What your hospitality clients need to know about their liability limits

In the restaurant and bar business, those serving alcohol are trained to recognize the symptoms of intoxication to prevent an “overservice” problem, and subsequent liability to the business. But what happens when a customer has been drinking in multiple establishments before fatally injuring someone in a motor vehicle accident?

“I’ve seen that case,” said Jay Gates, a broker specializing in the restaurant industry with U.S.-based brokerage Holmes Murphy. If the family of the victim sues all of the bars the driver attended before the accident, the cost of defending a liquor liability claim can be so expensive that a restaurant may just prefer to settle to avoid legal defence costs.

“Even if you followed all your policies, all your procedures, and you did not overserve or you refused service… you still have the cost of defence,” said Gates, a former risk manager for RMH Franchise Corporation, a company that owns and operates more than 100 Applebee restaurants in the U.S.

“To defend [a liquor liability claim] can get extremely expensive, so then you’re making a business decision like, ‘You know what? We have zero liability, we know we have zero liability, but it’s going to cost us $100,000 in legal bills to defend it,’” Gates said. “So, it makes sense to make some sort of contribution to the overall settlement or to settle and get us out of it and let the responsible parties pick up the tab.”

Lorne Folick of Dolden Wallace Folick LLP is an insurance defence lawyer specializing in liquor liability. He notes legal cases in this area can be protracted, and often involve significant injury arising from a motor vehicle accident.

Bars often get pulled into these cases because drivers are carrying inadequate auto insurance, Folick said. So the plaintiffs’ bar is looking for somewhere else to seek recovery, particularly on a “joint and several” liability basis.

Joint and several liability allows the plaintiff to recover damages from any of the defendants regardless of their individual share of liability. For example, if a plaintiff sues two defendants, one of whom is 90% liable but bankrupt, and the other of whom is only 10% liable but solvent, the latter may be required to pay 100% of the damages.

In the event of a catastrophic injury case, for example, the auto insurance may be exhausted. A party with financial means may only be assigned 1%, 5% or 10% liability by the court. But because of the principle of joint and several liability, that party may be picking up the cost of all the others, as well. For this reason, advising clients on adequate limits is “absolutely critical” from a broker standpoint, Folick said.