Purpose: Protects insureds or their indemnities engaged in the business of manufacturing, distributing, selling or serving alcoholic beverages against liability imposed by law or statute for injury or damage resulting from actions because of intoxication of any other person by reason of the sale or distribution of alcoholic beverages by the insured. This policy is designed to protect the insured against liability imposed by strict Dram Shop Acts in certain states and by common law cases in others, which is excluded in the current revisions of the General Liability policy. Donald S. Malecki, CPCU, insurance and risk management consultant, researched the liquor liability exposure throughout the country and provided the information below with respect to the various states. The market for the protection is a tight one, compounded by the relative uncertainties of the risk involved and reinsurance problems. It is underwritten by specialists in the field, A list of underwriters is found in the Market Directory section of the Specialty Coverage binder.

A Liquor Liability policy, previously called a Dram Shop Liability policy, pays on behalf of the insured all sums which the insured becomes legally obligated to pay as damages because of the intoxication of any other person by reason of the sale or distribution of any alcoholic beverage. Defense, settlement and supplementary payments usual to Liability insurance policies are also covered.

Insureds in the business of manufacturing or selling alcoholic beverages have an exposure, in varying degrees of severity depending on conditions in the state involved, a consequence of common law or statute, that is not covered by standard provisions General Liability insurance. Special insurance is required for the exposure.

General Liability insurance basically excludes coverage, for persons or organizations in the business of manufacturing, distributing, selling or serving alcoholic beverages, for injuries or damage arising out of selling, serving or giving such alcoholic beverages, not only in violation of a statute, ordinance or regulation, but also if such sale, gift or service is to a minor, to a person already under the influence of alcohol, or if it causes or contributes to the intoxication of any person.

It is notable that the liquor liability exclusion under standard General Liability policies written prior to 1986 for owners or lessors of premises used for the manufacturing, distributing, selling or serving alcoholic beverages, who themselves are not engaged in such activity, has not applied to them--unless liability is imposed on them by a state Dram Shop law. ISO's 1986 edition of General Liability insurance clearly exempts them from the exclusion.

There are two forms of standard liquor liability coverage available as options under the Insurance Services Office program. One, form CG 00 33, is written on an occurrence basis, while form CG 00 34 is written on a claims made basis.

Two optional endorsements were introduced under the latest revision of the CGL program. The Amendment of Liquor Liability Exclusion (CG 21 50) extends the liquor liability exclusion of the basic CGL policy to apply also to businesses which regularly serve alcoholic beverages, whether or not they are profit or nonprofit.

This change was precipitated by court decisions which ruled that certain social clubs serving alcohol were not "in the business of" serving alcohol because they didn't charge customers for drinks or, if they did, no profit was made. In these cases the liquor exclusion was deemed not to apply.

A second optional endorsement, Amendment of Liquor Liability Exclusion-- Exception for Scheduled Activities (CG 21 51) modifies the liquor liability exclusion to include coverage for the use of alcoholic beverages only at specified company activities, such as picnics or holiday parties.

Vendors or alcoholic beverages are becoming increasingly accountable for their acts and omissions which result in harm to others. It is unfortunate that not all vendors are aware of their exposure to legal suit and financial loss.

Much of the problem concerns vendors in jurisdictions which are not subject to dram shop acts or other laws that are known for their imposition of strict liability. This is not to say that vendors who operate in dram shop states do not have something to worry about because they do, without question. However, vendors in dram shop states at least have the advantage of knowing what the law imposes and what their exposure to loss may entail.

The status of vendors' liquor liability in other jurisdictions, on the other hand, often is less clear and sometimes subject to change without warning, thus making vendors vulnerable to financial loss where no liability potential is thought to apply.

The Insurance Services office maintains a system of categorizing the status of jurisdictions exposed to liquor liability. Its purpose is to enable its member and subscriber companies, which write liquor liability insurance, to take the status into consideration when rating a particular risk.

The various jurisdictions under this system are divided into four groups ranging from A to D:

Group A--Applies in jurisdictions where no liability is imposed.

Group B--Applies in jurisdictions where moderate liability is imposed.

Group C--Applies in jurisdictions where strict liability is imposed.

Group D--Applies in jurisdictions with special requirements. Rates vary in these jurisdictions.

As of January 1, 1990, the states fall into the four categories as follows:

Group A includes: Arkansas, Delaware, Kansas, Maryland, Nebraska, Nevada, South Carolina, South Dakota, Texas, Virginia, West Virginia and Puerto Rico.

Group B includes: Arizona, California, Colorado, Florida, Georgia, Idaho, Indiana, Kentucky, Louisiana, Maine, Montana, New Hampshire, New Mexico, New York, Ohio, Oklahoma, Rhode Island, Tennessee, Washington, Wisconsin and Wyoming.

Group C includes: Alabama, Alaska, Massachusetts, Mississippi, New Jersey, North Carolina, North Dakota, Oregon, Vermont and the District of Columbia.

Group D includes: Connecticut, Iowa, Michigan, Minnesota, Pennsylvania and Vermont.

Missouri is rated in Group A for classes which sell alcohol for off- premises consumption; Group C, for classes which sell alcohol for on- premises consumption.

Finally, ratings for Hawaii and Illinois were unavailable as of this writing.

What all of this means is that both the legislatures of states as well as the courts are making vendors more accountable for their wrongs in the manufacturing, distributing, selling or serving of alcoholic beverages. Vendors, therefore, must be informed about these developments and given the opportunity to purchase liquor liability insurance because there have been a number of occasions when vendors have been caught short.

The fact that the states which comprise Group A have very little, if any, exposure to liquor liability does not mean that vendors have nothing to worry about; it may only take one court decision to change the status, and it could affect a vendor who is without proper protection.

Yet, it will likely be difficult for an insurance agent to sell liquor liability insurance to a vendor who operates in a Group A state. To protect future problems, all efforts of agents to sell insurance, no matter how futile, should be in writing.

Liquor liability laws began as far back as the mid-19th century in the U. S. when some states passed legislation known as dram shop laws. These laws generally provided for financial protection for families of habitual drinkers who were injured as a result of drunkenness in bars and taverns. An early law enacted in the state of Illinois provided for a maximum recovery of $15,000 in actual damages for personal injury or injury to property and $20,000 for recovery of means of support.

Early dram shop acts were enacted primarily to discourage drinking of alcohol and public drunkenness. With the passage of the 18th amendment and national prohibition more states passed dram shop legislation. However, with the repeal of this amendment in 1933, states began to repeal their dram shop legislation. There was relative inactivity in this area until California enacted one in 1978.

Thirty-eight states have passed dram shop statutes. In addition a national model dram shop act has been proposed. The explosion in liquor liability legislation has occurred in the past ten years as states have begun to take an aggressive approach to enforcing state laws on the sale and service of alcoholic beverages.

Surveys showed that when drivers were arrested for drunk driving, more than half the time they named commercial establishments as the place where they had last obtained alcohol. Tough enforcement of regulatory laws and new liquor liability legislation was encouraged by such organizations as RID, MADD and SADD.

Liquor liability insurance has been drastically affected by the burgeoning civil litigation against retailers. Insurability and premium rates have become a function of the insurance industry's reactive perception of the risk. In fact, risk factors and rates for liquor liability exposures may not be arrived at on a real statistical or scientific basis.

The public attitude toward drinking and driving--particularly on the part of minors--has led to the raising of the minimum drinking age of 21 in states where it had been less than that. Now only two states (Wyoming and Puerto Rico) are lower than 21. Of all actions that create liquor liability, cause injuries or death, the sale or service to minors is the most clear cut in terms of negligence of the bartender or owner.

The extent of the risk to which a tavern, bar, restaurant, liquor store, hotel or motel owner is exposed to liability arising from the sale or distribution of alcoholic beverages causing intoxication is described in the respective laws of the previously mentioned states. It is generally thought that in seven states Liquor Liability statutes are sufficiently strict to require the purchase of a Liquor Liability policy based on the provision of the statute. The states and a brief synopsis of the effect of the liquor law statutes in each state follows:

The Connecticut statute appears in Connecticut General Statutes, Title 30, Ch. 102 (1958). This was amended in 1986. The statute is imposed upon any person, or his agent, who sells any alcoholic liquor to an intoxicated person, and in consequence of the purchaser's intoxication another person or property of others is injured. The complaining party must prove that a person was liquor and that the person was intoxicated at the time he was sold liquor. Action may be commenced by the person injured, in person or property. The aggrieved party must give the seller written notice of his intention to bring action within 60 days of the occurrence of the injury, and the notice must specify the following: Time, date and person to whom sale was made; name and address of the person injured or whose property was damaged; and time, date and place where the injury to person or property occurred. Limits to damages set by the statute, as amended in 1961, are: $20,000 any one person; $50,000 aggregate per accident if more than one person is injured. Action must be commenced within one year from the date of the occurrence.

The Illinois statute is one of the strictest. Liability is created under Ill. Revised Statutes, Chapter 43, Para-graph 135 (1965) and is imposed upon persons selling or giving alcoholic liquor causing the intoxication, in whole or in part, of a person who causes injury. Action may be commenced by the person injured, in person or property; or by the person injured in means of support, in his or her name for the benefit of all persons injured in means of support. Under the Illinois statute there is a maximum recovery limitation of $15,000 on actual damages for personal injury or injury to property, and $20,000 limit on recovery of means of support.

A further provision of the Illinois statute creates liability to those people or organizations owning, renting, leasing or permitting occupation of any building or premises for sale of alcoholic beverages, and having knowledge of doing so. These persons or organizations are made jointly and severally liable with the person or persons selling or giving the liquor to the wrong-doer. The unlawful sale or giving away of alcoholic beverages works a forfeiture of all rights of a lessee or tenant under any lease or contract of rent. An action under the Liquor statute must be commenced within one year next after the cause of action occurred.

In Iowa under the statute (Iowa Code, Chapter 123, Paragraph 49; Chapter 129, 93-94) it is now necessary to carry Dram Shop Liability insurance, since it is impossible for a liquor establishment to sell liquor without a certificate of such insurance being filed with the Iowa Liquor Commission.

There are two bases for liability under the Iowa statute amended in 1985: (1) The sale and service of any wine, beer or intoxicating liquor to an intoxicated person when the licensee knew or should have known the person was intoxicated; the sale and service of a person to the point when the licensee knew or should have known that the person would become intoxicated.

There is a two-year statute with no limitation on damages recovered for injury resulting from the sale of liquor to intoxicated persons.

In Michigan liquor liability stems from Michigan Comp. Laws Annotated, 436.22 (1), (3)-(11), amended in 1985. Liability is created under the statute by injury to person, property or means of support or otherwise by an intoxicated person by reason of unlawful sale, gift or furnishing of liquor. Action is against one whose sale or gift caused or contributed to the intoxication or against the one causing or contributing to the injury.

There is no limit to the amount recovered under the statute, being those actual and exemplary damages suffered. The action must be instituted within two years after the occurrence of the event.

Minnesota's statute (Minnesota Statutes Annotated, Chapter 604.01, amended in 1986) is a severe statute with no limit to the amount of damages that could be recovered by an injured party. Action is based upon injury to the person, property or means of support by an intoxicated person or by intoxication of any person. The action is maintained against a person causing the intoxication by illegally selling alcoholic beverages. An illegal sale is one to any minor or to any person obviously intoxicated or to any of the persons to whom sale is prohibited by statute.

Action may be commenced by the husband, wife, child, parent, guardian, employer or other person so injured. Every person who claims damage under the act must give written notice to the licensee within 120 days of the occurrence. The action then must be commenced within two years after the injury.

In New York, liquor liability arises from the following statute, amended in 1985: N. Y. Gen. Oblig. Law Chapter 11, Paragraphs 100-101. Action is based on injuries to the person, property, means of support of any person by an intoxicated person, or by reason of the intoxication of any person, whether resulting in death or not. The right of action may be pursued against any person who shall, by unlawful selling to or unlawfully assisting in procuring liquor for such intoxicated person, have caused or contributed to such intoxication. The person pursuing this right of action has a right to recover actual and exemplary damages.

The New York law may not be as broad and as sweeping as statutes of other states, because it specifically refers to the unlawful sale of liquor in contrast to some laws that impose liability on persons having anything to do with the sale of liquor. However there are many situations where the sale is made illegally when the bartender did not intend to do so.

The North Dakota statute (No. Dakota Revised Code, Section 5-01 last amended in 1986). Action is based upon injury to the person, property or means of support of persons caused by an intoxicated person, or in consequence of intoxication, habitual or otherwise. Action may be brought against any person who, by selling, bartering, or giving away alcoholic beverages contrary to the provisions of the act, causes the intoxication of such person, for all damages actually sustained as well as for exemplary damages.

This statute is severe in nature, but apparently has not been put to much of a test, since there have been few liquor liability claims.

Liquor Liability insurance is not standard, so exclusions and limitations in the policy may vary from state to state and company to company. Also, some policies are written specifically to cover liability arising out of a particular state liquor liability statute. Since language in such a policy is specific and applies only to one statute, obviously this policy would not cover all situations excluded in the new General Liability policy. The following exclusions are taken from a Liquor Liability contract designed to cover both specific liquor law statutes and common law cases in all states.

The policy does not apply:

To injury expected or intended from the standpoint of the insured. However, the exclusion does not apply to bodily injury resulting from the use of reasonable force to protect persons or property ......

Any obligation of the insured under a workers compensation, disability benefits or unemployment compensation law .....

Bodily injury to an employee of the insured arising out of and in the course of employment by the insured, or the spouse, child, parent, brother or sister as a consequence ....

Injury arising out of any alcoholic beverage sold, served or furnished while any required license is suspended or after such license is suspended, expires, is cancelled or revoked ....

Injury arising out of the insured's product .....

The exclusion is inapplicable to injury for which the insured or his indemnity are held liable because of: causing or contributing to the intoxication of any person; the furnishing of alcoholic beverages to a person under the legal age or under the influence of alcohol; or any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

Any injury with respect to which other insurance is afforded. This exclusion does not apply to other liquor liability insurance carried by the insured.

Insured is defined as the named insured and also any executive officer, director or stockholder while acting within the scope of his duties as such, and any person or organization owning, renting, leasing or permitting the occupation of the premises designated in the declarations either in his own right or in any fiduciary capacity or having charge of as agent, general lessee or receiver. If the named insured is a partnership, any partner is included in the definition of "insured" but only with respect to his liability as such.

Policy applies only to occurrences taking place during the policy period. Cancellation may be made by either the company or the insured. Company must give ten days' written notice of cancellation.

It is evident with the new Liability policy revisions that such risks as taverns and bars, restaurants serving alcoholic beverages, package liquor stores and drug stores having similar departments, as well as country clubs and hotels and motels having bars and cocktail lounges, have a definite need for Liquor Liability insurance. A review of the Dram Shop statutes in some states indicates a far more urgent need for this insurance in those states, but current decisions of courts in many states not having strict liquor statutes have posed an uncertain threat everywhere to persons engaged in the business of manufacturing, distributing, selling or serving alcoholic beverages.

Insurance agents must not overlook the variety of businesses which may need liquor liability insurance. While most of the effort to sell this insurance is directed at owners and operators of restaurants, bars, taverns and clubs, the insurance often is required by church organizations, municipalities, volunteer firefighter organizations, grocery stores and virtually any organization that requires a liquor permit before it can dispense such beverages.

By far the greatest amount of Liquor Liability insurance is written in the states that have strict Dram Shop Acts. Despite the increasing evidence of court decisions permitting common law causes of action against vendors of alcoholic beverages in non-statutory states, there has not been a significant demand for Liquor Liability insurance in these states. Almost all underwriters writing Liquor Liability insurance produce the bulk of their business in the states having strict Dram Shop laws, while only one or two companies are soliciting business in non-statutory states. Experience is generally too little in non-statutory states to be credible.

Only responsible persons engaged in manufacturing or selling or serving alcoholic beverages should be considered for Liquor Liability insurance. Proprietors of bars and liquor stores in particular should be fully aware of the consequences of laws governing the sale of liquor in their state. They and their employees must watch the condition of their patrons and limit the number of drinks served to a reasonable amount, particularly in cases where the establishment solicits the patronage of the motoring public.

Liquor Liability underwriters generally require the submission of a written application of insurance. Most of the questions on the application pertain to information required to rate the policy but some questions directly relate to underwriting the risk.

A leading Liquor Liability underwriter asks the following questions related to rating: Whether risk is located inside or outside the corporate limits of the municipality; classification of the risk, whether a tavern, night club, private club, package store, wholesale dealer or country club; estimated amount of annual alcoholic beverage sales; population of town in which premises is located.

Underwriting questions on the application are the following: Estimated percentage of patrons arriving and departing from the premises by automobile; the hour at which the insured closes; hours per week that the risk is open for business; any claims reported to insurers during the past five years.

EMPLOYEE PROTECTION

What is commonly overlooked when liquor liability insurance is purchased is the protection of those who are employed to dispense the alcoholic beverages. The business establishment or organization that purchases this special insurance will have protection, but its employees or volunteers are seldom covered automatically.

Most insurers generally will add employees and volunteers as insureds for an additional premium, and this is always recommended. Otherwise, an insurer which pays a claim or judgment on behalf of the named insured can exercise its right of subrogation against the negligent employee. The repercussions for the employer which fails to protect its employees in these kinds of actions also can be troublesome.

With the passage of new liquor liability legislation and the amendment of most of the older laws, states are redefining what constitutes negligent alcohol service. Retailers and their trade associations are trying to determine what kinds of business practices can be implemented to protect them from legal liability.

As a result of a comprehensive study by James F. Mosher and his staff at the Prevention Research Institute, a model dram shop act was formulated. The Act was widely distributed to states following its introduction in 1985. Five states--Michigan, Maine, Rhode Island, New Hampshire and Vermont--have adopted major portions of the Act.

The model act incorporates a "responsible business practices defense" to address problems brought about by the fear of large verdicts and quick settlements by insurance companies. The defendant server is provided with a means of protection if, at the time of service of alcoholic beverages, the drinking establishment and its employees were following responsible management policies and employee actions designed to reduce the likelihood that intoxicated persons or minors will be served by the licensed establishment.

The retail alcoholic beverage industry's primary response to the increased exposure to dram shop liability claims has been the implementation of server and manager training programs. Researchers are showing a link between comprehensive server training programs and the reduced risk of intoxication. The importance of server training is beginning to be recognized by the insurance community in the form of premium discounts.

Server intervention consists of three elements: establishment risk assessment, policy development and server training. The establishment must be examined for risks particular to that bar or restaurant. Clientele, management style, decor, layout and location all differ. No one set of rules can apply uniformly to all establishments. Server intervention helps to provide a business policy for the establishment to adhere to. Bartenders, waitresses, waiters, hostesses, hosts and managers can implement the policy.

Rates and premiums charged for Liquor Liability insurance vary considerably from state to state, largely depending on the severity of the state's liquor law statute and the underwriting experience of the particular underwriter. Generally, taverns and restaurants, hotels and motels serving alcoholic beverages on the premises have higher rates than wholesale distributors and package stores, where there is no premises consumption.

Risks are broken down into separate categories for rating purposes. Highest rates apply to taverns, hotels, motels and restaurants. Private clubs are next highest, with package stores or other retail outlets without on- premises consumption of liquor or beer, lowest. The rate is based on each $100 of gross receipts for alcoholic beverages for the above classes.

Host Liability (risks not engaged in business of dispensing alcoholic beverages), wholesale distributors and social events are charged a flat premium. In most areas rates and minimum premiums are surcharged if establishment is located in smaller towns or is outside the corporate limits of a city, town or village.

Most Liquor Liability policies are written for basic limits of $50,000 combined single limit for Bodily Injury and Property Damage. A majority of underwriters offer maximum limits of $500,000 or $1 million combined single limits.

It is important to remember that even in a situation as under the $30,000/40,000 limits of the Illinois law, higher limits might be needed in the case of injuries to two or more persons in one accident. However in the case of Cunningham v. Brown, 22 Ill. 2d 23, 174 N.E. 2d 153, 1961, it was established that statutory liability was the exclusive remedy.

When checking the market for prospective insurers, insurance agents should not assume that liquor liability insurance offered in the excess and surplus lines markets is inferior. To the contrary, the coverages available on the excess and surplus lines markets are sometimes both broader and more economically-priced than what may be otherwise offered from other insurers with whom the agents deal. The excess and surplus lines market also be a more reliable source for continued protection of liquor businesses.

Not all insurers which offer liquor liability insurance base their rates or decision to write the coverage on the four categories promulgated by the ISO. However, most insurers can be expected to take into consideration such factors as the clientele of the business, the percentage of liquor sales to the sale of food, total receipts of alcoholic beverage sales, the nature of the business and why the insurance is sought, along with the loss experience.

Some Liquor Liability underwriters have developed a special form to provide "host" liability coverage for companies or other organizations who entertain customers or employees at events where liquor is served. Host Liability is covered, however, in current revisions of the General Liability policy, as long as the insured person or organization is not "engaged in the business" of distributing, selling or giving alcoholic beverages.

Host coverage and coverage for social events in certain states may be purchased for a flat premium charge from companies writing Liquor Liability insurance.

Although the Liquor Liability exclusion in the General Liability policy has been interpreted to apply only to those persons, businesses or organizations in the business of selling, serving or giving alcoholic beverages, an increasing number of dram shop law states and common law actions have imposed liability on persons or organizations providing alcoholic beverages in a social setting and without pecuniary gain.

In a leading case decided by the Illinois Court of Appeals, plaintiffs were injured in a collision while riding in a car driven by an intoxicated person. The court held that they could not recover under the dram shop act against the driver's employer, who had furnished liquor to the driver at a company picnic. (Miller v. Owens-Illinois Glass Co., 199 NE 2d 300, Ill. App. 1964). . . .

Unanimous adherence to the Illinois decisions in Miller v. Owens-Illinois Glass Co. was abrogated in 1972. A Minnesota court determined that liability under its dram shop statute was not limited to those engaged in the liquor business for pecuniary gain in a case where the defendant purchased liquor for his minor brother, who, after becoming intoxicated, was killed when the car he was driving ran off the highway. The decedent's parents and his infant son sued under the Minnesota dram shop act. The court ruled that the statute meant to impose liability upon any person who furnished liquor illegally, whether in the business for pecuniary gain or not. (Ross v. Ross, 200 NW 2d 149, Minn. 1972). . . .

In an Iowa case, an adult purchased liquor for a minor who became intoxicated and injured the plaintiff. Court held the defendant liable even though he was not a commercial supplier of liquor. (William v. Klemesud, 197 NW 2d 614, Iowa 1972). . . .

In a case of long duration, initiated before Vesely v. Sager (see last case in analysis), a California Court of Appeals handed down another decision relating to the liability of a social host, in this case an employer, to an injured party for furnishing liquor to an intoxicated minor who caused an accident. The plaintiffs filed suit against the minor's employer, Kitchen Boyd Motor Company. The employee became intoxicated at a Christmas party at which the defendant served the minor copious amounts of liquor and then placed him in his automobile and directed him to drive the vehicle home through traffic. After several dismissals and appeals and reverses in the courts, the plaintiffs finally amended their complaint and sought liability against the defendant solely on the basis of the furnishing of alcoholic beverages to the minor. By this time Vesely v. Sager had been decided. Even though the court in the Vesely case applied its decision against commercial vendors of liquor, the court in this case held that the Business and Professions Code, Section 25602 applied. Whether the person is in the business of dispensing alcoholic beverages or not is immaterial since anyone who disregards the statute breaches a duty to any one who is injured as a result of the minor's intoxication. The court also held that Section 25602 pertains to minors in particular, and that anyone who knowingly makes available intoxicating liquors to a minor with the knowledge that the minor is going to drive upon a highway should be liable for the injuries that result. (Brockett v. Kitchen Boyd Motor Company, March, 1972, DCA 5th District, 24 CA 3d 87.)

In a New Jersey case, Linn vs. Rand, 356 Alt. 2nd 15 (1976), an appellate division court held that a person who furnishes excessive amounts of liquor to a minor on a social occasion may be held liable when the intoxicated minor causes injury to an innocent third party. The court could not find any distinction in duty of care between a holder of a liquor license and a social host. The fact that the host holds no liquor license is insufficient to prevent the assessment of liability against him.

Still, in another California case, citing both Vesely v. Sager and Brockett v. Kitchen Boyd Motor Co., an appellate court held that a host who furnishes alcoholic beverages to a person the host has reason to believe may act unreasonably if allowed to consume alcohol, may be liable to third persons injured as a result of the intoxication of the guest. In this case the guest was neither visibly intoxicated, as in Vesely, or a minor, as in Brockett. (Coffman v. Kennedy, 74 Cal. App. 3d 28, First district, division 4).

The entire area of liability of non-commercial suppliers of alcoholic beverages and social hosts under dram shop acts or common law has recently come under considerable discussion by both the insurance industry and the legal profession. It has been argued that the burden of risk should be borne by commercial vendors who are more able to pass on the cost of increased liability to the public as a whole through increased prices, rather than the average social host or businessman who has no such opportunity.

If an organization feels that its business meetings may be interpreted as not being covered under its Commercial General Liability policy, it usually can purchase Host Liquor Liability insurance for a nominal premium.

For many years courts in various states had held that an action could not be maintained at common law against the vendor of alcoholic beverages for furnishing such beverages to a customer who, as a result of being intoxicated, injured himself or a third person. The rationale for this common law rule was that the consumption of liquor and not the sale of liquor was the proximate cause of injuries sustained as a result of intoxication. This rule is clearly brought out in many cases. In California the question was considered by the courts four times leading up to Cole v. Rush, 45 Cal. 2d 345 (1955), which stated that "it is the voluntary consumption, not the sale or gift, of intoxicating liquor which is the proximate cause of injury from its use." Two leading recent cases enforcing this rule were Nolan v. Morelli, 226 A. 2d 383, 154 Conn. 432 (1967) decided by a court in Connecticut, and Carr v. Turner, 385 S. W. 2d 656 (1965) decided by an Arkansas court.

Two leading cases abrogating the previous common law rule are Waynick v. Chicago's Last Department Store (1959) and Rappaport v. Nichols (1959). The circumstances of these cases and citations are described below, along with some other more recent cases illustrating common law liability of dispensers of alcoholic beverages.

Action was brought by plaintiffs, residents of Michigan, against three Illinois tavern keepers for selling liquor to two Illinois residents who collided with their automobile in the state of Michigan. Although both states had Dram Shop Acts, the court concluded that neither applied because state courts had decided that the statutes did not apply extraterritorially. The sale of liquor was made in violation of an Illinois criminal statute prohibiting the sale of liquor to an intoxicated person, and the court held that there was a cause of action under the common law of Michigan (Waynick v. Chicago's Last Department Store, 269 F. 2d 322). . . .

A minor youth was involved in an automobile accident in which a man in the car that collided with the youth was killed. The man's estate sued the youth and also four taverns, charging that the youth had been served liquor in each one in spite of knowledge that the youth was a minor. The plaintiff contended that the sale was illegal and that the accident occurred because the youth became intoxicated as a result of this illegal conduct (Rappaport v. Nichols, 156 Atl. 2d 1, 31 N. J. 188). . .

An injured party, the customer of a tavern, entered the tavern in an intoxicated condition and was served liquor. Subsequently he became involved in a fight with another party and was injured. The customer, himself, recovered a judgment against the tavern, not because of a dram shop law, but because the tavern owner had been negligent in selling liquor to an intoxicated person (Schelin v. Goldberg, 146 Atl. 2d 648). . . .

Liquor was sold by an employee of a drug store to a minor, who consumed the liquor and was later involved in an automobile accident in which a young girl passenger was seriously injured. An Indiana Supreme Court held that a cause of action might be pursued against the seller of liquor to a minor by a person injured as a result of sale to and consumption of liquor by the minor. (Elder v. Fisher, 217 N. E. 2d 847, 853 Ind. 1966.). . . .

A third party was injured by an intoxicated minor when he lost control of a vehicle. The vendor of the alcoholic beverage which caused the minor's intoxication was held liable for the plaintiffs injuries because the injury was reasonably foreseeable and the sale of the intoxicating liquor was the proximate result of the negligence. The court so decided since the sale was made while the minor was in the automobile. In this case the Florida court also ruled that the sale of intoxicating liquor to a minor or an intoxicated person can be considered negligence per se. (Davis v, Shiappacossee, 145 So. 2d 758 Fla. 1963). . . .

This ruling was upheld in Florida in a later case, Prevatt v. McClennan, 201 So. 2d 780, Fla. Dist. Court of Appeals, 1967. . . .

The Massachusetts Supreme Judicial Court decided that sellers of alcoholic beverages can be held legally responsible for highway deaths and injuries caused by drunken drivers whose intoxication was caused by dealer's sales (a restaurant and barroom in this case). Although the court cited a number of cases all involving driving under the influence of alcohol illegally sold, including most of the cases mentioned in this analysis, this case is the first one to establish law on the fact that the seller of alcoholic beverages knew, or should have known, that the intoxicated person had arrived at his premises by automobile, and upon leaving, would drive the automobile on the public highways. This greatly intoxicated person operated his automobile in such an erratic and reckless manner that it collided with the automobile in which plaintiff and his wife were riding. Thus, we have the establishment of a higher duty of care required by sellers of liquor when the establishment solicits the patronage of the motoring public. (Adamian v. Three Sons, Inc. Mass. Supreme Judicial Court, 353 Mass. 498, 1968). . . .

In a case decided by the California Supreme Court, the court held that a plaintiff who was injured by an intoxicated motorist had a common law action against a road house operator, who, aware that the motorist was becoming excessively intoxicated, continued to serve him alcoholic beverages in violation of the Business and Professions Code section 25602, which provides: "Every person who sells, furnishes, gives, or causes to be sold, furnished, or given away, any alcoholic beverage to any habitual or common drunkard or to any obviously intoxicated person is guilty of a misdemeanor."

California did not have a Dram Shop Act, nor, prior to this decision no actions had been maintained at common law against a vendor of alcoholic beverages for furnishing such beverages to a customer who as a result of being intoxicated, injured himself or third parties. In at least four actions prior to this decision, California higher courts had upheld the doctrine that the sale of intoxicating liquor was not the proximate cause of injuries subsequently resulting from the actions of an intoxicated purchaser. Two cases in California, Hitson v. Dwyer, 61 Cal. App. 2d 803 (1943) and Cole v. Rush, 45 Cal. 2d 345 (1955), actually concluded that it was the voluntary consumption, not the sale or gift, of intoxicating liquor which is the proximate cause of injury. Thus, this had established contributory negligence on the part of the intoxicated person. (Vesely v. Sager, 95 Cal. Reptr. 623, 486 P. 2d 151, 1971.)

Even though Nevada law exempts taverns from liability for damages caused by intoxicated patrons, a recent California decision gives Californians, under the doctrine of Vesely v. Sager, which established liability for injury to third persons to the vendor of alcoholic beverages in violation of B&P code section 25602, a right to sue the Nevada club and collect under California law rather than Nevada law. This case was appealed to the U. S. Supreme Court which rejected the appeal. (Bernhard v. Harrah's Club, 546 Pac. 2nd 719, 1976).