A restaurant owner called this summer to ask whether the general liability policy renewed in March would answer a claim from a wreck that happened after a customer left the bar. It would not, and it never would have. The standard commercial general liability form carries a liquor liability exclusion, and Texas is one of the states where that exclusion does the most damage.
Chapter 2 of the Texas Alcoholic Beverage Code creates a statutory cause of action against a provider of alcoholic beverages. Under section 2.02(b), the claim requires proof of two things: that at the time of service it was apparent to the provider that the person being served was obviously intoxicated to the extent that he presented a clear danger to himself and others, and that the intoxication was a proximate cause of the damages.
Section 2.02(c) adds a separate rule for adults 21 or older who knowingly serve or provide alcohol to a minor under 18. Section 2.03 makes Chapter 2 the exclusive cause of action against a provider for the conduct of an intoxicated customer, which displaces common law theories aimed at the same conduct.
Two features drive the financial exposure. The statute contains no damages cap of its own, so the claim is worth whatever the injuries are worth. And the injured party does not have to be your customer. A third party hurt on the highway three miles away has standing to sue the establishment that poured the drinks.
Broader than most operators assume. The exposure follows the service of alcohol, not the sign on the building. In practice it reaches:
Because the standard commercial general liability form says so. The liquor liability exclusion removes coverage for bodily injury or property damage for which the insured may be held liable by reason of causing or contributing to the intoxication of a person, furnishing alcohol to someone under the legal drinking age or under the influence, or violating a statute relating to the sale or service of alcoholic beverages.
The exclusion applies to businesses in the business of manufacturing, distributing, selling, serving or furnishing alcohol. If you hold a TABC permit and sell drinks, you are in it. The coverage that answers a Chapter 2 claim is liquor liability, written either as a standalone policy or as an endorsement to the package.
Standard forms preserve coverage for host liquor exposure, meaning the occasional business that is not in the alcohol business and serves at a company function. Operators sometimes assume this language covers a private event, a complimentary hour or a beer at a customer appreciation night. At a licensed premises it generally does not, because the business is already in the business of serving. Do not rely on it. Ask your agent to confirm in writing which form and edition your policy uses.
Section 106.14(a) of the Alcoholic Beverage Code provides that the actions of an employee are not attributable to the employer if three things are true:
The Texas Supreme Court has held that the provider carries the burden on the first two elements and the plaintiff carries the burden of proving direct or indirect encouragement. The implementing rule, 16 Texas Administrative Code section 34.20, adds the mechanics on the administrative side. A permit holder claiming the benefit must file an affidavit of compliance with TABC within 10 days of receiving notice of violation. If the employee did not hold a currently valid certificate at the time of the sale, the safe harbor does not apply. Three or more qualifying violations in a 12-month period create a rebuttable presumption that the permit holder indirectly encouraged the violation, whether or not the same employee was involved each time.
Be precise about what this buys you. Section 106.14 addresses whether the employee's conduct is attributed to you. It is a real defense and it is not a substitute for coverage. A plaintiff can still plead direct negligence in hiring, staffing and supervision, the case still has to be defended, and defense costs on a dram shop suit run well into six figures before anyone argues the safe harbor. Liquor liability pays for the defense. The safe harbor helps you win it.
No. TABC will not deny a permit because you do not carry it. Your landlord almost certainly will. Commercial leases, venue agreements, festival contracts and event permits routinely require proof of liquor liability before you can open, commonly at $1 million per occurrence and higher for late-night or high-volume operations.
The practical consequence of the state not requiring it is that a lot of Texas operators discover the gap at the worst possible moment, which is the day the certificate request or the lawsuit arrives.
Alcohol as a percentage of total revenue is the single largest factor. A restaurant at 20 to 30 percent prices very differently from a bar at 70 percent or more. After that, underwriters weigh:
The items on that list are not all fixed. Certification rosters and written service policies are inside your control, and they move both the premium and the defense.
Claims under Chapter 2 are generally subject to the two-year limitations period in Civil Practice and Remedies Code section 16.003, which means the file you build tonight may be read three years from now. If you run a restaurant, bar, brewery or event venue in Guadalupe or Comal county, send us your current declarations page and your certification roster and we will tell you whether the two line up. Our hospitality insurance practice places this coverage every week.