Alabama’s new dram shop statute has been heralded for months as a “historic dram shop reform” and a win for the restaurant and hospitality industry. Ostensibly, the new legislation makes it harder to sue restaurants and bars for dram shop claims, thereby lowering the risk of exposure, and in turn, lower dram shop insurance premiums. Alabama plaintiff lawyers (through their powerful lobbying groups) were consulted on the bill, proposed changes to the bill, and ultimately agreed to the bill as passed. Why would Alabama plaintiff lawyers agree to dram shop reform making it harder for them to recover money from small businesses and harder for them to put money in their pockets? One likely reason is the so-called “dram shop reform” bill is part of a larger strategy by Alabama plaintiff lawyers to increase minimum dram shop coverage requirements. The long-term outcome will be higher dram shop premiums for local restaurants and bars, not lower premiums. Let me explain:
First, a quick comment on a substantive change in the law which industry claim is a major win for the restaurant and hospitality industry. The causation standard in Alabama’s former dram shop statute was “consequence of”. The standard casts a very broad net and made it easy to connect a restaurant’s or bar’s violation of the dram shop statute with injuries a plaintiff sustained in a subsequent drunk driving accident. The new dram shop statute uses the more familiar “proximate cause” standard. Academically, the new statute’s “proximate cause” standard makes it harder to meet the elements of a dram shop claim. However, from a practical standpoint, this change is almost meaningless. Causation is almost always a jury question; it is extraordinarily rare for a trial judge to dismiss a case at the summary judgment stage on proximate cause, and even more rare for Alabama appellate courts to uphold a dismissal on that basis. Anecdotally, plaintiff lawyers don’t really care about causation. If they can get their case in front of a jury, they gloss over the proximate cause element and focus on a defendant’s violation of rules, and the plaintiff’s injuries, pain, and suffering. So, changing the causation standard from “consequence of” to “proximate cause” is nothing more than a superficial academic change in the law.
Large restaurant and hotel chains make insurance programs available to franchisees—think Applebee’s, Olive Garden, Hampton Inn, Marriott etc. The scope and scale of those insurance programs makes it economical for franchisees to secure $1,000,000.00 or more in dram shop coverage. However, there is no question dram shop coverage in Alabama is very expensive and hard to obtain for local restaurants and bars. A number of factors contribute to expensive and hard to obtain dram shop insurance:
- Alabama’s former dram shop statute was essentially a strict liability statute making it relatively easy to blame restaurants and bars for a drunk driver’s criminal wrongdoing.
- High jury verdicts against Alabama businesses increase the risk restaurants and bars will also have to pay large sums of money.
- All Alabama Alcoholic Beverage Control Board licensees are required by law to have a minimum amount of dram shop insurance coverage. This creates what economists call inelastic demand. When an insurance carrier knows you’ve got to have dram shop coverage to sell alcohol (like a pharmaceutical company knows you’ve got to have medicine to stay alive), the insurance company can command a higher premium and they know you’ll pay it or you can’t be in business.
Since dram shop insurance is expensive and hard to obtain for local restaurants and bars, they naturally obtain the absolute minimum dram shop coverage required: $100,000.00 single-limit coverage. A plaintiff may obtain a judgment against the restaurant or bar in excess of $100,000.00 but there is usually no economical way for a plaintiff to recover anything other than the $100,000.00 in insurance coverage. This is so even when there are multiple fatalities or life-altering injuries as a result of a drunk driving accident. Restaurant and bar owners—if they are smart—lease the restaurant/bar property from a separate legal entity and take other actions to limit a plaintiff’s ability to collect amounts in excess of the insurance limit. Practically speaking, it is not worth the plaintiff lawyer’s time to execute a judgment (take possession of a local restaurant or bar’s tables, chairs, and used restaurant equipment and then sell those assets to satisfy part of a judgment). The juice is generally not worth the squeeze.
One might conclude that the sensible thing is to mandate higher minimum insurance requirements. However, this is simply not politically possible. Dram shop insurance premiums already have local restaurants and bars stretched thin. An increase in the minimum dram shop coverage limit would significantly increase a local restaurant’s or bar’s insurance costs; restaurants and bars would pass that increase along to the customer, or simply shut down. That, in turn, would result in job losses and other politically unpalatable outcomes. The restaurant and hospitality industry would revolt!
For the reasons previously stated (no economical way to collect excess judgments from most restaurants and bars), a real pro-small business move would be to remove dram shop insurance coverage requirements altogether. Eliminating state-mandated insurance requirements and passing a statute similar to Louisiana’s dram shop statute, would decrease dram shop insurance premiums for local restaurants and bars. However, Alabama plaintiff lawyers won’t let that happen. They’re not happy with the current $100,000.00 single-limit coverage requirement, but $100,000.00 is better than nothing. And, a dram shop statute like Louisiana’s statute would all but eliminate dram shop claims in Alabama.
So, plaintiff lawyers have “conceded” to the passage of a superficially stricter dram shop statute which should attract more dram shop insurance carriers to the state and decrease the cost of dram shop coverage for local restaurants and bars in the short term. That sounds great, right? But, in the next couple of years, I predict Alabama plaintiff lawyers will lobby for an increase in the minimum dram shop coverage requirements from $100,000.00 single-limit coverage to $250,000.00 or more. They’ll support lobbying efforts with short-term data showing the dram shop reform bill lowered dram shop premiums in Alabama. They’ll argue that since premiums have gone down for local restaurants and bars, local restaurants and bars can financially tolerate an increase in state-mandated minimum insurance coverage limits. That’s where I think this is all headed.
If the plaintiff lawyers’ long game works out:
- More dram shop lawsuits will be filed against local restaurants and bars because the superficial dram shop reform bill raises no meaningful barrier to suits against restaurants and bars, and there’s more insurance coverage available for the taking;
- With higher state-mandated insurance coverage requirements, dram shop insurers will necessarily increase premiums making it even more expensive than it currently is for local restaurants and bars to obtain dram shop coverage; and,
- Higher dram shop insurance premiums will be passed from the insurance carrier to restaurants and bars, and from restaurants and bars to the customer in the form of higher food a beverage costs.
I have defended restaurants, bars, breweries, and hotels in dram shop lawsuits for over fifteen years. I have also defended ABC licensees before the ABC Board, and I’ve trained hundreds of restaurant and hospitality employees through Alabama’s Responsible Vendor Training Program. So, I count myself as a champion of the industry and a strong advocate for small businesses. But, I think the new dram shop statute is far from a “historic reform”. Although the new Dram Shop statute may result in some short-term relief from dram shop insurance premiums, I think Alabama plaintiff lawyers’ long-term strategy is not good for local restaurants and bars in Alabama. I hope I’m wrong about the new dram shop statute and the plaintiff lawyers’ long-term goal, but as I am often reminded, hope is not a strategy.
M. Jansen Voss represents restaurants, bars, breweries, and hotels in Dram Shop lawsuits. He also assists clients with regulatory and licensing matters before the Alabama Beverage Control Board.
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