This article is a companion piece to our On-Subrogation Podcast about Dram Shop and Social Host laws, where Rathbone Group attorneys Rebecca Wright and Steven Alsip discuss the ins and outs of third-party liability when it comes to drunk drivers who cause damage and injury as a result of being inebriated. This is the final installment of our mini-series on third-party liability in subrogation; you can listen to the previous episodes on this topic on our podcast library as well:
- Third-Party Liability: Defenses
- Third-Party Liability: Frolicking Employees
- Third-Party Liability: Government Entities
- Third-Party Liability: Owners & Vicarious Liability
What Do Dram Shop and Social Host Laws Have to Do with Subrogation Practice?
Dram shop and social Host laws arise in situations where a defendant was inebriated when they caused the incident of loss. When a tortfeasor causes personal injury, death, and/or property damage while drunk, the person or entity who served alcohol to the wrongdoer may be liable for damages resulting from the intoxicated person’s negligence.
These laws are important for insurance companies and those who practice subrogation law, because they potentially create another pocket to reach into to satisfy your recovery claim. This is especially true when a subrogating insurance company encounters a DUI defendant who is uninsured. You may have a defendant who is liable for a collision, but the insurance company can’t collect on the claim because the tortfeasor is uninsured, or underinsured, or otherwise may not have any assets to satisfy a judgment.
Therefore, any time an insurance claim involves a DUI, it is important for the subrogation team to look into the circumstances surrounding intoxication. Your defendant may have been at a bar or restaurant. If so, you now have an insured party who may be able to satisfy some of your damages if you are able to properly plead a dram shop count in your subrogation complaint. You will hopefully end up with a settlement and some cash, rather than a judgment that goes uncollected.
Intoxication as a Defense
“I was drunk” is not a viable defense in any court of law, because being inebriated is a voluntary state. This is in direct opposition to the sudden emergency defense, where a situation beyond your control was a proximate cause of the incident. You can learn more about the sudden emergency defense in another podcast episode of On Subrogation.
Initially, common law did not recognize any tort liability for the seller or provider of alcohol to able bodied persons. The law reasoned that the drinking, not the furnishing of alcohol, was the proximate cause of the injury in question. Still, as anyone who has ever worked in that sector of the hospitality industry knows, servers and bartenders are always directed not to serve customers who are visibly drunk. Over time, states began addressing this liability loophole by passing dram shop laws, which impose liability where none existed at common law.
How Do Dram Shop Laws Work?
Dram shop laws vary considerably from state. Insurance companies and subrogation professionals need to be aware of the dram shop laws in the jurisdiction at issue:
First-Party Dram Shop Claims: Dubious
First-party dram shop laws involve the drinker him or herself suing a bar or restaurant for negligently serving them too much alcohol. Some states prohibit these kinds of lawsuits altogether, reasoning that when you get yourself drunk and injure yourself, you can’t turn around and sue the parties who served you the alcohol.
When allowed, first-party dram shop cases are tough to win, because juries don’t favor individuals who deny responsibility for becoming voluntarily intoxicated. Generally, a subrogation lawyer has better success with first-party dram shop situations making this argument where alcohol was served to a minor, as it means the entity serving the alcohol had already broken a statute by selling/serving alcohol to a minor.
However, as we will see, this does not always automatically result in liability to the bar/restaurant. Part of what makes insurance law such a complex field is that codes, statutes of limitations and common law vary by state.
Third-Party Dram Shop Claims: Defensible
The more common, and more successful, dram shop case involves third parties. Here, the injured party is an innocent person harmed as a result of the intoxicated defendant’s negligence. For a subrogating insurance company, it is important to know if your client was injured by a drunk driver.
Many states will extend third-party dram shop liability to anyone serving alcohol that results in an accident, particularly if a reasonable person under same or similar circumstances should know that person served is already intoxicated. In these states, dram shop and social host laws act in much the same way.
Much like first-party liability, the subrogating insurance company is more likely to find dram shop liability where minors are involved. Liquor stores and other purveyors of alcohol are already violating a civil statute for providing alcohol to minors, so it is not hard for a subrogation lawyer to extend a negligence argument from there.
How Dram Shop Laws Play Out Across the Country
Similar over-serving situations occur in every state, but how the subrogation process plays out afterwards is different in each jurisdiction. Let’s look at some examples of case law regarding dram shop statutes:
Illinois
Illinois is a state that has taken a broad-coverage stance to third-party liability in DUI subrogation cases. The Dram Shop Act of 1979, which was an outgrowth of Liquor Control Act of 1934, states every person who is injured by any intoxicated person has the right to pursue the person who sold/gave them liquor. It de facto bars all first-party dram shop cases because the injured person must have been injured by intoxicated person. This act also encompasses social host laws, creating strict legal liability on any business or private person who provides an intoxicated person alcohol.
Indiana
Indiana is one of many states that sets dram shop laws along the line of serving an intoxicated person. In these states, the liability of the server/bar stems from the fact that they served more alcohol to a person who was already visibly drunk. The issue is not that you served alcohol to the person who then caused damage; it is that you should have known that person was already inebriated and you served them alcohol anyway.
North Dakota
According to North Dakota’s dram shop laws, for the serving entity to be held liable in an insurance claim where the defendant was intoxicated, two conditions must be met:
- The violation must have contributed to the intoxicated person’s intoxication.
- The intoxication was primary cause for the injury or damage.
- There is no requirement the intoxication caused injury in order to hold dram shop liable.
The North Dakota Supreme Court extended case law for dram shops through the 1994 case of Stewart v. Ryan. In this case, the tortfeasor, Dale Densmore, shot police officer Eric Stewart twice in the head in a drunken altercation at Johnny’s Bar. Stewart then pursued the bar for his accrued damages, claiming they should have known Densmore was drunk and stopped serving him alcohol before he became violent.
Johnny’s Bar denied knowing Densmore was drunk, despite Densmore’s claim that they had served him 15-20 mixed drinks before the altercation occurred. They argued his act was unforeseeable, and that the proximate cause of Stewart’s injuries was the criminal act, not the alcohol served to Densmore. The court agreed the crime superseded the bar overserving Densmore and approved the bar’s summary judgment for dismissal.
Stewart appealed all the way to the North Dakota Supreme Court. He argued that both factors were present: the over-serving led to Densmore being inebriated, and the inebriation was the proximate cause for the incident. Whether or not the bar knew he was drunk and served him anyway was an issue for the jury to decide, so it shouldn’t have been a summary judgment. The ND Supreme Court overturned the initial ruling and sent the case back down the line for trial.
This case was interesting because it was determined that the primary cause of the shooting was the intoxication, as Densmore was a violent drunk. But everyone is a different kind of drunk, so the implications here are a little unclear. If everyone is a different kind of tipsy – whether fun, mean, annoying, sad, or scary – how, then, is an alcohol-serving entity supposed to predict or know what each customer will do if they get intoxicated?
This is why the issue has to come down to material fact: the knowing. Was the person who caused the damages visibly drunk and they continued to be served anyway?
Fortunately, most of the subrogated dram shop cases we see are not violent crimes but DUI-related automobile accidents involving personal injury and property damage.
Arkansas
Arkansas passed their Dramshop Act in 1999 after the landmark Shannon v. Wilson case. In this case, two 13-year-olds were passengers in a 16-year-old’s pickup truck. The 16-year-old drove them to City Liquor, a drive-through beer and liquor store. They were sold alcohol without being asked for an ID. The boys all drank in the truck and then drove to a pool hall, where the 16-year-old then left the truck. The two 13-year-olds then drove off and caused a crash that kills both of them.
The boys’ parents sued City Liquor, claiming the business was negligent. Not only were they minors, but they were not asked for ID, and they were literally driving at the time they were given the alcohol illegally. City Liquor appealed on the grounds that there was no precedent for that sort of liability in common law.
Arkansas decided that needed to change, as the employee selling the alcohol should have known they were minors, and the sale of the alcohol was the proximate cause of the boys’ deaths. Common law was then set forth to hold anyone who sells liquor to a minor liable for any damages they case while intoxicated as a result. In many states, this liability of serving a minor extends to anyone, which leads us to social host laws.
How Do Dram Social Host Laws Work?
Another set of laws that has arisen to address negligence in alcohol sales are social host laws. Subrogation law experts need to be similarly aware of these laws, particularly when considering a suit involving drunk driving.
Social host laws create a cause of action against those who serve alcohol to his or her guests. Unlike dram shop laws, the alcohol is not served for pecuniary gain. Nonetheless, in some jurisdictions, if a social host serves or condones consumption of alcohol on their property, and their guests drive away, the host has liability if that guest then causes an automobile accident or otherwise injures another person.
These social host laws focus on whether or not the host knew the guest was intoxicated and driving an automobile (usually), and are more specific about liability than dram shop acts. Generally, they won’t extend liability to a property owner with knowledge of the drinking on their property.
The concept of property is an important facet of social host subrogation cases. On one hand, the fact that the person became drunk on that person’s property makes the property owner liable if they provided the alcohol knowing the person was drunk, provided unreasonable situations that disregard safety (i.e. drinking games), or the person was drunk in front of the property owner.
On the other hand, case law often protects property owners who have no knowledge of or control over the drinking activities on their property during the time period at-issue. One such case, a teenager ran a red light and hit a pizza delivery driver at 70mph on residential street. He had previously been at a yacht party of a famous golfer. While the golfer owned yacht, he was not present at party, so he was not held vicariously liable. In this jurisdiction, there were also no social host laws at the time.
How Social Host Laws Play Out Across the Country
Social host laws are more specific, and often more convoluted, than dram shop laws. It is also important to note that unlike dram shop cases, social host cases only involved under-the-influence automobile accidents; they do not cover criminal acts. Still, the laws are applied differently in different states.
New Jersey
New Jersey provides a good example of the specificity of these laws. New Jersey extends liability if the drinker is visibly intoxicated in the presence of the host, or the beverages were provided under circumstances manifesting reckless disregard of the consequence of another, and the circumstances created an unreasonable risk of harm to life or property. Furthermore, injury must result from an automobile accident caused by the intoxicated person who was served by the social host.
However, this law would not extend to someone sneaking into a liquor cabinet or bringing their own flask, and it is limited to drunk driving incidents.
A landmark case from 1984, Kelley v Gwinnell, decided the question of property-owner liability when an inebriated adult leaves their property and causes a DUI-related incident. In this case, Gwinnell served liquor to Kelley until he was visibly drunk. It was not a party; Gwinnell had brought Kelley to his house for a couple drinks.
Gwinnell spoke with Kelley as he was leaving and watched him drive away, so there is no question of knowing Kelley had to drive to get home. Kelley then caused a head-on collision. His BAC was .286 at the time – more than 4 times the legal limit of .08. According to his expert at trial, he had been served the equivalent of 13 drinks at the time.
The court cited that New Jersey didn’t have a dram shop act, and common law liability only extended to minors up until this case. The court dismissed the case upon request for summary judgment. But the state disagreed, applying the negligence standard:
Gwinnell gave his guest liquor knowing he had to drive home, and he must have known Kelley was getting drunk, because at a BAC of .286, a person is visibly intoxicated – leaning, slurring, etc. A reasonable person in Gwinnell’s position would know this would make him not safe, which means allowing him to drive puts the public at risk. Further, that risk was foreseeable and resulted in foreseeable injury.
At the time, there was no common law that imposed a duty of care to the public onto a private third-party. As a result of this case, in which Gwinnell was held liable for the collision caused by Kelley, the state extended public duty of care to dram shops and social hosts. This means any person or business is just as responsible as the state for preventing drunk drivers being on the roads.
Rhode Island
Other states, like Rhode Island, limit social host liability to those serving alcohol to minors; a person has no duty of care to an innocent third party injured by an inebriated adult. In these states, the social host faces criminal liability for serving to minors plus civil liability on whatever damage is created by the drunk minors after leaving the property.
These laws extend not only to parents but to any adult in charge of a party, and usually require that the adult knowingly and affirmatively delivers the alcohol. This is why it is so important for subrogation professionals to be familiar with social host laws and also to ask lots of detailed questions about what happened prior to any car accident involving a drunk driver.
If a jurisdiction does not have a social host law, there are certain times when general negligence law will impose a duty on social hosts. As a general rule, a landowner has no duty to protect another from harm caused by the dangerous or illegal acts of someone else, even when those acts occur on the landowner’s property.
However, there is an exception when the plaintiff and defendant bear a special relationship to one another. When the wrongdoer is a minor, general negligence law may be an avenue for a subrogating insurance company to hold a landowner financially liable for the acts of their drunken guest. Rhode Island essentially extended dram shop liability to private persons.
Washington
Washington State addressed social host laws with regard to minor tortfeasors with Reynolds v Hicks in 1998. In this case, Hicks, a minor, attended a wedding reception for family, where there was wine, champagne and a hosted bar. Hicks claims the bar was not hosted, however, and that he freely made himself drinks without anyone else’s involvement. He then leaves in his sister’s car around 1 am. Hicks hits Reynolds. Both had a BAC of .17 at the time of the accident.
Reynolds proceeds to sue Hicks, his sister, and the wedding hosts for his injuries on the grounds that Hicks caused the injury, Hick’s sister owned the car, and the wedding hosts were the ones who provided alcohol. The court disagreed and issued a summary dismissal to the claim against Hick’s sister and the wedding hosts.
Reynolds appealed all the way to the Washington Supreme Court. This court ruled that Reynolds could hold Hicks directly liable and his sister vicariously liable, but not the wedding hosts. In Washington, there is first-party liability, but not third-party, meaning that Hicks could have sued the wedding hosts for his injuries, but Reynolds could not.
Illinois
Let’s revisit Illinois, whose dram shop laws are broad-coverage, for their social host laws. Where the tortfeasor was coming from is all-important in a social host case, but so is the material facts of the incident itself. This was set forth by Illinois’ Supreme Court in a 1987 case where a man got drunk at an AMVETS bar, left drunk, and was crossing the street when a driver hit him.
The injured man sued the motorist. In response, the motorist tried to utilize Illinois’ strict dram shop laws to sue the AMVETS bar, claiming they were liable under common law because they knew he was drunk. The State of Illinois disagreed, and set sole responsibility on the driver, as they should have never hit a man crossing the street in the first place. Whether or not the injured man was drunk was no matter.
In a similar vein, a subrogation case we handled recently involved a sober insured and a drunk opposing driver who got into a car accident. Was the opposing driver drunk? Yes. Was the sober driver driving the wrong way on a one-way road? Also, yes. So in this case, the proximate cause had nothing to do with the fact that one person in the situation was intoxicated. That was one case we had to tell our client to let go, as it was clear the insured was the one at fault.
The Takeaway for Subrogation Professionals
It is extremely important to ask questions about a tortfeasor involved in a car accident. Where that person is coming from, what they did, and who they interacted with can be critical information for subrogation litigation – good or bad. It can open avenues of financial liability that help an insurance company recoup loss. Or it can offer an unfortunately finality to a case. Though, in subrogation and insurance law, finality in itself is always a good thing.
A skilled subrogation lawyer includes these questions in their discovery process; it is especially important where the wrongdoer is uninsured and lacks assets. Here, subrogating insurance companies need the additional liable party(ies) to help satisfy the paid out damage claims.
A Note About Subrogation, Bankruptcy & Intoxication
When you have a tortfeasor who was intoxicated when they caused damage, bankruptcy discharge specifically does not discharge an individual debtor for the death or personal injury caused by the tortfeasor’s operation of a motor vehicle, vessel, or aircraft. Therefore, even if your tortfeasor is discharged in bankruptcy court, you still may have an avenue for recovery under the right circumstances.
If the damages arose out of a motor vehicle collision, the tortfeasor was driving under the influence at the time of the collision, and the damages are personal injury or death, then that discharge does not apply to your claim. This exception does not extend to property damage, only medical insurance claims. As a result, a subrogating insurance company may be able to pursue an individual following an accident even after that person files for bankruptcy.
Additionally, willful and malicious injury by a tortfeasor to another entity is not dischargeable; this includes personal property damage. So, if the tortfeasor committed the action on purpose, they can’t get out of that in bankruptcy either. Negligent drunk driving will not extend to property damage, bankruptcy proceeding do not protect the deliberate, willful, and malicious conduct of a tortfeasor.
Last Words for Anyone Hosting a Party
Even if you are not a subrogation professional, it is important to realize that if you are throwing a party, you may be responsible for the actions of your friends and guests. When you take away your drunken guest’s keys, call them rideshare, or let them stay overnight at your house, you not only prevent them from harming themselves and others, but may also protect yourself from financial liability for their actions.
Listen to the complete Tipsy Podcast above for more discussion on dram shop and social host laws, and check out our YouTube channel and podcast library for more episodes of On Subrogation, where we discuss complex subrogation topics in easy-to-understand ways.