Another Look at Dram Shop Liability

Dram Shop Liability by State (PDF)

Under the current approach to dram shop liability a substantial portion of the drinking driver crash-related costs fall upon innocent victims. Here's how Wisconsin compares to other states, and what legislators can do to more fairly distribute these costs.

by Nina J. Emerson & Sarah B. Stroebel

he legal landscape in Wisconsin has remained the same in terms of dram shop¹ liability since 1985. However, the costs of alcohol-related crashes² continue to rise. In Wisconsin alone, it is estimated that alcohol-related crashes cost $464 million in 1998.³ Many states, including Wisconsin, have attempted to disburse some of the economic impact of alcohol-related crashes through the imposition of dram shop liability.

Despite these efforts, the existing dram shop liability system often forces victims to absorb a substantial portion of the costs. For example, dram shop laws frequently contain limitations on who may bring the cause of action, against whom the action may be initiated, and the circumstances that give rise to the cause of action.⁴ As a result, many injured parties are left with inadequate compensation.⁵ To avoid this dilemma, it is important for state legislators to critically examine their current approach to dram shop liability and determine whether it is providing victims with the necessary relief. If the current laws are not meeting this goal, then more effective alternatives should be considered.

This article provides the historical basis for imposing dram shop liability, including both vendor and social host liability. The article also discusses the current status of Wisconsin's dram shop laws, particularly in light of the dram shop laws implemented in neighboring states. Finally, the authors examine an innovative alternative approach to compensating victims of alcohol-related crashes.

Historical Basis for Dram Shop Liability

At common law, no cause of action existed against any party who sold or otherwise provided alcoholic beverages to a person who subsequently injured a third person. The underlying theory was that the consumption of alcohol, rather than the actual furnishing of it, was the proximate cause of the injury.⁶ However, beginning in the 1970s, courts increasingly refused to adhere to the traditional common law approach, reasoning instead that servers should be held liable for providing alcohol to intoxicated or underage persons who subsequently injured others.

The traditional approach used by the courts for imposing dram shop liability was based upon general concepts of negligence law, which holds servers responsible for foreseeable harm caused by their negligence.⁷ Since such liability is predicated on common law principles of negligence, state courts have the power to adopt the new common law rule as part of their inherent powers, without the need for legislative directives. However, state legislators also have the authority to create dram shop statutes and set the parameters of the common law if they choose.

Early dram shop liability was limited solely to licensed vendors. The major purpose behind the imposition of such liability was and is to provide victim compensation and to prevent alcohol-related crashes.⁸ First, imposing civil liability upon licensed vendors significantly increases the chances that an injured victim will receive complete compensation. In states that have no right of action against liquor vendors, liability usually is limited to claims against the drinking driver. However, drinking drivers often fall short in fully compensating victims due to either limited automobile insurance or no insurance at all.⁹ Liquor vendors, on the other hand, typically are able to purchase insurance coverage that is specifically written to reimburse the policyholder for the costs of tort liability to victims of drinking-driver customers.

A second justification for imposing dram shop liability is that it helps prevent alcohol-related crashes. Here, the rationale is that the potential of liability will encourage vendors to operate their businesses in a more responsible manner given that public drinking establishments, especially bars and restaurants, are the single largest source of alcohol-impaired drivers.¹⁰ In fact, studies show that between one-third and one-half of all intoxicated drivers consumed their last drink at a public, on-premises-sale establishment.¹¹ Therefore, it stands to reason that imposing liability on vendors will in turn help reduce the incidence of serving intoxicated and underage persons - both of which are prohibited by statute in most states.¹²

As dram shop liability expanded over time to include social hosts, the same basic justifications for imposing liability applied. However, several states have refused to extend liability to social hosts. There are two major reasons for this limitation: 1) unlike vendors, social hosts are not in the business of selling alcohol and often do not have the insurance to cover large damage awards; and 2) social hosts are considered less adept at monitoring and evaluating the level of intoxication of their guests. As such, these states believe that the imposition of dram shop liability upon social hosts cannot be adequately justified.

Dram Shop Liability in Wisconsin

In 1984 the Wisconsin Supreme Court in Sorenson v. Jarvis¹³ created an exception to the shield of immunity previously afforded to liquor vendors by abrogating the common law rule of nonliability. In Sorenson, the Wisconsin Supreme Court held that an injured third person could maintain a negligence action against a commercial vendor for damages caused by a person that the vendor knew or should have known was underage (specifically, under the legal drinking age) and whose alcohol consumption was a significant factor in causing the injury.¹⁴ Within the same year, the court in Koback v. Crook¹⁵ expanded the Sorenson holding to include social hosts.¹⁶ In 1985 the Wisconsin Legislature responded by enacting Wisconsin Statutes section 125.035. This statute essentially codifies Sorenson and Koback and explicitly removes the traditional immunity protection in situations where a liquor provider knew or should have known that the person being served was underage, and where the alcoholic beverages provided to the person were a substantial factor in causing injury to a third party.¹⁷ Here, the statute does not limit itself to vehicle injuries. It could cover any injury incurred whether through a physical altercation¹⁸ or a crash involving some other vehicle (that is, a motorboat or snowmobile) provided the two criteria above are satisfied.

However, liability as a result of serving an underage person is not automatic. The statute provides a defense. A party will not be held liable if the following conditions are satisfied: 1) the underage person falsely represents that he or she has attained the legal drinking age; 2) the underage person supports the representation with documentation that he or she has attained the legal drinking age; 3) the alcoholic beverages are provided in good faith reliance on the underage person's representation that he or she has attained the legal drinking age; and 4) the appearance of the underage person is such that an ordinary and prudent person would believe that he or she had attained the legal drinking age.¹⁹ Thus, even if an underage drinker was served alcohol and consequently injured a third person, the party who supplied the alcohol may be able to avoid liability.

Dram Shop Liability in Other States

The majority of other states also have enacted some form of dram shop liability (see accompanying chart). ²⁰ There are varying degrees to which these states hold liquor vendors and social hosts liable, depending upon the specific state statute. For example, Minnesota's dram shop law is broader than Wisconsin's in that it allows victims to initiate claims against vendors for injuries resulting from the service of intoxicating beverages to either an adult or underage patron.²¹ An unrestricted approach such as this affords victims the best opportunity to fully recover their losses. However, critics of this approach claim that it places too great a financial burden upon vendors, which ultimately could result in the closure of many businesses that either cannot afford expensive insurance premiums or that are found liable for large judgments.²² An additional concern raised by critics is that this approach unnecessarily relieves adult drinking drivers of taking full responsibility for their actions.²³

Other states, such as Michigan, have taken a more limited approach to dram shop liability and allow claims against a vendor only when the party who caused the injury was either obviously intoxicated or underage.²⁴ The underlying basis for this restriction is that when a vendor serves an underage or obviously intoxicated patron, the resulting danger is foreseeable and, therefore, as a matter of social policy, vendors who serve such persons should be held responsible for injuries those patrons cause to others. This approach has slightly more coverage than Wisconsin's because it allows claims against at least some vendors who have served intoxicated adult patrons.

The Illinois dram shop statute demonstrates another more restricted form of dram shop liability. Under the Illinois statute, the amount of damages vendors are required to pay is limited to a specific dollar amount.²⁵ The strongest rationale for caps on damages in dram shop cases is likely to revolve around issues of the availability and affordability of liability insurance. An additional justification is based on the issue of fault; that is, while the vendor is at least partially responsible for the victim's injury, the major share of the blame should be placed upon the drinking driver. Accordingly, the vendor liability is capped to reflect the reduced significance of that defendant's fault. Although the Illinois statute is more expansive than Wisconsin's because vendors can be held liable for serving either minor or adult patrons, the cap placed on damages clearly reduces the significance of recovery in either situation.

Similar to Wisconsin, both Minnesota and Michigan limit social host liability to persons who serve alcoholic beverages to underage drinkers.²⁶ In contrast, Illinois does not allow claims against social hosts at all.²⁷ As previously mentioned, social host liability often is more limited than vendor liability due to the overriding concerns that social hosts have neither the expertise to monitor the alcohol consumption of their guests nor the insurance to adequately cover potential liability.

Although there are legitimate justifications for the restrictions each state chooses to place upon dram shop recovery, it is important to remember that it is the victim who must absorb the cost of these limitations. From a victim's perspective, the most significant weakness in Wisconsin's dram shop statute is that it does not allow the victim to obtain damages from either vendors or social hosts when an intoxicated adult has caused the injury. Although the victim still has a claim against the drunk driver, as previously mentioned, drunk drivers often have difficulty fully compensating crash victims' losses. The potential for under-compensation becomes even more significant when the victim is seriously or permanently injured. The more seriously injured victim is more likely to have substantial hospital costs and significant lost wages, as well as ongoing medical expenses. Further, if a victim dies and is the primary wage earner, the victim's family may be left with insufficient funds to care for themselves in the future.

An Innovative Alternative Approach

Paul LeBel, professor of law at the College of William and Mary, has fashioned an innovative alternative approach to traditional dram shop liability.²⁸ LeBel proposes that state governments set up a supplemental compensation fund to aid the most seriously injured victims of drinking drivers, financed by a dedicated tax on alcohol manufacturers and distributors. This tax increase would be imposed at the state level and would supplement the existing tort liability system.

According to LeBel, raising the price of alcohol to account for some of the costs of drinking-driver crash injuries would achieve two important goals:

1. The compensatory aspects of the proposal respond to some of the more compelling rationales for reforming the way the legal system currently treats victims of alcohol-related crashes by reducing the extent to which more seriously injured victims are forced to bear their own losses; and

2. Increasing the tax will force the alcohol industry to internalize crash-related costs to a much greater extent than is currently the case.

LeBel's primary concern in furthering these goals is protecting innocent victims from having to cope with the financial consequences of a catastrophic crash while also coping with the trauma of their own or a family member's injury.

LeBel acknowledges that critics of his plan are likely to argue that a more appropriate redistribution of costs would be from drinking drivers to victims, not simply from drinkers to victims. LeBel claims that this argument ignores the fact that the likelihood of drinking drivers providing full compensation to the victims of more serious crashes is very low - so low that a significant proportion of the losses will be left to the victims themselves. Thus, according to LeBel, the appropriate question is not whether it is better to impose losses on drinking drivers or on victims, but whether it is better to impose losses on victims or on other people to whom the losses can be shifted, more specifically, to the drinkers.

In addition to the broader criticisms that LeBel acknowledges, if his proposal were introduced in Wisconsin, at least two major obstacles would have to be overcome:

1. Most Wisconsin citizens are strongly opposed to any additional tax increases. Thus, despite the ultimate benefits of LeBel's tax plan, it is unlikely that such a proposal would gain sufficient public support; and

2. Wisconsin's liquor industry historically has been treated as a sacred cow, consistently protected from significant state tax increases. In fact, Wisconsin's beer tax has not been raised since it was created in 1969.²⁹ Consequently, it may be difficult to convince legislators to place any increased demands, no matter how slight, upon the industry.

Although LeBel's alcohol tax increase may not be well-suited for Wisconsin, his proposal demonstrates two important points: that many seriously injured drunk driving victims are inadequately compensated for their losses under existing dram shop laws, and that there are alternative approaches that can better compensate victims and more equitably spread the costs of liability.

Conclusion

It is necessarily the state's duty to develop a system for allocating the costs of alcohol-related crashes. State legislators, however, are afforded a significant amount of discretion in determining how these costs should be distributed. Under the current approach to dram shop liability, a substantial portion of the crash-related costs fall upon innocent victims. This result is unfortunate and ironic considering that the purpose of dram shop liability has been to protect and compensate victims. To avoid this dilemma, state legislators must acknowledge the high price of alcohol-related crashes and be willing to consider alternatives that more fairly distribute the resulting costs.

Endnotes

¹ A "dram" refers to a unit of liquid measure used during the colonial times in the United States. "Dram shops" refers to the establishments that served alcohol by the dram. See Holder, Harold, et al., Alcoholic Beverage Server Liability and the Reduction of Alcohol-Involved Problems, 54 J. Stud. Alcohol 23, 34 n. 2 (Jan. 1993).

² The Resource Center on Impaired Driving prefers the term "crash" over the term "accident" in this context. "Crash" specifically refers to avoidable events caused by a single variable or chain of variables and more accurately describes what happens in drunk driving incidents. See also, Wisconsin Department of Transportation, 1998 Wisconsin Traffic Crash Facts, Book I (1999).

³ See Wisconsin Department of Transportation, 1998 Wisconsin Alcohol Traffic Facts, Book 2 (1999).

⁴ LeBel, Paul A., John Barleycorn Must Pay, Compensating the Victims of Drinking Drivers, 53-56 (University of Illinois Press, 1992).

⁵ Recognizing the predominant financial side of alcohol-related crashes, for example, medical treatment, physical rehabilitation, lost wages, and property damage, Mothers Against Drunk Driving (MADD) has developed a three-part series of booklets entitled Picking Up the Financial Pieces to assist victims. See National Endowment for Financial Education, Picking Up the Financial Pieces, Part 1-3 (1998). See also National Highway Traffic Safety Administration, Illinois Department of Transportation Division of Traffic Safety, The Faces of Tragedy (1998).

⁶ See Kane, Diane Schmauder, Annotation, Social Host's Liability for Death or Injuries Incurred by Person to Whom Alcohol Was Served, 54 A.L.R. 5th 313 (1999); see also, Holder supra note 1, at 23-36.

⁷ See Holder, supra note 5, at 23.

⁸ See LeBel, supra note 4, at 131.

⁹ Here, the anecdotal information is compelling. For example, Paul Proulx of New Hampshire lost his wife and unborn child, who were struck by a drunk driver. Mr. Proulx's attorney informed him that he was unlikely to receive any compensation from the driver because he was "grossly underinsured," and the club where he had been drinking had no liquor liability insurance. Pat Grossmith, "Attorney Wages Liquor Liability Insurance War: DWI Death Case Left Family Little Chance of Compensation," The Union Leader, Sec. A, pg. 1, Jan. 13, 1997.

¹⁰ McKnight, James B., Server Intervention: Accomplishments and Needs, 117 Alcohol Health & Research World (Jan. 1993).

¹¹ This is according to reports of drivers in roadside surveys, drivers arrested for operating their vehicles under the influence of alcohol, and drivers injured in automobile crashes. See id. See also, Toomey, Traci L., et al., Alcohol Sales to Pseudo-Intoxicated Bar Patrons, 114 Public Health Reports, No. 4 (July 1, 1999).

¹² Florida, Nevada, and Vermont have no state statute making it a crime to serve or furnish alcoholic beverages to an adult who is visibly intoxicated. Wyoming's law is limited. However, all states statutorily prohibit the sale of alcoholic beverages to anyone under the minimum drinking age. U.S. Department of Transportation, National Highway Traffic Safety Administration, Digest of State Alcohol-Highway Safety Related Legislation, 18th ed. (1999).

¹³ Sorenson v. Jarvis, 119 Wis. 2d 627, 350 N.W.2d 108 (1984).

¹⁴ See id. at 645, 350 N.W.2d at 117.

¹⁵ Koback v. Crook, 123 Wis. 2d 259, 350 N.W.2d 108 (1984).

¹⁶ See Chapin, W. Barton, Liquor Vendors and Social Hosts: Are They Still Immune from Serving Adults?, 68 Wis. Law. 18 (Dec. 1995).

¹⁷ See Wis. Stat. § 125.035(4)(b). However, the statute maintains the traditional common law immunity for providers of alcoholic beverages to adults. See Wis. Stat. § 125.035(2). Under subsection (4)(a), commercial vendors, tavern owners, and social hosts all fall within the meaning of "provider."

¹⁸ Plaintiff sought relief for injuries incurred in an off-premises bar fight with an underage patron of a bar. Because the bar's insurance policy specifically excluded coverage for bodily injury for which the bar owner could be held liable for furnishing alcoholic beverages to an underage patron, the plaintiff brought a cause of action for the owner's negligence in allowing the underage patron to "enter and be on" the licensed premises. The court of appeals affirmed the trial court's determination that "no reasonable juror could find that Kelsey's mere presence in the bar was a substantial factor contributing to Symes' injuries." Symes v. Milwaukee Mut. Ins. Co., 178 Wis. 2d 564, 566-67 (Ct. App. 1993).

¹⁹ See Wis. Stat. § 125.035(4)(b).

²⁰ U.S. Department of Transportation, National Highway Traffic Safety Administration, Digest of State Alcohol-Highway Safety Related Legislation, 18th Ed. (1999).

²¹ See Minn. Stat. § 340A.801.

²² See generally, Brist, Steven C., Supreme Court to Hear Dram Shop Case, On Premise (July/Aug. 1994).

²³ See generally, Garcia v. Hargrove, 52 Wis. 2d 289, 190 N.W.2d 181 (1970).

²⁴ See Mich. Stats. §§ 436.1801(3) & (10).

²⁵ See § 235 ILLCS 5/6-21. Damages for personal injuries or to property are limited to $30,000. Loss of means of support is limited to $40,000. See id.

²⁶ Via Minnesota common law negligence principles, a host 21 years or older may be held liable for the injuries caused by or to a guest younger than 21 years. See Minn. Stat. § 340A.801, subd. 6. Under Longstreth v. Gensel, 377 N.W.2d 804 (Mich. 1985), dram shop claims against social hosts in Michigan are limited to minors' actions.

²⁷ See Charles v. Seigfried, 651 N.E.2d 154 (Ill. 1995).

²⁸ For a more comprehensive explanation of the information contained below, see Lebel, supra note 4, at 211-84.

²⁹ Wisconsin's alcohol tax is only 6¢ per gallon or $2 per barrel. Compare this to Hawaii, which has the highest beer tax, at 92¢ per gallon, and Wyoming, with the lowest, at 2¢ per gallon. See 65 Wis. Taxpayer (Oct. 1997).

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