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Chicago, December 1, 2015

Keating Authors Hotel Business Review Article on Hotel Bar Liability Issues

Swanson, Martin & Bell, LLP partner Richard J. Keating, Jr. authored an article in the December issue of Hotel Business Review focused on liability issues at hotel bars and restaurants.  

To read the article, please visit this link or see below. Reprinted from the Hotel Business Review with permission from
Managing Liability Issues at Your Hotel Bar & Restaurant

By Richard J. Keating Jr., Partner / Chair Retail and Hospitality Practice Group, Swanson, Martin & Bell, LLP

Long ago, a hotel bar or lounge felt like a space filler on the lobby level. Since you could not realistically put another room there, you might as well put a small lounge to serve watered-down drinks and listen to piped-in music. It was a place to offer your guests, because there was nowhere else to really go. And not surprisingly, not many people would go there. Think of the Armada Room that featured Murph and the Magic Tones in the movie "Blues Brothers." Of course resorts and five-star hotels were the exception, boasting their share of award-winning restaurants. But for most hotels, the nightlife options were never a destination on their own.

These days, hotel bars are quite the scene. Regardless of the brand or services offered, whether located on the ground floor or rooftop, many hotels have designed their bars and restaurants to be a destination of their own, a place to see and be seen. Long lines and velvet ropes are now commonplace at any hotel offering something more than a lunch counter and a lounge. The same can be said about many of the upscale restaurants that are now found in almost any level of hotel. And many patrons are not the guests; instead these spots are filled with locals making your hotel part of the local social scene.

Of course, anything that brings people to your hotel is positive, right? For the most part that is true. But if the hotel bar is filled with people from the area, these patrons are less likely to book a stay at the hotel. People standing behind a velvet rope may not equate into "heads in beds." More importantly, the influx of people to your building may create issues for the operation of the hotel and potential liability concerns for the hotel's owners and operators. A hotel has many considerations when it opens a restaurant or bar designed for both guests and locals.

The first such consideration is the most basic decision: who runs this new trendy establishment? This is not a human resources question; this is a question of whether the hotel's owners, operators or management company also takes on the management of the new "it" place. The main reason to keep the management of the bar or restaurant in-house is to maintain the revenue stream. Instead of simply collecting rent, the revenue generated by these popular locations stays with the hotel and can significantly increase its profitability. But that simple decision can result in a complicated reality.

Running a four-star restaurant or a hot nightclub is not the same as running a hotel. Unlike the Armada Room from "Blues Brothers," you cannot substitute bell staff for bar staff and maintain the allure of a top-flight establishment. An entire staff of professionally trained kitchen help and bar staff must be hired, which increases payroll, employment rosters and consequently labor costs. Moreover, many states require specific training for food safety and alcohol awareness for most if not all restaurant or bar employees. And finally, the hotel must deal with additional suppliers, including liquor, food, service linen, that may not be necessary if a third party runs the restaurant or bar. There is no formula to determine when a separate entity should run this type of additional offering. But once that decision is made, there are additional liability concerns under either circumstance.

Bars create their own unique liability issues, regardless of who runs the business. Most states have specific Dram Shop statutes that create a theory of liability for any damages caused by a bar patron. A Dram Shop statute typically creates nearly a strict liability theory against businesses that profit from the sale of intoxicating liquors when a patron becomes intoxicated at their establishment and subsequently injures another, even if the injury occurred far away from the establishment. The two classic examples are the bar fight with a drunken patron or a drunken patron who gets into a car accident after leaving. If there is sufficient evidence to show the drunken patron consumed alcohol at your establishment, that is often enough to allege and succeed in a Dram Shop claim. If the hotel is running the bar, Dram Shop insurance is typically required in order to become licensed. But what if a third party is running the bar? Can a Dram Shop claim impact the hotel company or building owner? In some jurisdictions, including Illinois where I practice, a building owner can be named as a Dram Shop defendant if the owner is aware that alcohol is made available for sale at that location. Consequently, if the lease with the bar operator or restaurateur references the sale of alcohol, then the premises owner by definition can be named as a Dram Shop defendant.

To manage this potential liability, first the bar operator must demonstrate he has obtained the necessary Dram Shop insurance coverage. Then, and most importantly, the hotel management must ensure that the hotel owners, operators, "flags," and management companies are named as additional insureds on the bar operator's Dram Shop insurance policy. This provides Dram Shop insurance to the owners without incurring the cost of a policy and also provides the first line of defense if the premises is named as a defendant. The second line of defense is to look to the hotel's own Dram Shop insurance policy, which may be required for the hotel based on the food and beverage offerings, regardless of who operates the lobby bar. It is possible that the hotel's Dram Shop policy can also cover the hotel owners if they are named in a Dram Shop suit based on the hotel bar operated by a third party. This may require coordination with the insurance broker, and specific review of the policy to confirm this additional layer of coverage. Finally, any lease agreement with the bar or restaurant operator should also include an indemnity clause. With an indemnity clause, if both layers of insurance coverage are unavailable for whatever reason, the hotel management can invoke this indemnity clause and force the restaurant or bar owner to defend hotel management and cover any judgments. This is the last resort, as it requires the bar operator to pay "out of pocket." However, it forces the bar operator to fund the defense for a Dram Shop case rather than the hotel owner.

Another area of possible liability is when a bar or restaurant patron, especially one who is not a hotel guest, is injured in the common areas of the building. For example, many older or historic hotels rely upon lobby restrooms to serve lobby bars and restaurants. Bar and restaurant patrons can also injure themselves simply entering the building. These "slip and fall" claims can increase with greater traffic driven by a popular restaurant or bar. Hotel owners and operators must understand that if a bar patron twists an ankle or hurts his back while visiting the restroom or even walking in the lobby door, there is a high likelihood of a claim or suit against the hotel. Similar to the Dram Shop claims, these risks need to be planned for and protected against.

The lease agreement can cover property owners if the injured person is only a restaurant or bar patron, as opposed to a guest of the hotel. Depending on how the agreement is drafted, liability for injuries to bar and restaurant patrons can be shifted to the bar and restaurant operators. This issue will need to be negotiated, and cannot be assumed. If the liability cannot be shifted, then the hotel's own general liability policy should step forward and cover the loss.

Lastly, the issue of elevator liability becomes an issue, especially with the confluence of rooftop bars. Often times, the owner of the elevator, which is usually the owner of the building, has a duty as a "common carrier" for a higher duty of care. This duty may allow the rooftop bar owner to be dismissed from a claim associated with an injury on the elevator, even if the elevator is exclusively used for a rooftop bar.

The benefits to a hotel property from a popular bar or an award-winning restaurant are plentiful. It creates an atmosphere that hopefully draws more people, and potentially more overnight guests, to your property. If it helps raise the profile of your property, it makes the hotel property a more attractive destination on its own. Further, it can create an internal revenue stream that will support the property in a variety of ways. But it is critical to understand the possible, and often likely, liability issues that the hotel bar and restaurant can create. These liability issues should not discourage a hotel from opening a trendy new bar or restaurant. Instead, a hotel owner/operator should take the affirmative steps to protect against and minimize these possible issues. If that is done, the benefits can far outweigh the possible issues. And the Armada Room will remain a thing of the past.

Reprinted from the Hotel Business Review with permission from

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