Liquor liability claims on the rise

Saskatchewan General Insurance announced in July that it was suing two Saskatoon bars for serving Catherine McKay, who had been convicted of impaired driving in a crash that killed a family of four. The move garnered the attention of both the insurance and legal industries.

Earl Cameron, executive vice-president at the Crown insurance corporation, told media that “this legal action is about accountability for a collision that killed an entire family.”

Calling it a case of “contributory negligence,” SGI said it is the first time it has brought such an action against a bar owner, but noted the case is not unusual.

“In jurisdictions across Canada, we are seeing more rulings where courts are placing increasing accountability on liquor establishments to ensure impaired patrons do not cause harm to others or themselves,” Cameron says.

Increasingly, bar owners are being dragged into lawsuits by patrons or third parties who are injured due to alcohol-related events. If a bar is found to be contributory negligent, the range imposed by courts is often 10 to 50 per cent of the damages, depending on the bar’s conduct.

Litigation on the rise

Mark Cavanaugh, a litigator at Hughes Amys LLP in Toronto, defends bar and restaurant owners from what is known as commercial host or tavern owner liability lawsuits, and says that “we are seeing a lot of commercial host claims coming in.” He says the claims are against both the bars and the third-party security firms that many now use to police their drinking establishments.

In fact, some insurance experts report the problem is getting so bad that it can be difficult for hospitality companies to secure insurance policies.

Kent Pitkin, national director, commercial lines, at April Canada Insurance, says that some providers have “pulled out of the hospitality segment” involving establishments that have high liquor-consumption revenues because of claims.

Patrick Molloy, vice-president of commercial insurance at Secure Insurance Solutions Group Inc., adds “liquor liability is becoming an issue for everybody.”

He points to two factors. The first is “joint and several liability,” which means that in a negligence action, a plaintiff can recover the full amount from a defendant even though the court may only find them 25 per cent liable for their share of damages. Some provinces, such as Ontario, impose joint and several liability, while others don’t.

The second factor, he says, is that Canadians are becoming more litigious, spurred in part by law firm marketing. “We’re becoming very Americanized.”

On one hand, it’s a simple business, notes Andrew Clark, president and CEO of ALIGNED Insurance Inc., a brokerage that services the hospitality sector: “You’re serving a meal and a drink.” However, he says, “the risk profile is more complex in a lot of ways.”

Liquor establishments are exposed to numerous claims, for everything from drinking and driving to injuries stemming from consumption. There is also the risk of food contamination, and employee litigation over issues such as sexual harassment. Those risks increase as the amount of alcohol consumed overall at an establishment increases from that of a traditional restaurant, which has a 60-40 mix of liquor and food, to an 80-20 mix, such as a nightclub.

“Anytime you have more [alcohol] consumption, it increases the risk,” Clark notes.

A duty of care

Canadian courts have long held establishments that serve liquor for profit can be held liable for damages, unlike the United Kingdom and Australia, where negligence isn’t extended to bar owners.

In fact, the Supreme Court of Canada has heard a number of cases related to commercial host liability. The seminal case in 1973 — known as Jordan House Ltd. v. Menow — established the principle that a bar has a duty of care to patrons. The bar in that case was found partially responsible for injuries a patron suffered when he was ejected in an intoxicated state, and was later hit by a car.

In 1995, the top court extended that duty of care to include third parties in a case known as Stewart v. Pettie. A passenger in a car driven by a person who had been drinking at a bar was seriously injured. The court held that “it is a logical step to move from finding that a duty of care is owed to patrons of the bar to finding that a duty is also owed to third parties who might reasonably be expected to come into contact with the patron, and to whom the patron may pose some risk.”

Although the court found the bar was not liable in this case, it held that bars must “take some action” if “there is some foreseeable risk of harm to a patron or a third party.”

Avoiding liability

Lawyers say that liquor liability cases usually turn on their facts, and the issue is whether the harm is reasonably foreseeable for the bar owner.

 Bar owners are increasingly being dragged into lawsuits by patrons or third parties who are injured due to drinking.”

Scott Bower, a litigator at Bennett Jones in Toronto, says to find a bar liable in an incident, “there has to be some causal connection. It can’t be too remote.”

Also at play are the differing provincial liquor license laws and occupier liability legislation.

So what can bar owners do to reduce the chances of being found liable and what should insurers look for when taking on a licensed premise?

Brooke and Gavin MacKenzie, litigators at MacKenzie Barristers in Toronto, say that liability often stands and falls on the question of the standard of care that a liquor establishment exhibits when it comes to dealing with patrons.

They say the key to avoiding liability is making sure that bars have consistent processes and policies in place to address the types of risk they face, such as drinking and driving and fights, and that they have the expertise and management experience to navigate the choppy waters. As they say, the devil is often in the details.

Here are seven things to consider.

1. Training and education

Most provinces run some type of beverage training service course for bartenders and servers, which may or may not be mandatory depending on the province. Judges refer to these programs and single out lack of training among servers when considering whether bars have met their standard of care.

2. Policies and procedure

Corrine Peterson, a litigator at Kingsgate Legal in Edmonton, says evidence is critical in bar cases, where it often boils down to a he-said, she-said fight. She says licensed establishments need to maintain “written policies and procedures on the sale and service of liquor” and then adhere to them. It means documenting incidents and keeping good records.

3. Monitoring and systems

Peterson says bars also need to develop a system for monitoring consumption among their patrons. Lack of monitoring, she says, is where bars get themselves into trouble. There are software products that can be used and tab systems can help identify heavy consumption.

For incidents, such as bar fights or slip and falls, video surveillance can be a key piece of evidence that can exonerate establishments.

Records like sweep and cleaning logs can also play a critical role. Clark notes that some establishments supplement their monitoring using RFID devices embedded on staff, which provide a record of where they were in a club and when, which helps document incidents like spill clean-up.

4. Good staff are key

“It’s really important to ensure you have good staff and good door staff,” says Peterson.

When Pitkin’s firm underwrites a bar, it looks for an experienced management team. “They know the issues, they know the concerns and are usually a lot better at organizing their business,” compared with a start-up that has lots of ambition but limited expertise.

5. Outsource to experts

Clark notes a trend toward offsetting risk by which bar owners hire third-party firms to handle security and manage the door. “That’s a great way to de-risk the process,” he says, noting that the contracts need to ensure the transference of risk and include proper indemnity provisions.

6. Watch the risk profile and dig deep

When bars start adding events like virtual reality gaming or mechanical bull riding, Clark says that changes the risk. As does the food-alcohol sales ratio.

Pitkin notes a bar might have a 60-40 split overall, but in the evening it might be a student dance bar with high alcohol sales, supplemented by a business lunch crowd that is mostly food. That’s a different risk profile than an establishment that sells a burger and a few beers both at lunch and dinner. By checking things like an establishment’s Facebook or Instagram pages, you get a better sense of what goes on at night.

7. Keep current

Clark notes that bars have come a long way in the “evolution of risk management,” and those that are most successful at minimizing exposure do so by adopting new technologies and methods. There are new non-slip floor coatings that can reduce the dangers presented by spilled drinks and ice. Something as simple as renovating to remove steps or re-designing a bar to improve staff sight lines can help reduce incidents and allow staff to better monitor the premises.

 It’s really important to ensure you have good staff and good door staff.”

As for the future, experts say the growth of things like craft breweries, which introduce manufacturing processes into the mix, the legalization of marijuana and driverless cars will only add to the risk complexities.

Pitkin questions whether driverless cars will “put more intoxicated people on the road or get people home safely.”

Bower predicts that lawsuits involving drinking establishments will continue to grow more complex and convoluted. He says plaintiffs are “always going to be creative to tag as many people with potential liability as they can, because the more people you can sue, the greater the likelihood of recovery.”

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Copyright © 2017 Transcontinental Media G.P. This article first appeared in the October 2017 edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.