When defending dram shop/liquor liability cases, one sees on a repeat basis some of the worst effects that the over-consumption of alcohol can have. Here in Pennsylvania, we also encounter some fairly inconsistent results with respect to the ability (or relative inability) of an injured party, or a deceased claimant's family, to recover for the injuries and damages caused by the alleged intoxicated patron (referred to in our world as the AIP). One reason for this inconsistency is that there is no requirement in Pennsylvania that liquor licensees carry liquor liability insurance. As a result, many businesses choose not to do so.

In speaking with clients, typically insured clients, one of the questions we hear most frequently is, "Why aren't all bars required to carry liquor liability insurance?" Another question posed to our insurance carrier and agent colleagues on a daily basis from insureds is, "if we aren't required to have it, why should we get it?"

As there is no clear answer for the first question, this affects the ability to straight-forwardly answer the second.

Even though there is no insurance requirement, it is important to note at the outset that Pennsylvania takes the service of alcohol to visibly intoxicated patrons (VIPs) and minors very seriously. First, the commonwealth has dram shop liability, enacted by statute. Some states have not enacted such statutes but instead rely on common law, while others completely forego dram shop liability altogether.

Moreover, the commonwealth has statutorily carved out an exception to the Pennsylvania Fair Share Act that retains joint and several liability for liquor licensees under certain scenarios. While any other alleged tortfeasor would be entitled to an allocation of responsibility from a jury, a liquor licensee is often not.

Despite taking the above steps, which are substantial, the commonwealth has stopped short of requiring licensees to carry liquor coverage.

This is not because the commonwealth lacks the power to do so. Since the enactment of the 21st Amendment, states have essentially been free to regulate alcohol sales as they see fit.

Further, other states require insurance as a condition of the liquor license. In South Carolina, for example, any bar or restaurant that serves alcohol after 5 p.m. is required to carry liquor coverage in the amount of $1 million or more. Failure to do so can result in the revocation of the liquor license.

Pennsylvania requires insurance in connection with other licenses. The commonwealth requires physicians to carry $500,000 in professional liability insurance. Physical therapists are also required to maintain $1 million in professional liability insurance. And the operation of a motor vehicle without the requisite insurance in Pennsylvania can result in the suspension of the operator's driver's license.

So while it clearly has the power to do so, it would appear that the commonwealth has simply not yet seen fit to attach a requirement of liquor liability insurance to its licensing requirement. This decision to stop just short of that final step has some unfortunate, likely unintended, consequences.

The most obvious unfortunate consequence is the seriously injured plaintiff who is not fully compensated for the damage done by the AIP. The power to sue the licensee is codified in statute. However, the ability to recover is dependent upon the licensee's decision to purchase insurance, or the existence of sufficient assets in the name of the licensee to cover the damages caused, or, at the very least, to even make a lawsuit worthwhile.

Another unintended consequence of this system is that the failure to make coverage mandatory in some ways discourages responsible bar owners from purchasing such insurance. This is a serious concern raised by many of the most responsible, most reputable business owners that we represent. Being an insured licensee—in a world where insurance is not required—can make the business a target of litigation that may not have otherwise been filed against it.

We hear this complaint from bar and restaurant owners time and time again. For the time being, the only response we can give to these concerned business owners is to say, "You are right, having insurance may mean that you get sued in a circumstance where you otherwise may not have been. However, that doesn't mean that purchasing insurance isn't still the most responsible decision for you, your investment, your employees, your customers and your community."

The concerns of bar and restaurant owners arise from a hypothetical (though not far-fetched) scenario in which the AIP stops at two different businesses. In this scenario, the first licensee is a nice restaurant where the AIP consumes three to four drinks while having dinner over the course of two hours. The second licensee is a nuisance bar that overserves the AIP for hours. The AIP decides to drive home. On the way home, the AIP crosses the center line and is involved in an accident. An innocent party on her way home from work is injured. While the restaurant maintains insurance, the bar does not.

The innocent party is not fully compensated by the AIP's state minimum auto policy for her injuries. Since the bar does not have insurance, the restaurant is very likely to be sued.

If the bar were required to maintain insurance adequate to compensate the innocent party, then the restaurant would very likely not be sued. Moreover, if neither the restaurant nor the bar had insurance, the restaurant would likely not be sued.

Additionally, as Pennsylvania carved out an exception for dram shop liability under the Pennsylvania Fair Share Act, if the restaurant is found to be liable at all, it is not merely paying for its "fair share" of the damage caused by the AIP. Instead, the restaurant is paying the verdict in its entirety, minus any minimal reductions for the auto insurance available from the AIP's state minimum coverage. Notably, this is not a verdict entered after the jury hears only of the conduct of the restaurant (which is not outrageous in any way). Instead, the verdict is entered after the jury hears all about the reprehensible decisions of the AIP and the bar—neither of which have a dime to contribute to payment of the verdict (but the jury won't know that).

Thus, the practical effect of the decision to carry liquor liability insurance coverage is that the responsible business owner, who has planned for this possibility, is oftentimes stuck "holding the bag," so to speak, for the actions of the irresponsible business that overserved the AIP later that night.

This example is perhaps slightly overstated, but it is a complaint that we hear from our clients over, and over, and over.

We repeatedly reassure our clients that it remains the most responsible decision—given the system that we currently have—to carry this insurance. However, it is hard to view a system that can offer such inequitable results as ideal. Given that Pennsylvania has taken the important steps of establishing dram shop liability and has further shifted the risk of loss to licensees by the exception to the Fair Share Act, the most sensible progression would be to enact an insurance requirement. This would ensure that victims can actually recover damages, and that responsible businesses are treated as fairly as possible.

Patrick T. Reilly is a shareholder and Lauren E. Purcell is an associate in the Pittsburgh office of Marshall Dennehey Warner Coleman & Goggin. As members of the firm's hospitality and liquor liability practice group, they defend private and chain restaurants, bars, hotel properties and entertainment venues when claims are brought against them. They may be reached at [email protected] and [email protected].