[Editor’s Note: Although this article addresses summer parties, it is relevant to holiday parties as well]

Summer parties and activities create the thirst for a cold beer, but common areas and alcohol can be a dangerous mix. Nothing is more symbolic of summertime than drinking ice cold beers with your friends on your deck while steaks sizzle on the barbecue. Who would dare forget to bring the wine coolers to the community picnic. What teenager would want to miss the keg party at the clubhouse. With warm weather, unit owners and their families and guests eagerly increase their recreational use of the community's common elements. Unfortunately, these outdoor activities can include the consumption of alcoholic beverages--sometimes in excessive amounts. The injuries and property damage possibly flowing from these actions can result in liability to the unit owners, the association, and the property manager.

How Whiskey Turns Things Sour The opportunity to consume alcoholic beverages within a common interest community is enhanced by the community's mere layout. In addition to decks and patios, many communities offer a clubhouse and other recreational areas for social functions. Pools, playgrounds, and ball fields are also popular watering holes. Unfortunately, it is not difficult to imagine a clubhouse party where a minor is served alcohol and later runs his or her car over a small child. Or, imagine a softball game where a player has too much to drink and gets hurts. Similar tragedies await drunken swimmers at the community pool or teenagers who are more easily riled into fist fights while under the influence.

Because the common interest community fosters socialization and provides what most unit owners would consider a resort-type atmosphere, these types of scenarios are not exaggerated rarities. Unit owners expect the association and the manager to take the necessary precautions to prevent injuries and damage relating to the use of common elements. Assessments, after all, are levied to maintain and to protect the community. But areas of ownership and responsibility often overlap in a common interest community. As a result, the unit owners, association, or property manager can be held responsible for directly or indirectly causing or failing to prevent damage or injury resulting from the excessive consumption of alcoholic beverages in common elements. Liability can be based on the higher standard of care applied to those who care for or govern a community. As such, the potential to sue the association over alcohol-related incidents is significant.

Tort liability for damages and injuries resulting from excessive drinking has been applied to tavern or commercial liquor servers since the mid-1800s. In many states, these laws evolved into "social host" liability, which makes any alcohol server responsible for injuries and damages caused by their drunken guests or relatives. Presently, 25 states recognize some form of social host liability as grounds for a lawsuit. The Insurance Information Institute has estimated that the average wrongful death liquor liability suit is settled for $500,000. Social host liability in the context of common interest communities is relatively novel. But given existing trends in the law, the impact on associations, unit owners, and property managers may be devastating.

Coverage for Alcohol-Related Incidents In an alcohol-related accident, counsel for an injured party is likely to sue everyone involved. In states that have adopted uniform laws, plaintiffs essentially are encouraged to bring this type of action against the association and not against an individual unit owner. As a result, the association and its property manager are easy targets when a failure to regulate activities within the common elements results in injury or damages. Liability relating to liquor-related accidents or other disasters is inescapable. As an initial response to the threat or actuality of a liquor liability lawsuit, the association, hosting unit owner, and manager may each wish to explore with their attorneys and insurance carriers the extent or limits of the liquor liability coverage within the master policy. Before coverage can be confirmed, certain questions must also be answered regarding the pouring of the drinks that led to injury and damage. One of the first and most important questions is whether the liquor served was sold. If it can be shown that the association directly or indirectly received money for the alcoholic beverages, coverage could be denied on the basis that the association was in the "business" of selling liquor. Due to the ambiguity and possibly broad interpretation of the term "business," insurance carriers may thoroughly investigate these types of claims.

Other important questions are whether the drinks were served to persons under the legal drinking age or given to someone already legally drunk. The answers could jeopardize insurance coverage. In response to damage claims, the association or its insurance carrier must also examine whether and to what extent state statutes or case law permit liability for social hosts. As a way to proportionately reduce an award, courts sometimes will entertain arguments as to whether the party causing the damage in some way contributed to or caused the injuries. Several states also cap the total amount recoverable and impose strict time limits when a lawsuit can no longer be started. But what of the errant unit owner--the individual whose negligent conduct arguably led to the plaintiffs injury? Many master policies include a waiver of subrogation rights against unit owners, including members of the household. After defending the unit owner's interest, the carrier would be precluded from suing the unit owner for reimbursement. In many circumstances, however, the costs incurred by the association due to the negligence or willful misconduct of a unit owner may be recovered through a special assessment against that owner.

Defenses under standard reservation of rights policy clauses may limit or exclude coverage or defense costs. For instance, a defense to coverage might exist if there is a question as to whether the serving unit owner's insurance policy should pay the injured parties, rather than--or in addition to--the association's master liability policy. A unit owner's carrier could become involved in this type of litigation if the consumption of liquor took place at the unit or at other areas within the owner's exclusive control.

Taking Preventive Measures The association considering ways to avoid liquor liability lawsuits is faced with a dilemma. On one hand, there are many reasons why the common place and frequently harmless consumption of alcoholic beverages should be beyond the scope of governance by the association and its manager. On the other hand, the ever increasing possibility of liquor related liability screams out for regulation. Unfortunately, neither extreme is practical. Conscientious efforts must therefore be made to strike an acceptable balance for each community. Steps leading to a thoughtful plan of action include a thorough review of community rules and regulations relative to this type of activity, a consultation with insurance experts regarding available policy coverages, a review of manager duties regarding the overseeing of common areas, and a draft or review of clubhouse or recreational facility rental agreements. As a preventive measure, rules can be amended or created that explicitly prohibit consumption of alcoholic beverages in common elements. This may include posting "drinking prohibited" signs around pools and ball fields. This course of action may serve as a basis for fining offenders and reallocating deductibles, increased premiums, and unreimbursed litigation costs. Insurance policies should be reviewed to confirm the adequacy and scope of host liability coverage.

It might also be worthwhile to confirm whether the carrier provides guidelines or suggested proactive measures to address this problem. For instance, some insurance carriers recommend that special liquor liability insurance be obtained for any function that requires a liquor license or special permit. Many management contracts include provisions that indemnify the manager from lawsuits so long as the action is based on the manager carrying out his or her duties. Associations and managers should review these provisions to decide whether a limitation to this indemnity is appropriate for claims where the manager may have inadequately monitored the use of the common elements. When common elements such as a clubhouse are used for an association-sponsored event or are rented or used by others for a party, special considerations should be given to liquor liability. In the event that alcoholic beverages are sold to guests--whether directly or indirectly through admission or other charges--applicable state laws may require that a liquor license, club permit, or other special types of permit be issued by the relevant liquor control authority. Even in those instances where drinks are provided free or as part of "bring your own bottle" parties, written authorizations or rental agreements should be used. They should include provisions that indemnify and hold the association harmless from all losses, liability, damages, and expenses (including attorney's fees) resulting from any injury or damage in any way associated with the use of the facility. All permits issued for events where liquor may be present must also include the obligation to comply with state drinking age requirements.

The overconsumption of alcohol coupled with the litigious society in which we live spells potential exposure to all parties involved in a common interest community. While good cheer and merriment are clearly beneficial, community leaders must encourage personal responsibility and enforce appropriate guidelines to safeguard against the disasters brought on by drunk driving and related activities. Overlooking these guidelines may result not only in unnecessary liability, but in a tragedy that could have been avoided.

Five Ways to Prevent Liability Hangovers If your association wants to reduce the risk of alcohol-related liability consider the following steps:

• Adopt reasonable rules and measures to prevent alcoholic beverage consumption in common areas, such as pools, playgrounds, and ball fields., where the risk of injuries may be great
• Ascertain the scope or existence of liquor liability coverage in your master policy and follow your insurer's guidelines, especially when having or permitting parties within the community recreational areas.
• Never let anyone else using common elements sell liquor without obtaining the necessary insurance coverages and liquor control authority permits.
• Include indemnity clauses in all clubhouse or facility rental permits for events when liquor may be served. Also include in these agreements a promise that the sponsor shall comply with all governing drinking-age requirements.
• Discuss with other directors, unit owners, and the manager appropriate ways that a balance can be struck between enforcement of "no drinking rules" and the otherwise acceptable use of common elements within your community.