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Are Bars Required to Carry Insurance?

By: Mike Grossman, Texas Injury Attorney

Texas Law Does Not Require Bars to Carry Liquor Liability Insurance

No matter what someone's driving record is or how much money they have in the bank, the law still requires people to maintain car insurance, in case they hit someone and injure them. This is a legal requirement of the state of Texas, not just a matter of prudence. Unfortunately, for many involved in Texas dram shop cases, they find that even when they win their case, they cannot recover compensation, because their is no requirement for alcohol serving establishments to carry liquor liability insurance.

According to insurance industry estimates, as few as 1 in 3 Texas alcohol-serving establishments have a valid liquor liability insurance policy. This is important because Texas law gives victims who were injured by an establishment that served an obviously intoxicated person the right to seek compensation for any damages that result from alcohol over-service. Quite simply, when an alcohol provider, chooses to ignore the law and serve an obviously intoxicated person, the Texas Dram Shop Act places them on the hook for any injuries or fatalities that ensue.

It is not hard to imagine the chaos that would ensue on Texas roadways if only 1 out of every 3 drivers had car insurance. The result would be that victims of negligent drivers would have to pay out of their own pockets for someone else's carelessness. Injured motorists would be stuck with mountains of unpaid bills due to lost wages, medical bills for injuries suffered during the accident, as well as not receiving any compensation for numerous other damages.

Such a situation would be unjust to responsible drivers as well as the medical facilities, which are required by law to treat injured people without regard to their ability to pay. How long would Texans allow such a system to last? Most likely, not long at all, even if it meant calling a special session of the Texas Legislature. Yet for almost 30 years, this has been the situation that countless victims of dram shop violators have had to endure.

In this article, one of Texas' most experienced dram shop attorneys, Michael Grossman explains that Texas law does not require alcohol serving establishments to carry liquor liability insurance and how this impacts victims of improper alcohol service, and ultimately, makes all Texans less safe on our roadways.

Questions answered on this page:

  • Does Texas law require bars and restaurants to carry liquor liability insurance?
  • How does the lack of liquor liability insurance impact victims in dram shop cases?
  • What has been done to change the laws requiring alcohol serving establishments to carry insurance?

Why does insurance matter?

Bars and restaurants are often small businesses that do not have mountains of cash in the bank to cover the damages that can result from an accident that was triggered by improper alcohol service. Most bars and restaurants are owned by one or two people, who rely on the establishment for their monthly incomes. This often means that the owners take the cash from the company coffers every month to make their own ends meet. Once that money is gone, it's almost always gone for good. Bars and restaurants are typically set up as limited liability corporations (LLCs) that insulate their owners from any personal liability. Also, many of the establishments do not own their own buildings or their equipment outright.

A lack of liquid assets means that if an injured person gets a judgment, or wins against a bar without insurance, then they might be holding a piece of paper, which says the bar owes them money, but there are no actual assets available to pay that judgment. In these cases, the lack of insurance money means that even though a person was injured by the negligent alcohol service of a bar or restaurant, the injured person is the one who gets stuck paying for all of the bills that have been incurred. It is hard to fathom a world where that can be considered justice.

This does not just affect those who have been injured by unlawful alcohol over-service, but also hospitals within the community who often end up not being able to be paid for treating victims of drunk driving accidents, because those victims are unable to recover damages from bars without insurance, who also have no assets. This means that in many instances, the few extra dollars that an alcohol establishment makes through unlawful service end up costing everyone in the community more money through higher costs for medical services. At the same time, the owners of the offending alcohol establishment get to pocket the extra money they made through unlawful service.

Has anything been done to require that establishments carry liquor liability insurance?

Shortly after the Texas Dram Shop Act was passed in 1987, it became apparent that the lack of a requirement that establishments who sell alcohol carry insurance was, at best, problematic. Since that time, there have been numerous bills put forth by Texas legislators to require retail alcohol providers to carry liquor liability insurance. The most recent bill was Bill 409, which was offered for consideration by the legislature in 2015. Due to intense industry opposition, this measure, and all of those that came before it failed to be enacted into law.

While critics of Bill 409 and others like it argue that the insurance requirement will costs jobs by raising the costs of running a bar or restaurant, they conveniently ignore that the cost of not having such a law is borne by many innocent victims who happen to be in the wrong place at the wrong time and are struck by drivers who were over-served by a restaurant or a bar. When these drivers were drinking at establishments that did not have liquor liability insurance, it greatly reduces the chances the victims can recover compensation for their injuries, while doing nothing to punish the bars who negligently served alcohol and endangered the community. I cannot think of another "jobs program" that is predicated on innocent, injured people footing the bill.

Bars and restaurants are also victimized by the lack of an insurance requirement. This may seem strange, but since there are no regulations or laws governing liquor liability policies in Texas, insurance agents are free to place whatever restrictions they please into the policies they write. One of the more egregious practices is that insurance agents will write a policy that only pays out if a bar is able to successfully invoke a Safe Harbor Defense.

The perversity of these policies is that a successful Safe Harbor Defense shields bars from any liability in a dram shop case. In essence, insurers are sometimes selling bars and restaurants policies that will only pay out in the event that the bar doesn't actually owe any money. While we don't have much sympathy for irresponsible bar owners who find out that they have been ripped-off by such policies, there are thousands of otherwise decent establishments who are trying to do the right thing by having liquor liability insurance, just in case, who are being sold a useless product. In essence, these products are the insurance equivalent of a garden hose that works fine until it comes into contact with water.

Ultimately, the person who ends up footing the bill for irresponsible alcohol service is not the bar who served irresponsibly, but innocent members of the community, who may not even drink, that were in the wrong place at the wrong time.

Currently, the prospects for a bill similar to Bill 409 being enacted into law in the next legislative session appear bleak. Despite the continued existence of all of the problems associated with the lack of an insurance requirement, the legislature has failed to act.

What about the bars who do have liquor liability insurance?

The good news is that a fair number bars and restaurants maintain liability insurance in no small part out of concern over dram shop lawsuit liability. These tend to be national chains and more established restaurants who have sizable assets in the business, which there is no way to shield. Typically, these policies have up to $1 million in coverage. Unlike establishments who choose not to carry insurance, the availability of insurance money greatly increases the chance that a victim of improper alcohol service will be compensated for their damages.

Of course, an establishment having a liquor liability policy does not guarantee compensation for victims. In fact, it places many obstacles in the path of an injured victim who seeks compensation. This may seem counter-intuitive, because after all, someone has been hurt and there is money set aside to pay them. The difficulties arise from the fact that just because there is money set aside to pay victims of negligent alcohol service, insurance companies don't just willingly hand over that money. In fact, the larger the insurance policy, the greater the chances that an insurance company will mount a vigorous defense on behalf of their client. They usually have 1 million reasons to fight.

Typically, insurance companies will evaluate claims and return a ridiculously low settlement offer, particularly in Texas dram shop cases. There is a perception in the insurance industry that dram shop law merely rewards drunk drivers who happen to hurt themselves. Even people who were not drinking at all, and merely had the misfortune of being struck by a drunk driver are still stigmatized by insurance companies. Furthermore, nothing in the law compels an insurance company to pay compensation, until their client is found responsible in a court of law. For this reason, insurance companies have to be made to pay with experienced legal representation that knows how to gather evidence and litigate dram shop cases.

It is only when they are sitting across from an attorney who knows how to win dram shop cases that they even begin to offer a fair settlement for the damages a victim of alcohol over-service has suffered. At Grossman Law Offices we've sat across from insurance providers, literally thousands of times. When an insurance company attorney sees one of our lawyers across the table, they know about the competence, tenacity, and empathy for our clients that are the hallmark of Grossman Law Offices.

How does recovering compensation from self-insured establishments work in Texas?

In some cases, larger establishments self-insure. These are usually chain restaurants that keep sufficient funds set aside in order to deal with the various liabilities that come up in the normal course of business. Grossman Law Offices has litigated against such entities in the past. These larger entities sometimes have the money set aside to pay you, but they are about as unlikely to hand over the money you require as the large insurance carriers. Many of these large chains are part of publicly-traded corporations, and shareholders do not respond favorably to ugly black eyes like dram shop claims. Further, these entities have their own in-house lawyers who are not paid to simply admit that the company is financially responsible for their low-level employees' alleged failures to appropriately serve alcohol.

The resources of large self-insurers means that they are able to throw lawyers and investigators at what they perceive to be a problem. In dram shop cases, that problem is usually in the form of someone who has been injured by the restaurant's irresponsible alcohol service. Unlike an insurance company who only has insurance money on the line, these restaurants have valuable brands that they do not want to see tarnished, as well as business models that seek to maximize alcohol sales revenue within (wink, wink) the safe alcohol service guidelines established by the Texas Alcoholic Beverage Commission. Some of these policies include mandating that servers and bartenders offer drinks at specific points, sometimes as many as four or five specific points, during a single meal. These policies rarely have explicit exceptions for customer intoxication.

Since dram shop lawsuits threaten to cost these companies not only the compensation that an injured person might receive in a jury award, but also force them to alter their business model in a way that leads to less alcohol sales, chain restaurants are some of the most difficult opponents in dram shop cases. To take on one of these behemoths, it almost always requires the experienced of a knowledgeable Texas dram shop attorney, like those at Grossman Law Offices.

What the lack of compulsory insurance means to your case

One of the problems that victims frequently encounter in dram shop cases is that they hire an attorney, pay that attorney a lot of money, and then the attorney discovers that their is no insurance money and no assets from which the victim can recover compensation. In these cases, not only is the victim out the medical bills, lost wages, and potential lost income capacity from the accident, but also whatever money they paid an attorney to investigate their case. Solid investigations can run into the thousands and tens of thousands of dollars.

That is why at Grossman Law Offices, we only get paid when our clients win. If we take on a dram shop case and it turns out that their is simply no money that our clients can recover, no matter how much merit their case has, the cost of our attorneys and the investigation into our clients accident is paid for by the firm, not the client. We understand that when people have been injured in an accident, they need all of the money they have coming in helping them to recover and get on with their lives, not to pay an attorney.

That is why people have been coming to Grossman Law Offices when they have been injured by a bar's negligent alcohol service for over 25 years. In that time, we have helped hundreds of injured Texans recover compensation and hold irresponsible alcohol servers accountable. Sadly, due to the lack of compulsory liquor liability insurance in Texas we have not been able to help as many as we would have been able to otherwise. Regardless, in that time, not one victim has paid us a single dime for our services without first receiving compensation for their injuries. The combination of expertise and compassion has made Grossman Law Offices one of the most experienced dram shop litigators in Texas.

As experienced dram shop lawyers, we know how to quickly find out what sort of financial situation the bar is in. We'll find out for you if the bar has insurance, is self-insured, or is "judgment proof." If you have questions about your case, give us a call at (855) 326-0000 today for your free consultation to get the process started.

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