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:
- 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
- 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:
- 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
- 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.
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Nina J. Emerson, U.W. 1992, has been the director of the U.W. Law
School's Resource Center on Impaired Driving since its inception in
August 1992.
Sarah Stroebel is a third-year law student at the U.W. Law School and
a project assistant at the Resource Center on Impaired Driving.
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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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