Mandated Liquor Liability Insurance, is it necessary?

            House bill numbers 2625 & 2594 are acts relative to Liquor Liability Insurance.  This legislation would amend section 12 of MGL Chapter 138 to require applicants seeking to be granted a license or seeking to renew a license, to provide proof of coverage under a liquor liability insurance policy.  Bill # 2625 would set minimum limits of coverage at $250,000 if one person is injured and $500,000 if more than one person is injured.

          But is it really necessary? Some would say it is citing the person that is injured as the result of a negligent action by a licensee. Is having insurance important? In today’s litigious society the obvious answer is yes. However it should remain in the voluntary marketplace. Making it mandatory will only benefit the civil liability attorneys. In the short term, it may even benefit the insurance companies, as they will initially sell more insurance product. Interestingly enough, the legislator that wrote one of the bills and submitted it to his own committee is an attorney that works for a private practice that handles a large amount of liquor liability.

Massachusetts does not have “dram shop” laws, laws that among other things put a cap on the amount of money that can be awarded. When a licensee is sued, they are charged using the common law theory of negligence.  One of the effects of this is that monetary awards can get higher with each claim. Many people will file a frivolous lawsuit only in the hopes that the insurance company will settle instead of incurring the cost of litigation. When the companies start paying out these claims they in turn must raise premiums to offset their losses.

Most licensees already carry insurance. It is a minority that does not. The legislator that wrote H. #2594 said this. It should be noted that we already have a law that allows either the local licensing board or the A.B.C.C. to require that a licensee purchase insurance and set the limits for coverage if a licensee is found guilty of over service or underage service two times within a two-year period.

          One thing that is not clear, and I now of no studies that have reviewed this, is out of all the cases where a person has been injured as a direct result of the negligent serving of alcohol, how many have been from an uninsured on-premise licensee? This is one argument of those that sponsor mandatory insurance…that a bar can operate without coverage, receive notice of a lawsuit and promptly close up shop to avoid paying any type of damages. My question is, exactly how many times has this happened? And if this actually happens, why should the many pay for the actions of the few?

How many are from the keg party / BBQ that was held at someone’s home? How many have been from a package store? Interestingly enough, these bills would not require package store licensees to obtain coverage.

The Standard, an insurance industry publication ran a special section on liquor liability in its August 23, 2002 edition. In it, Dick Grotton of the Maine Restaurant Association said that mandated liquor liability insurance “would create a situation that no one wants, with high prices and restaurant owners with questionable serving records having difficulty finding coverage. Peter Christie, President of the Mass. Restaurant Association, agreed. Also in that issue Henry Veilleux, a lobbyist with S&H Murphy in Concord, N.H. said that insurers told him prices would increase in a mandatory coverage environment.

In studying this issue I contacted many persons and groups around the country. Many of the trade groups responded by saying that this was not an issue in their respective states, as there were no plans to require the purchase of insurance. Of the states that have grappled with this issue, not one responded by saying that it benefited licensees in any way.

I also spoke extensively with Gerry Rosen. Mr. Rosen was an owner/operator of many liquor stores in Illinois. Currently he teaches beverage and hospitality management at Roosevelt University; he is the legislative liaison to the Beverage Retailers Alliance of Illinois and he serves on the board for the Illinois State Crime Commission. Mr. Rosen explained to me that mandated liquor liability insurance without “dram shop” laws that put a cap on the amount of an award would have a disastrous effect. As I said, in the short term the insurance companies may benefit but as Mr. Rosen explained to me he was once a director of the Beverage Retailers Insurance Company. This company expanded into another state upon hearing of mandated insurance, but went out of business shortly thereafter when the claims started rolling in.

Should a high volume nightclub or sports bar have liquor liability insurance? The answer, more than likely, is yes. But what about the small “mom & pop” fine dining restaurant that sells a very small percentage of alcohol, or may sell a large percentage, as compared to food sales, only because they are selling upscale wines by the bottle and other high end spirits? The high premiums might well force them out of business.

Where do the various Massachusetts trade associations stand on the issue? I attended the MRA’s annual trade show in early 2003 and I spoke with their legislative coordinator. She knew of the two pieces of proposed legislation, but did not offer any information on the MRA’s position. After sending a 2^nd e-mail to the MRA, I received a very brief reply that the MRA opposes mandatory insurance. A follow up e-mail that I sent asking if the MRA had submitted position papers to either of the two joint committees, has gone un-answered. I was a member of the MRA when the “two strikes in two years” bill became law. To the best of my knowledge, the MRA did not actively oppose this. In the follow up e-mail I also asked if the MRA had any thoughts as to the likelihood of these two bills leaving their respective committees favorably.

MassPack, the package store association has no official comment as package stores are excluded from the proposed legislation. They were also excluded from the “two strikes in two years” law, however the executive director of MassPack informed me that had package stores been included, they would have opposed the law.

The Massachusetts Licensed Beverage Association, an organization that was created not by the people and industry it claims to serve, but instead by a law firm, claims to have no official position. However, it is the law firm that is pushing for this legislation to be passed. I can say this, as I was personally involved with this group until I resigned after being asked to support this idea, not by the members, but by the head of the law firm.

I encourage open and honest debate on this issue. Should anyone have any thoughts or comments, please call, write or e-mail. I encourage all to contact their elected officials and voice your opposition to these bills. If you are a member of a trade group, contact them to voice your opposition.

© 2003 Robert G. Stefanik

(781) 632-1855

www.robstefanik.com / rob@robstefanik.com

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