The Justification for Dram Shop Liability

The Justification for Dram Shop Liability

by James Helm

On a brisk Friday night, Mr. and Mrs. O’Brien proudly finish watching their son and daughter perform in the marching band at halftime of the high school football game. Once the performance concludes, they head towards the diner across the street to wait for the game to finish. After patiently waiting for the walk sign, they begin to traverse the intersection with hopes of a warm coffee and nice meal.

After spending most of his day drinking whisky at the tavern, Gary is down to his final few dollars. He mumbles to the bartender for one more shot as he grabs his coat to leave. Desperate to get Gary out of the bar, the server pours him another round. After downing it in one gulp, Gary stumbles out to his pickup truck and turns the ignition. Revving the engine, he takes a sharp turn out of the parking lot. In his inebriated state, he fails to notice the red light at the intersection in front of the high school. In just split a second, the damage has been done. The O’Brien family will never be the same again.

Sadly, the hypothetical described above is an all too familiar story in the United States. Research conducted by the Centers for Disease Control and Prevention (“CDC”) suggests that more than 85 percent of alcohol-impaired driving accidents among U.S. adults was caused by binge drinkers.[1] More than half, 54.3 percent, of these binge drinkers reported obtaining their drinks from establishments that sell alcohol for on premise consumption.[2] Of this group, 25.7 percent reported ten or more drinks before driving.[3]

Under common law, a third party injured by an intoxicated person could not bring a civil action against a furnisher of alcohol. Courts reasoned that individuals were responsible for their own torts. Additionally, the proximate cause of the harm was the act of consuming alcohol, not the act of providing it. As the issue of drinking and driving rose to prominence in the 1980’s, however, courts and legislatures embraced dram shop liability in hopes that it would reduce the frequency of accidents caused by intoxicated motorists.[4] But can dram shop law be justified based on the aims of tort law? To answer this question one must examine dram shop law based on the two key aims of tort law – compensatory justice and deterrence.

In order to demonstrate why dram shop liability is necessary to ensure compensatory justice, one must understand the difficulties faced by victims in the absence of dram shop law. States that do not recognize dram shop liability have proven resistant to change. The Court of Appeals in Maryland, for example, voted in 2013 against imposing liability against licensed establishments. In fact, the same thirteen states that did not recognize dram shop liability in 1989 do not recognize liability today.[5] This choice by state courts and legislatures leaves injured victims with three avenues to recover: the automobile insurance policy of the intoxicated driver, the personal assets of the intoxicated driver, and any first party coverage the victim has purchased. Even if a plaintiff is able to collect from all three sources, he is often still left with inadequate financial means to support a full recovery.

One source where a victim could attempt to recover is the automobile insurance policy of the intoxicated driver. Automobile liability insurance is mandatory in virtually every state. It is not uncommon, however, for an intoxicated driver to be uninsured. Fifty to 75 percent of convicted drunk drivers continue to drive on a suspended license.[6]  Assuming an intoxicated driver has liability coverage, a victim injured by a drunk driver is permitted to collect up to the policy limits.[7] While this source may provide some funds for a victim’s recovery, it is often inadequate to make a victim whole because mandatory insurance policies have relatively low policy limits. For example, Connecticut requires a bodily injury liability minimum of $20,000 per injured person and $40,000 per accident.[8] When compared to the severity of the harm, which can cost a victim hundreds of thousands in medical expenses, liability insurance policies only provide a small fraction of the funds necessary for a full recovery. [9]

A second source a victim could attempt to recover from is the personal assets of the intoxicated driver. Unlike ordinary negligence cases, where plaintiff’s attorneys are reluctant to go after a defendant’s personal assets, attorneys representing accident victims typically go after the assets of a drunk driver. [10] This willingness stems from the degree in which the intoxicated driver breached social norms and the seriousness of the resulting injury.[11] Although the federal bankruptcy code has been altered to prohibit drunk drivers from filing for Chapter 7 or Chapter 13 bankruptcy in the event of a judgement, personal assets are difficult to obtain. The length of a civil suit puts a burden on a victim who needs funds immediately to support her recovery. Furthermore, most people only have their home, a car, and maybe some small investment savings. Research suggests drunk drivers, in particular, are unlikely to have significant personal assets.[12] Even if a judgement is rendered, it is improbable that intoxicated driver has the necessary assets to cover the difference between a victim’s damages and the coverage limit of an automobile liability policy.

If a victim is unable to be made whole from the insurance and personal assets of an intoxicated driver, he may be able to bring a claim against his own insurance company for compensation. Uninsured and underinsured motorist coverage provides protection for medical expenses, lost wages, and pain and suffering resulting from an accident where the policyholder is not at fault.[13] While it is mandated in some states, it is not in most.  Unless a victim previously paid an additional premium to an insurance company to include these clauses, he will be barred from this additional avenue of recovery. Even if a victim has purchased uninsured and underinsured coverage, most insurance companies do not extend coverage past the insured’s liability limits. Assuming a victim purchased the minimum liability policy required in the state, this coverage will also only relieve a victim of a small portion of her medical expenses.

Tort law aims to provide innocent victims compensatory justice in the event of a loss. In the thirteen states that choose not to impose dram shop liability, however, the tort system fails to provide victims of drunk driving with adequate financial avenues to support a full recovery. While a victim may recover some funds through the intoxicated driver’s liability policy, the driver’s personal assets, or her own first party coverage, these sources are often insufficient to cover hundreds of thousands of dollars in medical expenses. This difficulty is only magnified by the greater propensity of intoxicated drivers to be uninsured and have little or no personal assets. Given the general increase in the cost of medical treatment, victims of drunk driving, now more than ever, are left searching for the financial resources to be made whole. [14] Dram shop liability is consistent with compensatory justice as it provides an additional source to fully compensate victims, while also signaling that drunk driving is more than just one individual’s responsibility.

Along with compensatory justice, deterrence is one of the fundamental principles of tort law. While the deterrent effect of tort liability has been criticized in other fields, dram shop liability has been proven to have a deterrent effect.[15] Dram shop liability is based on the premise that by instituting penalties on establishments that continue to serve already intoxicated individuals, hosts will be become more aware of to whom they serve alcohol in the future. This awareness will help prevent alcohol related accidents, injuries, and fatalities.[16] Theoretically, it is rational that the threat of liability provides bar owners with better incentives to avoid serving patrons that are already under the influence of alcohol. Research conducted in the thirty-seven states that recognize dram shop liability for serving intoxicated adults under common law or by statute has found empirical evidence to support this theoretical justification.

Since the implementation of dram shop law in the early 1980’s, the number of drunk driving deaths has been cut in half.[17] Further, the percentage of all traffic fatalities that are alcohol-related has declined from about 54 percent in 1986 to about 39 percent in 1997.[18] The alcohol-induced fatality rate has continued to decline in the past ten years, from 44 percent in 2004 to 34 percent in 2013.[19] Opponents of dram shop liability argue this decline can be attributed a number of reasons: tougher and more innovative laws, the growth of aggressive organizations such as Mothers Against Drunk Driving (“MADD”), and the widespread use of advertisements to promote designated drivers.[20] There is statistical evidence, however, to support a correlation between dram shop liability and a decrease in serious injuries and fatalities from alcohol-induced crashes on both the state and national level.

Following the implementation of dram shop liability by statute in 1983, Texas experienced a 6.5 percent decrease in single vehicle nighttime crashes resulting in injury. After additional liability cases were filed against establishments in 1984, Texas experienced an additional 5.3 percent decrease.[21] This correlation has also been documented on a national level. According to a 2001 study, researchers have found a 5.8 percent decrease in fatal crashes from dram shop liability laws.[22] Furthermore, in 2011, The Alcohol Program at the CDC found a 6.4% median reduction in alcohol related motor vehicle deaths in states with dram shop liability compared to those that do not have the law in place.[23]

There is also empirical evidence demonstrating that dram shop liability has other deterrent effects. First, data suggests stricter dram shop laws increase the precautions taken by bar owners and managers. [24] For example, one study found that a unit increase in the threat of a tort suit increases the probability of employees not drinking on the job by 2 percent, of checking references of perspective employees by 4 percent, and of providing written procedures regarding serving by 5 percent.[25] Second, dram shop liability has been shown to increase the publicity of the impacts of overserving and decrease excessive consumption. Studies show that states which have a high level of dram shop liability have more media attention devoted to vendor liability and offer fewer low price drink promotions like happy hours.[26]  Given this empirical evidence to support the theoretical rationale for dram shop law, it is clear that dram shop liability is consistent with the principle of deterrence.

Given the consistency between dram shop liability and the two key aims of tort law, compensatory justice and deterrence, one cannot help but to question why dram shop liability has not been implemented by a quarter of the country. The thirteen states that refuse to implement dram shop liability under common law or by statute stubbornly vote against providing victims of drunk driving in their state with adequate avenues to support a full recovery. If these state courts continue to vote time and time again against dram shop liability, could the federal legislature intervene? The federal government has intervened in the battle against drinking and driving in the past. In 1980, the government managed to tighten blood alcohol standards through restrictions on highway funding. While proposals for uniform dram shop standards across the country have merit, practically, they are highly unlikely. The regulation of dram shop liability will likely remain predominantly a state function for the foreseeable future. The task then is one of education. Activists at the state and local level must continue to inform tavern owners and their employees about the signs of intoxication, the risks of over service, and the standards of liability in their state. Finally, MADD and similar organizations must continue to inform the public of the risks associated with driving while intoxicated.

[1] Centers for Disease Control, Vital Signs: Drinking and driving: a threat to everyone. October 2011. www.cdc.gov/vitalsigns/drinkinganddriving/.

[2] T. Naimi, et al. Driving after binge drinking. Am J Prev Med 2009; 37:314-320.

[3] Id

[4] See: Richard Smith, A Comparative Analysis of Dramshop Liability and a Proposal For Uniform Legislation, 25 Iowa J. Corp. L. 553, (2000).

[5] James Mosher, et al. Commercial Host (Dram Shop) Liability Current Status and Trends. Am J Prev Med 2013; 45(3):347-353.

[6] R.C. Peck, et al. Strategies for Dealing with the Intent Drinking Driver. (1995).

[7]Although some carriers have tried to exclude drunk driving accidents from coverage as part of an intentional acts exclusion, courts have not gone that far. See Avi Perry, Restructuring Insurance Coverage for Drunk Drivers, 4 Harv. L. & Pol’y Rev. 427, (2010).

[8] Conn. Agencies Regs. §38a-372-1 (2010).

[9] For example, when an Oklahoma woman was hit head on by a drunk driver in 2014, she was airlifted by emergency helicopter twenty five miles to the nearest hospital. The emergency airlift alone costed $93,000.      See: http://www.opposingviews.com/i/health/patients-stuck-30k-bills-medical-airlifts

[10] There is an unwritten code among personal injury lawyers to avoid going after blood money in the ordinary negligence case. See: Tom Baker. Blood Money, New Money, and the Moral Economy of Tort Law in Action, 35 Law & Soc’y Rev. 275, (2001).

[11] Id at 298.

[12] See Jim Fell. Repeat DWI Offenders in the United States. February 1995.

[13] See: David Goguen. Uninsured Motorist Coverage in a Car Accident. http://www.alllaw.com/articles/nolo/auto-accident/uninsured-motorist-coverage.html

[14] See: Elizabeth Renter. “Health Care Costs Expected to Rise in 2015: Are you Ready?” U.S. News and World Report. October 21, 2014.

[15] See: Gary Swartz. Reality in the Economic Analysis of Tort Law: Does Tort Really Deter?, 42 UCLA L. Rev. 377, (1994).

[16] See: Jared Wachtler. Are New York’s Social Host Liability Laws Too Strict, Too Lenient, or Just Right?, 27 Touro L. Rev. 309, (2011).

[17] National Highway Traffic Safety Administration. FARS Data. (2012).

[18] Traffic Safety Facts 2013. National Highway Traffic Safety Administration. http://www-nrd.nhtsa.dot.gov/Pubs/812102.pdf

[19] Id

[20] B Drummond Ayres Jr., Big Gains Are Seen In Battle To Stem Drunken Driving. N.Y. Times. May 22, 1994.

[21] Mothers Against Drunk Driving. Dram Shop and Social Host Liability. http://www.madd.org/laws/law-overview/Dram_Shop_Overview.pdf

[22] Id

[23] Mosher, et al. Commercial Host (Dram Shop) Liability Current Status and Trends at 348.

[24] For purposes of defining strictness, this study evaluated whether a state’s statutory provision included special damage caps, restrictions on notice, and statutes of limitations that applied specifically to dram shop liability. Provisions that included more than two pro-plaintiff provisions were considered “strict” while all others were considered “not strict”. See: Frank Sloan et al., Liability, Risk Perceptions, and Precautions at Bars, 43 J. Law & Econ. 473, (2000).

[25] Id at 491.

[26] Frank Sloan, et al.  Drinkers, Drivers, and Bartenders: Balancing Private Choices and Public Accountability.  Chicago, IL: University of Chicago Press, (2000).