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Vol. 73, No. 8, August 2000

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.

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