Lawsuits Mounting Against Liquor Servers

Insurers, agents must watch out for special treatment afforded regulars

As societys attitudes toward alcohol consumption and driving evolved in the 1980s, state laws became more stringent against those who chose to drive under the influence. With 40 percent of all traffic fatalities involving alcohol, establishments that continue to serve liquor to intoxicated patrons are being viewed as negligent contributors to the drunk-driving problem.

In response, hospitality organizationsrestaurants, taverns and hotelsthat serve alcohol have focused their loss prevention efforts primarily toward educating the “front line” servers on the dos and donts of serving patrons. Since the goal is not to serve an “intoxicated” patron, much of the preventive education material published is geared toward how alcohol affects the body and the behavioral signs of alcohol absorption.

Additionally, hospitality establishments have implemented standard loss prevention/mitigation techniques that include developing written policies and procedures for the service of alcohol, posting signs promoting responsible drinking, carding patrons who appear 30 years old or younger, providing free food for those exhibiting signs of inebriation, and establishing a protocol for the use of alternative transportation.

In spite of these risk management efforts and over a decade of application of risk management techniques to mitigate the liquor liability litigation risk, liquor liability claims continue. In fact, two of the top 50 largest verdicts in 2003 involved liquor liability suits filed against establishments that serve liquor.

So what more can be done? By analyzing and understanding some deeper traits of liquor liability claims, underwriters and brokers can better assess exposures and controls, as well as more accurately discern the better risks from the average risks.

In working with numerous hospitality industry establishments and studying the progression of liquor liability claims, a reviewer of risk should consider incorporating three factors into the underwriting process.

Treatment Of “Regulars”:

One such factor that is prevalent involves how patrons who often frequent an establishment (otherwise known as “regulars”) are treated. The standard, responsible alcohol-serving techniques have gone a long way in reducing claims arising from the occasional or social drinker. However, businesses need to be careful that those same effective prevention procedures are applied to all patrons.

For example, one large hospitality client with multiple locations spread throughout the country was perplexed that despite implementing some of the most stringent preventive measures, it experienced two liquor liability lawsuits a year with demands in the millions. After reviewing over 13 of the clients litigated claims going back seven years, it was found that 100 percent of the patrons involved in the claims were identified as regulars. This is consistent with the beliefs of others in the liquor liability litigation ranks.

As an underwriter or broker, there are several ways to detect potential problems from regulars:

Dig through the loss runs.

Read the adjuster notesor, better yet, talk to the claim adjuster. Does information exist to suggest that the establishment is relaxed when it comes to enforcing its alcohol-serving procedures for patrons that frequent the establishment? If so, inquire if the establishment recognizes this trend and what can be done to eliminate it. It may be as simple as making managers aware and modifying the training program to emphasize consistency in applying the program.

Are there policies against “free pouring”?

Many regulars frequent a particular establishment and even a particular bartender because they know the drinks will be stronger. A clear sign to management that this may be occurring is if the bartender refuses to use a shot glass or other instrument to accurately measure the amount of alcohol that is used in the drink. Another sign is if weekly alcohol inventory does not match alcohol sales.

Timing Of Notice:

Our analysis shows that most liquor liability suits are served right before the statute of limitations expires. We have seen instances where plaintiffs’ attorneys will wait for the outcome of a related criminal trial before filing a civil action against an establishment. If the first notice to the establishment comes from a plaintiffs attorney, then the establishment has already placed itself in an incredibly poor defensive position.

Plaintiffs’ attorneys will exercise due diligence before agreeing to take on a liquor liability case. Savvy plaintiffs’ attorneys will already have visited the premises, recorded their observations, sat in on liquor board hearings, sat through any related criminal trial, talked to witnesses, talked to employees without managements knowledge, taken damaging photographs, observed inconsistencies in serving procedures, etc., long before the time the actual lawsuit is presentedusually two years after the incident.

It is imperative that management at enterprises that serve liquor create a culture of early reporting. Front-line employees should be trained to report rumors to management regarding even a whisper that someone was involved in an accident after leaving their establishment. Many workers in the hospitality industry are young, college-aged individuals that live in the community of their employer. Furthermore, a great number of drunk-driving accidents occur in close proximity to the establishment in which the drivers were served.

Employees who leave late at night or after closing should report any accident to their management. Hospitality employees are in tune with the gossip of the community and are a good resource for early information. Developing a culture of open communication from front-line employees to management regarding suspected incidents will lead to early reporting and better align the corporation for defense.

As an underwriter or broker:

Inquire as to what mechanisms, if any, the establishment has in place to encourage the early reporting of potential liquor liability incidents. These may include notification procedures, training, claim charge-back systems that penalize late reporting, bonus reductions, and/or employee corrective action.

Evaluate the loss runs. Have past liquor incidents been reported to the carrier long before a civil action is presented? Or is there significant lag time from the date of loss to the date reported to the insurance carrier?

Post-Incident Investigation:

Our analysis shows that those organizations that are made immediately aware of possible incidents and that invest the time and effort of conducting immediate investigations have better monetary outcomes. The better establishments will have a written procedure already established before an incident.

The investigation procedure needs to recognize that certain facts have significant relevance in building a defensive claim position. A comprehensive discussion of conducting a post-incident investigation is beyond the scope of this article. A good starting point is to identify what plaintiffs attorneys will be evaluating as they try to build a case against the establishment.

An effective investigation initiated immediately after a reported incident will allow the client and/or insurer to draw its own conclusions of culpability. This will allow for an informed decision as to settlement strategy or outright defense of any potential allegation.

In any case, a well-documented file will be established. This defensive file will prove invaluable should a civil action present itself two years after the date of incident.

In conclusion, valuable information can be learned from deeply analyzing liquor liability claims and how they ultimately come to be settled. When insurance carriers, brokers/agents and hospitality establishments begin to look at additional methods to become better managers of liquor liability risk, they should not overlook the three prevalent characteristics that emerge from this analysis: treatment of regulars, timing of notice and post-incident investigation.

(A detailed discussion of investigation procedures is scheduled to appear in the Feb. 14 issue of NU.)

Michael Campo is a senior vice president and team leader at the Lockton Companies Inc.- Kansas City Division, specializing in the marketing and servicing of food service clients.

Reproduced from National Underwriter Edition, January 6, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.