IA: Liability insurance costly for alcohol servers
By Brianne Pfannenstiel
June 29, 2015
Nicole Berte’s body was found in the cab of a pickup truck along a gravel road southeast of Algona.
She had been at a bar with Randy Bode — who would later confess to raping and then killing her before burning her body.
Although Bode, who had a history of sexual abuse, would eventually be sentenced to time in prison, it was a bar owner who got hit with a lawsuit in 2002 from the woman’s family seeking damages.
Under Iowa law, any bar or restaurant that serves a patron to the level of intoxication is liable for that person’s behavior after he or she leaves the establishment. That can include drunken driving, property damage, physical assault or, as the Iowa Supreme Court ruled in this case, murder.
In the past, “two people got in a fight in your bar, you broke it up, they sat down at the bar and started drinking again. Everybody’s happy,” said Scott Anderson, owner of Saints Pub & Patio, which has locations across the region. “Today, they both run to their attorney, and they sue the bar because we served them too much.”
Bars and restaurants that serve alcohol by the glass are required to carry what’s called “dram shop” liability insurance, which acts to compensate the innocent victims of crimes perpetrated by drunken bar patrons.
A fluid dram equals one-eighth of a fluid ounce. In England, dram came to mean a small serving of alcohol, and dram houses were taverns where one could purchase a dram, according to Encylopaedia Britannica.
Only businesses that pour alcohol by the glass are required to have dram shop insurance. Liquor stores, convenience stores and grocery stores are not.
Although many restaurant owners agree that victims of these types of crimes should have some recourse, they say current laws ignore the need for personal responsibility and rely instead on outdated notions of alcohol control. The result is costly for business owners and doesn’t always protect the public interest, they say.
“Historically, I think bar owners have been looked at as maybe less reputable than other businesses,” said Darin Beck, who owns several bars in downtown Des Moines. “So nobody’s really come to the rescue on this. And public policy has failed in the meantime.”
Insurance premiums keep climbing
The Iowa Supreme Court sent the Bode case back to a lower court. Ultimately, the parties settled out of court, and the details are confidential.
Although the court broke new ground in ruling that the bar’s potential liability for behavior extended to murder, the idea of bar owner liability is far from new. It predates Prohibition.
The court’s opinion cites case law from 1907, in which an Iowa man’s widow sought monetary relief from the bar that served him alcohol before he went home and shot himself.
“I think you see laws like this being imposed as sort of a check on the service of alcohol that was part of the Prohibition movement and part of the whole idea of inhibiting service,” said Dan DeKoter, a partner with DeKoter Thole & Dawson PLC, who defends bars and restaurants in dram shop claims. “So I think socially and politically it stems from the notion that somebody serving alcohol isn’t doing a public service and that maybe they should be liable for that.”
DeKoter, who defended the bar in the Bode case, said the prototypical dram shop case starts with somebody drinking at a bar or restaurant, getting into their car and causing some sort of accident.
The plaintiff — claiming injury as a result — must show that the bartender knowingly or reasonably should have known he or she was serving the patron to the point of intoxication or that the patron was already intoxicated.
“It all comes down to the observation that the bartender has of the patron,” said Guy Cook, an attorney with Grefe Sidney PLC, who has represented both plaintiffs and defendants in these cases. “The law is quite specific that it’s not a question of whether you drank to the point of being too drunk to drive. The question is how did you conduct yourself in the bar or restaurant such that the bartender should have reasonably known you were intoxicated.”
He said expert witnesses are often brought in to discuss things such as how many drinks it takes to begin affecting people of a specific height and weight. Bartenders are also trained to recognize slurring of speech or loss of balance, he said.
Even so, bar owners point out that on a busy night it can be impossible to know how much someone has had to drink. People often drink before they show up at a bar, and they often drink somewhere else after they leave.
Both Cook and DeKoter said it’s not uncommon for a victim to file claims against every bar the drunken driver patronized before causing an accident. That could mean the bar serving a cocktail at happy hour would face the same claim as the bar serving rounds of shots right before last call.
And even though the accusations may ultimately be ruled without merit, they can be costly to defend, and a policyholder’s insurance premiums may skyrocket anyway.
Beck said he had a claim filed a couple of years ago after a white man in one of his bars called a black mixed martial arts fighter a racial slur. A fight ensued, the white man was injured and he filed a suit against the bar.
That case never went to trial. But Beck said his premiums went from about $4,800 a year for up to $2 million in aggregate coverage to $60,000 a year for just $300,000 in aggregate coverage.
“Anyone who’s had a dram shop claim will tell you you’re going to pay dearly for it,” he said.
Legislature rejects proposal for study
The Iowa Restaurant Association proposed a bill in the Iowa Legislature earlier this year that would have commissioned a study of the state’s dram shop laws.
Jessica Dunker, the organization’s president and CEO, said members would like to investigate whether it’s feasible to remove the requirement for dram insurance altogether and instead require alcohol retailers to pay into a victims’ compensation fund.
That fund could be accessed by victims of alcohol-related incidents like drunken driving crashes. That way, victims always have a place to go, regardless of who sold the alcohol, she said.
Currently, the victim of an accident has nowhere to go if the driver becomes intoxicated from beer bought at a liquor store rather than a restaurant.
It also would be more equitable, Dunker said, because every business that benefits from the sale of alcohol would put money toward helping those who are harmed by it.
Sarah Pritchard, owner of Table 128 Bistro and Bar in Clive, said she has not had a dram shop claim yet, but her premiums have “more than doubled” since she’s been in business.
“I’m in the business because I love it, but also to provide for my family,” she said. “And I am happy to pay for the things I am required to pay for, like dram insurance. … But if you’re benefiting from the sale of alcohol, you should also contribute to the cost of it.”
However, the Iowa Grocery Industry Association opposed the legislation. President Michelle Hurd said grocery stores shouldn’t be held to the same standards as bars and restaurants because they’re not actually serving the alcohol and have no way to know whether a person will drink too much.
“The current law has been in place for a long time, and it seems to be working,” Hurd said. “There are some laws in place that prohibit us from selling to people who have already consumed too much.”
Bob Skow, CEO of Independent Insurance Agents of Iowa, said he supports commissioning a study that would look at the system to try to identify possible alternatives. Though he doesn’t yet have a position on a victims’ fund, he said he understands why bars and restaurants want to see other alcohol retailers pay into the system.
“Iowa has a tough law in my personal opinion,” he said. “But then if you’re a victim of someone who’s drunk driving, they’d probably say it’s not tough enough. So this is a huge public policy debate that’s going to take place that impacts a lot of folks — not only those who make a living selling alcoholic products, but the general public.”
He said few insurance carriers offer this type of specialty coverage because it is so risky, but the ones that have built a business around it likely won’t love the idea of doing away with the requirement for coverage.
Dunker acknowledges what they’re asking for would amount to “a huge overhaul.”
“I think (the last time) they took a really serious look at these insurance laws was 30 years ago,” she said. “… Now we’re at a critical mass where some of this has to be overhauled or we cost ourselves business.”
The legislation called for a study of the current system and of the feasibility of a victims’ fund. Dunker said some of the language needed work, so her association plans to reintroduce it during the next legislative session.
Few offer dram insurance coverage
In Iowa, a limited number of companies offer dram insurance coverage.
Many insurance carriers don’t like the risk, said Gib Keller, an insurance agent with Bukaty Agency, which represents Scott Anderson, owner of Saints Pub & Patio.
The Insurance Services Office grades states on a scale of zero through 10, with 10 being the greatest liability exposure for bars and restaurants. Iowa rates a seven on that scale, which the organization says indicates a moderate level of liability for a liquor vendor.
Iowa’s surrounding states rank at four or lower. Keller said many insurance carriers require a state’s liability rating be at six or below before offering coverage there.
“I kid you not when I tell you there are about 10 companies in the United States that would potentially insure us,” Anderson said. “And I kid you not when I tell you two years ago, we got one out of those 10 to agree to do it.”
The number of companies willing to issue dram shop insurance changes based on the percentage of revenue that comes from alcohol. So a restaurant like Chili’s or Applebee’s, which has a bar but primarily serves food, would have more options than bars on Court Avenue that primarily serve alcohol and little food.
Anderson said that as his company expanded, he looked at adding bars in both Council Bluffs and Omaha. He ultimately chose to skip Council Bluffs for a number of reasons, not least of which was more favorable dram shop laws in Nebraska.