Before its expiration, the bar had received liquor liability coverage from National Casualty Company (National Casualty). Under S.C. Code Ann. §61-2-145(C), any insurer that issues liquor liability coverage to an establishment is obligated to notify the South Carolina Department of Revenue if that coverage lapses. National Casualty, unfortunately, had not fulfilled this obligation.

Seizing upon this nonfulfillment, Denson filed suit for negligence against National Casualty for its failure to notify the Department of Revenue of the bar’s lapsed coverage. National Casualty’s lack of notice, he argued, made the insurer directly liable to the decedent’s estate.

The insurer filed a motion to dismiss, claiming that an insurer’s failure to notify the Department of a policyholder’s lapse in coverage did not create an opportunity for third-party claimants to file a private action against that insurer. Denson claimed that such a failure was negligence per se, and it was the negligence per se that opened the door for the estate’s private suit against National Casualty. The judges for the federal district court for the District of South Carolina found no state law that addressed the issue and certified the following question to the Supreme Court of South Carolina: When a third-party claimant has the right to file a dram-shop action against a bar that did not have liquor liability coverage at the time of the accident, can that claimant sue the bar’s insurer for its failure to notify the Department of Revenue of a lapse in liquor liability coverage under S.C. Code Ann. §61-2-145(C)?

Measuring Negligence

The justices of the Supreme Court of South Carolina were skeptical. The right to sue for negligence was premised on a statutory or common law duty the wrongdoer owed to the wronged party but failed to fulfill. In Denson’s case, he would have to prove that National Casualty owed him “a legal duty of care” that had gone unsatisfied. The mere existence of an obligation, like informing the Department of a lapse in liquor liability coverage, was not enough, because “all statutes impose commands to do or refrain from doing something.” Denson had to prove that National Casualty owed him a duty in particular that it did not fulfill.

The justices found no common law duty National Casualty owed to Denson, and Denson did not argue otherwise. Instead, he argued that S.C. Code Ann. §61-2-145(C), in and of itself, imposed a duty on National Casualty, namely to inform the Department of the bar’s lapse in liquor liability coverage.

As stated earlier, negligence per se could be found wherever a statutorily imposed duty existed. It could not, however, “be construed as automatically creating a private right of action” (emphasis added). In other words, the mere existence of National Casualty’s duty to report a lapse in liquor liability coverage under S.C. Code Ann. §61-2-145(C) did not, on its own, establish a foothold for a private right of action by a third-party claimant.

Discerning Legislative Intent

A private right of action could only be determined from the legislative intent of the statute in question. In the absence of language specifically creating civil liability, “a duty will not be implied unless the statute was enacted for the special benefit of a private party.” The general public, however, did not qualify as such a “private party.”

Denson pointed to the provisions in S.C. Code Ann. §61-2-145 that required any establishment selling alcoholic beverages to obtain and maintain liquor liability coverage or risk the loss of its liquor license. That requirement, he said, when coupled with the duty to report a lapse in liquor liability coverage, created a general duty to third-party claimants.

The justices were not convinced. For one thing, state jurisprudence had specifically held that suits filed directly against an insurer were only permissible when there was “privity of contract between the claimant and the insured. Because direct actions against the insurer contravene[] common law, such a right must be expressly sanctioned by the legislature and not [be] merely inferentially deduced” (Major ex rel. Major v. National Indemnity Co., 229 S.E.2d 849 (S.C. 1976)).

Since Denson’s right to sue the bar did not arise out of a contract, his suit against National Casualty for negligence per se would “contravene common law” and was therefore impermissible.

Alternatively – The Rayfield Test

Even if Denson’s suit did not “contravene common law,” the scope of the harm “contemplated” in S.C. Code Ann. §61-2-145(C) did not encompass the type of harm suffered by the decedent: death. Under Rayfield v. S.C. Dep't of Corr., 374 S.E.2d 910 (S.C. Ct. App. 1988), a person arguing he or she was owed a statutory duty of care that had not been fulfilled had to prove that he or she was part of the group the statute imposing the duty had been designed to protect from the specific type of harm the person he or she had suffered. Should the person not have suffered the type of harm contemplated by the statute, it was irrelevant whether he or she was part of the group the statute meant to protect.

To begin with, the requirement for businesses selling alcohol to obtain and maintain liquor liability coverage was not protecting a specific person or even group, but the safety and wellbeing of the general public. Though Denson could, theoretically, benefit from the liquor liability coverage requirement should he be injured in an occurrence with an intoxicated person, this theory was too generalized to satisfy the Rayfield test.

Conclusion

Since the Supreme Court of South Carolina found that National Surety owed no specific duty to Denson under S.C. Code Ann. §61-2-145(C), and his claim failed to satisfy the Rayfield test, the justices answered the certified question in the negative: A third-party claimant who can file a dram-shop action against a bar that didn’t have liquor liability coverage cannot sue the bar’s insurer for failure to notify the Department of Revenue of a lapse in liquor liability coverage.

Editor’s Note: Part of the problem with this suit was its timing. An insurer can’t be held liable for something its insured did until the insured has actually been found liable for something. Here, Denson had not established that the bar that allegedly overserved the drunk driver legally owed the decedent’s estate anything. As the justices put it, “Denson's emphasis of the import of negligence per se puts the cart before the horse.” Had Denson filed this action after suing the bar itself, the case might have ended differently.

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