meant by dram shop liability?
Dram shop liability refers to the liability of a restaurant or bar for injuries to a third person
(patron or nonpatron) caused by a patron to whom alcohol has been illegally served.
3. When a patron who is visibly intoxicated continues to drink at two different licensees
and then is in a two-car accident injuring the driver of the second car, which licensee is
liable to the driver of the second car?
If the patron was visibly intoxicated in both bars, both would be liable. However, the injured
person cannot recover twice for the same injury. Instead, the liability would be allocated be-
tween the two bars. If the patron did not become visibly intoxicated until he or she reached
the second bar, only the second one would be liable.
Visibly intoxicated An individual who is obviously
drunk or inebriated.
COPYRIGHT © 2008 by Thomson Delmar Learning. ALL RIGHTS RESERVED.
51934_12_Ch12_p127-135.qxd 7/6/07 10:39 PM Page 133