“Lawsuits Mounting Against Liquor Servers” Insurers, agents must watch out for special treatment afforded to ‘regulars’ by Michael Campo, CPCU, ARM, AU Senior Vice President, Unit Manager Lockton Companies, Inc. – Kansas City Division Published in National Underwriter, January 10, 2005 As society’s 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 drunken-driving problem. In response, hospitality organizations (i.e., restaurants, taverns, and hotels) that serve alcohol have focused their efforts of loss prevention primarily toward educating the “front line” servers on the do’s and don’ts 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 serving alcohol, posting signs promoting responsible drinking, carding patrons who appear 30-years-old or younger, providing free food for persons 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 ten 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 and 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. “Regulars” One such prevalent factor involves how patrons who frequent an establishment often (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 client’s 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. Ronald Beitman, a leading dram-shop attorney and editor of the Dram Shop and Alcohol Reporter. He is quoted in the November 25, 2002, issue of Nation’s Restaurant News as saying, “Every bar and restaurant has regular customers, and sadly, some of them are habitual drunks who know that if they go to the bar at certain times of the day, when their favorite bartender or waiter is on duty, they are going to be well taken care of. And the bartender or waiter know they are going to be well taken care of, too, because of the tip.” As an underwriter or broker, 1. Dig through the loss runs. Read the adjuster notes, or 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. 2. 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 utilize 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 most liquor liability suits are served right before the statute of limitations expires. We have seen instances where plaintiff attorneys will wait for the outcome of a related criminal trial before filing civil action against an establishment. If the first notice to the establishment comes from a plaintiff’s attorney, then the establishment has already placed itself in an incredibly poor defensive position. Plaintiff attorneys will exercise due diligence before agreeing to take on a liquor liability case. Savvy plaintiff 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 management’s knowledge, taken damaging photographs, observed inconsistencies in serving procedures, etc., long before the time the actual lawsuit is presented, usually two years after the incident. It is imperative that management at enterprises that serve liquor creates 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 drunken-driving accidents occur in close proximity to the establishment in which the drivers were served. Employees that 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, 1. Inquire as to what mechanisms (i.e., notification procedures, training, claim charge-back systems that penalize late reporting, bonus reductions, employee corrective action, etc.), if any, the establishment has in place to encourage the early reporting of potential liquor liability incidents. 2. 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? Postincident Investigation Our analysis shows those organizations who are made immediately aware of possible incidents and who 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 certain facts have significant relevance in building a defensive claim position. A comprehensive discussion of conducting a postincident 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 insurance company 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 presents itself two years after the date of incident. 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 postincident investigation.
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