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The U.S. Court of Appeals for the Third Circuit has ruled that an insurer could bring an action for contribution under state law against a restaurant that allegedly overserved alcohol to its insured, rejecting the restaurant's claim that the Dram Shop law precluded the insurer's suit.

The Case

On the night of March 20 and the early morning of March 21, 2011, Brian Viviani attended an event at Stone Mansion, a restaurant in Pittsburgh. The restaurant allegedly furnished him with alcohol until he became intoxicated and then continued to serve him alcohol. Thereafter, Viviani left Stone Mansion and drove away in an automobile with Helen Hoey, who had hosted the event. After Viviani drove a short distance, his vehicle struck a guardrail and flipped onto its roof, killing him and causing Hoey significant injury.

Hoey sued Viviani's estate in a Pennsylvania state court. She alleged that the accident had occurred because Viviani had been driving while intoxicated. His estate tendered the defense against the lawsuit to Encompass Insurance Co., which insured the vehicle.

Encompass reached a settlement with Hoey under which it paid her $600,000 and she released her claims against all possible defendants.

Encompass then filed an action against Stone Mansion, alleging that:

(1) It stood in the shoes of the insured, Viviani's estate.

(2) Stone Mansion served Viviani alcohol while he was visibly intoxicated.

(3) “Under Pennsylvania's Dram Shop law, a business or individual who serves alcohol to a visibly intoxicated person is legally responsible for any damage that person might cause.”

(4) As a joint tortfeasor under the Pennsylvania Uniform Contribution Among Tortfeasors Act (UCATA), Stone Mansion was liable to Encompass for contribution.

Stone Mansion moved to dismiss the action under Federal Rule of Civil Procedure 12(b)(6), arguing that Pennsylvania's Dram Shop law established liability for liquor licensees only “in favor of third persons on account of damages inflicted upon them” and that neither Encompass nor Viviani's estate were in that class of persons.

The U.S. District Court for the Western District of Pennsylvania granted the motion to dismiss with prejudice, noting:

“The plain, unambiguous reading of [the Dram Shop law] indicates that a licensee, such as Stone Mansion, is liable only to third persons (Hoey in this case), for damages inflicted upon the third person—off the licensee's premises—by a customer of the licensee ( Viviani in this case), but only when the licensee furnishes that customer (Viviani) with alcohol when he was visibly intoxicated. [The Dram Shop law], with its limited scope, indicates that Stone Mansion may have been liable to Hoey—depending upon whether Stone Mansion served Viviani alcohol while he was visibly intoxicated. Encompass' [c]omplaint establishes that Encompass is acting as if it were Viviani in order to recover under Pennsylvania's Uniform Contribution Among Tortfeasors Act. Because the[r]e is no potential cognizable claim under [the Dram Shop law] as between Viviani/Encompass and Stone Mansion, there is likewise no claim for contribution, and thus, Stone Mansion's motion to dismiss will be granted.”

Encompass appealed to the Third Circuit, arguing that the UCATA provided for contribution among joint tortfeasors and that the Dram Shop law did not preclude recovery for contribution.

The Third Circuit's Decision

The circuit court ruled that the district court had erred in granting Stone Mansion's motion to dismiss.

In its decision, the Third Circuit explained that the UCATA established that, as a general rule, “the right of contribution” existed among joint tortfeasors.

The Dram Shop law, the Third Circuit added, limited the liability of liquor licensees in a specific manner: third persons such as Hoey, having been injured by a customer of the licensee, only could recover from the licensee if it served alcohol to that customer when he or she was visibly intoxicated.

According to the circuit court, “[n]othing in that language” shielded licensees from responsibility for contribution among joint tortfeasors for the harm caused to protected third parties. In the Third Circuit's opinion, it did not matter that Encompass was not in the class of third parties envisioned in the Dram Shop law because it was not seeking to recover against Stone Mansion under that law. Instead, because Encompass' settlement agreement with Hoey extinguished Stone Mansion's potential liability to her, Encompass was “entitled to pursue a contribution claim against Stone Mansion under the UCATA.”

The Third Circuit ruled that, on these facts, “equity demands—and the Dram Shop Law does not prevent—the possibility of contribution from the licensee to the insurer of the intoxicated customer.”

The Third Circuit concluded that its ruling would encourage insurers to settle claims and incentivize licensees to serve alcohol responsibly, which would “benefit Pennsylvania's citizens and promote the Dram Shop law's aim of protecting society from the negligent service of alcohol.”

The case is Encompass Insurance v. Stone Mansion Restaurant. Attorneys involved include Joshua R. Guthridge and R. Sean O'Connell of Robb Leonard Mulvihill in Pittsburgh for the appellant. Miles A. Kirshner and Kyle T. McGee of Margolis Edelstein in Pittsburgh were counsel for the appellee.

Steven A. Meyerowitz is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. As FC&S legal director, Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.