The recent introduction in the Ontario legislature of an amendment bill to the Liquor License Act which will allow restaurant patrons to "bring your own wine" to establishments participating in a voluntary program has drawn sharp criticism from the province's hospitality industry. The prime concern raised by the Ontario Restaurant, Hotel and Motel Association (ORHMA) is that, should the bill be enacted, commercial hosts could face even tougher insurance pricing and coverage conditions in what is already a tight marketplace.
But, insurers describe the ORHMA's insurance concern as something of a "storm in a tea-cup". The Insurance Bureau of Canada (IBC) surveyed its Ontario company members at the time the bill was introduced, observes the bureau's Ontario vice president Mark Yakabuski, to determine what impact this might have on coverage availability. The overall response by insurers was that the bill did not present any noticeable change in the risk associated with liquor liability, and therefore it should have no impact on coverage availability, Yakabuski notes.
Similar "bring your own wine" programs already exist in Quebec, Alberta and New Brunswick, and the claims experience regarding liquor liability in these regions did not change as a result, says Ann MacKenzie, assistant vice president of technical claims and product integration at The Dominion of Canada General Insurance Co. "There's no difference in whether someone buys a bottle of wine at the establishment or brings it in. Under the proposed Ontario bill, restaurants participating in the program will have to charge corkage which means that the establishment's responsibility [to ensure that patrons do not over-indulge] doesn't change," she adds.
While Ontario's "bring your own wine" bill is unlikely to have any impact on pricing and availability of liquor liability coverage, insurers agree that this line of business remains extremely tight - a situation which will not improve anytime soon. One of bigger problems associated with liquor liability coverage countrywide, insurers say, is that there is insufficient premium volume to achieve the necessary cost efficiencies in the handling of claims.
The Canadian commercial host liquor liability market is estimated to be about $50-$60 million in annual premium. "In general, I'd say that since the third quarter of this year we have seen slightly more capacity in the market for liquor liability risks, but that supply is still tight and pricing is being maintained at the levels arrived at during the hard [price] cycle. Competition is still limited as this is a far from desirable class [of business]," comments Andy Samaroo, manager of the "hospitality unit" at The Wholesale Insurance Group.
In addition to low premium volume, the tort costs associated with commercial host liquor liability claims have risen significantly over the years, insurers point out, with the courts having adopted a harsher attitude to liquor abuse. This has not only seen higher awards, but a more liberal view to the type of potential "victim", as well as a general move to place greater responsibility on individuals for the actions of others, Samaroo says. "We have become our brother's keepers. Individuals are now less responsible for their own actions under the influence of alcohol." And, he notes, "[the] definition of victims has been broadened to include those who become intoxicated".
The commercial host liquor liability market consists of two segments, explains Samaroo, with the 'high risk end" being establishments which rely almost solely on the selling of alcohol - namely bars and nightclubs. The low-risk segment consists of restaurants and other establishments where the serving of alcohol is not the prime function of business. The high-risk segment of the commercial host liquor liability market has been hardest hit with stiff insurance pricing and coverage limits, Samaroo notes. "When you're talking about pubs and nightclubs, then there are very few [insurance] players [willing to write this business]."
Bill Star, president of Kingsway Financial Services Inc., describes liquor liability as "too risky, with too little [premium] volume". Kingsway pulled out of the liquor liability market several years ago, Star observes, because of the high costs associated with defending lawsuits. And, he notes, the broadening of plaintiffs and circumstances under which actions are being presented has created a much more uncertain underwriting environment. "We had one case, which involved a small bar, where there was a trap-door behind the bar-counter that led down to the basement. The bar-tender left the trap-door open to fetch supplies from the basement, and while he was gone, a woman went behind the bar-counter without permission to use the phone. She fell down the entrance of the trap-door," Star explains.
"The courts are not only being more generous in awards, but also in the circumstances," says Randy Bundus, vice president and general council at the IBC. The greatest underwriting uncertainty concerning liquor liability is the joint and several liability rule in tort law, he notes. Essentially, this means that if the court rules in favor of the plaintiff against several defending parties, and perhaps only one of the defendants has sufficient funds available to satisfy the claim, then the cost thereof will be primarily carried by that party.
The Dominion has avoided underwriting bars and taverns because of the volatile loss experience of this segment of the market, says MacKenzie. "Twenty years ago, nobody sued taverns, now everybody is suing taverns." As such, the insurer's liquor liability book consists of "mom and pop" type restaurants. "So we don't have a ton of claims resulting from people who are drunk."
It is therefore obvious why insurance pricing for commercial host liquor liability remains high, says Frank Muscat, vice president of underwriting at Genmark Insurance Services Inc. Not only have court awards become larger, the message being sent is that people are no longer responsible for themselves, he adds. "Insurers writing this kind of business can't let pricing soften. It [liquor liability claims] has to be watched very carefully."
The leading Canadian court decision on commercial host liability involves the case of Steward vs. Pettie put before the Supreme Court of Canada, observes a discussion document titled "New Targets in Liquor Liability Claims" published by Blaney McMurtry. The action was brought by a woman injured as a result of an auto accident. The vehicle she was in was driven by her brother who had become intoxicated while drinking at a dinner theatre, the defendant in the case. The issue was whether the dinner theatre as a vendor of alcohol had taken appropriate steps to ensure that the brother did not drive while intoxicated.
The court relieved the dinner theatre of liability due to the fact that there had been two sober individuals present at the table, and it was therefore reasonable for the establishment to assume that either one of these parties would drive. The decision of the case was, however, dependent on specific factual findings, specifically the presence of sober individuals at the table, the Blaney McMurtry paper notes. "There have been a number of decisions since Steward which have applied its reasoning to establish liability on the part of commercial hosts...Generally, the courts have imposed the following obligations upon commercial hosts:
Refuse to admit intoxicated patrons to the premise;
Not serve alcohol to anyone seemingly intoxicated;
Not sell alcohol to anyone under 19 years of age;
Monitor consumption by patrons by counting number of drinks;
Make reasonable assumptions to whether someone is impaired; and
Take steps to ensure that an impaired patron does not drive a vehicle by either arranging alternative transportation, removal of keys, alerting the police, and otherwise ensuring that the individual gets home safely."
Although commercial hosts are generally unaware of the full legal implications of their "duty of care" in handling intoxicated patrons, there has been a more active view by establishments toward loss control over recent years, says Samaroo. "I feel this has been done in response to the insurance climate, rather than the legal climate. Owners don't want to have the claims that will increase their premiums still further."
Shelley Timms, a legal risk consultant operating through Timshel Services Inc., believes that commercial insureds are not the only parties who are not fully aware of the risks associated with liquor liability. "I'm not sure insurers always manage to understand the risk and explain it to their clients." Furthermore, Timms notes that, at the moment, an establishment or individual can get a license in Ontario to sell alcohol without having insurance. This situation could soon change, she adds, as the government is currently reviewing the liquor legislation.
Employers have also fallen prey to liquor liability. The Blaney McMurtry paper notes that, "alcohol consumption occurs in a variety of settings including at work, recreational areas and most commonly, in homes. Although it is probably equally as likely for people to over-indulge in these other settings as in a bar and to operate a motor vehicle after doing so, our courts have traditionally been reluctant to extend the type of duties placed on commercial hosts to others who do not provide alcohol for profit. Until relatively recently, the courts have tended to affix liability on the intoxicated individual and, if available, the commercial host, and have refrained from finding liability against employers, drinking companions and social hosts. This judicial reluctance to impose the obligations of those who sell alcohol for profit on those who do not appears to be waning."
Blaney McMurtry notes that, following the decision of the British Columbia Supreme Court in Jacobsen vs. Nike Canada Ltd., a number of Canadian courts have extended liquor liability to employers having introduced alcohol into the workplace. In the afore mentioned case, Jacobsen who was an employee at Nike, became intoxicated by drinking beer which the company had supplied at a trade show. Jacobsen then visited two pubs after work, and subsequently became involved in a single auto accident which left him a quadriplegic. The court ruled in Jacobsen's favor, awarding him damages totaling more than $2.7 million. "The court found that the law required an employer to take reasonable care for the safety of its employees, Nike had introduced an element of risk."
The most recent Ontario case regarding an employee suing an employer is Hunt vs. Sutton Group Incentive Realty Inc. Hunt consumed alcohol from an open-bar hosted by Sutton at the company's Christmas party. She then stopped at a bar, and subsequently became involved in an auto accident. Hunt sued both Sutton and the bar on grounds of negligence in that both parties owed her a duty of care. The judge found Hunt 75% responsible for the accident, and held Sutton and the bar jointly and severally liable for 25% of the damages, which were assessed at $1.1 million. Hunt received $288,104 (plus interest) as a result of the judgment.
The Blaney McMurtry paper points out in regard to the Hunt vs. Sutton case: "The Canadian decisions to date indicate that the courts require employers to adopt a very paternalistic attitude towards its employees when it comes to the provision of alcohol, a trend which would appear to be at odds with the modern view of that relationship." Timms notes that most large corporations do not seem to be aware of the risk they face internally through liquor liability claims. "They seem to think if they ignore it [the potential risk of an employee suing], it won't happen."
The involvement of "social hosts" is likely to be the next step in liquor liability litigation, says Timms. Although the courts have thus far not ruled in favor of plaintiffs where actions have been brought against social hosts - in other words a person who may hold a house party where alcohol is served on a not-for-profit basis - there are signs that this outlook may change in the near future, she adds.
"Although plaintiffs have been suing social hosts for a number of years, until recently defense counsel could always assert that there had never been a successful action against a social host in Canada," observes Blaney McMurtry. However, the most recent case, Childs vs. Desormeaux, which went before the Ontario Court of Appeal, has basically left the door open to future litigation, observes Bundus.
Even though the action against the co-defendants (Zimmerman and Courier, who had been the hosts of a New Year's Eve party) was dismissed, the case proceedings have aroused concern that the courts may not be as reluctant as in the past in applying the duty of care requirements of commercial hosts onto social hosts. "My gut feel is that down the road this could become a concern. This is an area [exposure] that could fall under the homeowners' policy," notes Bundus.