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"Cheers?" Depending on the location, liquor liability may be nothing to cheer about By Phil Zinkewicz
This month, like every March, streets across the country will be filled with revelers, singing “When Irish Eyes Are Smiling” and attempting, at least, to do a rousing Irish jig. There will be St. Patrick’s Day parades in the largest cities as well as in the smallest hamlets. It is a day when people, regardless of their ancestries, wear buttons that say “Kiss Me, I’m Irish” and enjoy sporting green finery. Moreover (and this is, of course, only an idle speculation), there will be a certain amount of alcohol consumed by those same celebrants. People who rarely drink alcohol during the rest of the year will be gulping pints of green beer. The bars and taverns will be brimming with customers, and cash registers will go “ka-ching, ka-ching” as American innkeepers smile at a different kind of green. Along with those financial rewards, however, come varying degrees of responsibility—responsibility that bar and tavern owners may face every day—not merely on St. Patrick’s Day. Imagine yourself as a tavern owner and consider the following possible scenarios: • After having consumed several drinks at another bar, a patron walks into your establishment and is served one drink. While driving home, the intoxicated person enters the opposing lane and collides head-on with another vehicle. The driver and passengers of the other vehicle sustain serious injuries and sue your establishment for contributing to the intoxication of the patron that caused the accident. • A patron under the legal drinking age enters your establish-ment and is served a few drinks. After leaving, he is involved in an accident and injures a third party. The injured party sues, alleging the illegal sale of alcohol to a minor. • A patron is served alcohol at your establishment and while walking home, is struck and killed by an automobile. The estate of the deceased patron sues, alleging the negligent service of alcohol directly contributed to the accident. • Two of your patrons are involved in a fight. One patron sustains injuries and sues your establishment, alleging the negligent service of alcohol caused the fight. Here’s the irony. Depending upon the laws of the state the tavern or bar is in, the owner may be held liable in some or all of the above scenarios. Rough Notes presented these hypothetical situations to Laura Allen, manager of commercial lines P&C for Risk Placement Services (RPS) in Lexington, Kentucky. RPS is one of the nation’s largest wholesale brokers and a managing general agency writing a broad variety of specialty lines insurance. “The laws regarding a bar or tavern owner’s responsibility in the above cases vary from state to state,” she says. “Insurance coverages for bars are not really your standard BOP policy. This is an excess and surplus lines coverage. Of course, there are coverages for property damage, building contents and business interruption, but there is also liquor liability and this is one of the toughest coverages to place.” Small wonder. According to Mothers Against Drunk Driving, traffic fatalities related to alcohol consumption reached significant proportions in 2004. In Alabama, 38% of all traffic fatalities were alcohol-related. In Montana, that number was 46%. In Rhode Island, 50%; in New Mexico, 40%; in Texas, 46%, in Louisiana, 46%; and in Massachusetts and Wisconsin, those percentages were 43% and 45%, respectively. Moreover, says Allen, three out of the top 50 civil monetary awards in the United States involved liquor liability lawsuits: Aramark Corp., $135 million; a private bar in Georgia, $40 million; and Outback Steak House Corp., $39 million. “The primary consideration in such cases is the standard of liability in each state,” says Allen. “Other considerations, on a state-by-state basis, are joint and several liability, alleged intoxicated person recovery, caps on damages, statute of limitations and venue reputation.” Allen says that there are more than 500,000 liquor licensees in 42 states. The states with the most stringent liability laws are: Alabama, Alaska, Illinois, Iowa, Louisiana, Mississippi, Oregon and West Virginia. Understandably, insurers are reluctant to write business in these states. “Historically, common law did not impose liquor liability on licensees or others who provided alcoholic beverages,” says Allen. “The common law notion was that the consumption of alcohol, not its service, was the proximate cause of alcohol-related injuries. Then came the Temperance Movement in the early 1800s, state level prohibition laws during the 1850s and, finally, the banning of the sale of alcoholic beverages on a national level as the result of the 18th Amendment—Prohibition. “National prohibition ended with the enactment of the 21st Amendment,” continued Allen, “and then states began to enact dram shop statutes as a means of avoiding the common law rule. These laws placed various levels of responsibility on tavern owners for the consequence of actions of their intoxicated customers.” The dram shop laws then began to expand. Although these laws were originally intended for commercial providers of alcohol, some states have expanded them to apply in social host situations, says Allen. A social host can be an individual, group or business that provides alcohol at a social event. Social hosts are not “in the business of selling,” serving or furnishing alcoholic beverages. Allen says that most jurisdictions are likely to be more lenient on social hosts because, among other things, they lack the financial incentive to encourage excessive consumption; but they are less likely to show leniency in social host situations when alcohol is knowingly furnished to a minor. Victor Garcia is the risk manager for RLI, an insurer that specializes in selling coverage for bars and taverns. Underwriting such risks takes a special expertise, says Garcia. “The type of clientele is important,” he says. “There is the ‘Cheers’ type of tavern, where a group of middle-aged people gather for a few drinks every night. But drop the age of that group 10 or 15 years, and you have a totally different situation. Then, too, there are the hours that a tavern is open, which plays a role. There’s an old saw that goes, ‘Nothing good happens after midnight.’ Take a restaurant risk, for example. Most restaurants are open until ten or eleven o’clock. But if that restaurant stays open until two or later in the morning, the underwriter is going to want to know what goes in those extra hours. Is there live entertainment or a DJ during those extra hours? Is there dancing or games being played, such as darts? In such situations, accidents can happen, perhaps resulting in a lawsuit against the owner.” According to Garcia, RLI writes property, commercial general liability, employee theft, boiler & machinery, hired & non-owned auto, crime, liquor liability, employee benefits liability and assault or battery for bars and taverns. “Like liquor liability, assault and battery is a very difficult coverage to price properly,” says Garcia. “Often, it’s a judgment call on the part of the underwriter. For these coverages, we not only quote restaurants, bars and taverns. We also quote bring-your-own-bottle restaurants, fraternal and/or social clubs, off-premises caterers, banquet halls, bowling alleys, pool halls, concessionaires, vineyards, breweries and special events.” Garcia agrees with Allen in that he says the extent of bar and tavern exposure depends on the specific state laws. “I will not write bars and taverns in Alabama, for example, because the liabilities of owners are much too strict.” The insurance market, overall, is softening at present, so Allen says that some restaurant exposures are being absorbed into the standard market. But not liquor liability, she says. This will probably always be an excess and surplus lines coverage. * |
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