Volume 10 • Issue 32 • Spring 2012 Letter from the Insurance Company Team INSIDE THIS EDITION: The Many Forms of Liquor Liability and the Many Forms of Liquor Liability – Liquor Liability Coverage Issues Ringing in the New Year Historically, alcohol providers were not held liable for injuries to those served1 or third-parties injured by those served. Typically, liability to social hosts has been extended through four (4) paths: First, some states have extended their dram shop acts, which traditionally held commercial vendors of alcohol civilly liable under certain circumstances to include liability for social hosts. Second, some states have held alcohol providers, including social hosts, who violate a criminal beverage control statute civilly liable by finding that such a violation indicates that the alcohol provider was negligent or negligent per se. Third, some states have rejected the traditional common law immunity for alcohol providers and hold the alcohol provider liable based upon common law negligence principles. Finally, at least one state has enacted a statute which solely addresses social host liability.2 The “dram shop acts” referenced above “are the legislatively created remedies for injuries arising out of unlawful sales of intoxicating beverages by licensed retailers, and the cause of action is not based on negligence.”3 In the context of liability insurance, “[a] liability insurer’s duty to defend an insured on a claim arises when any part of the claim is arguably within the scope of the policy’s coverage, and an insurer that wishes to escape that duty has the burden of showing that all parts of the cause of action fall clearly outside the scope of coverage.”4 As commentators have noted, “the insurer’s first step in evaluating its obligation to its insured concerns the duty to defend. In many jurisdictions, a review of the complaint to determine whether, if proven, it might constitute a liability within the policy’s coverage is a sufficient factual basis on which the insurer can make its decision as to whether a defense is required.”5 Thus, “[a] comparison of the allegations of a complaint to policy coverage for purposes of determining defense obligations should focus on the key components of the coverage grant, the language of potentially applicable exclusions and other policy elements that affect the availability of coverage.”6 Consequently, just as there are a variety of ways to seek liquor-related liability, there are a variety of attendant coverage issues including insuring clause issues, potentially applicable exclusions, and other policy limitations. This issue will examine Liquor Liability and CGL Policies Page 2 those theories of liability and coverage issues individually, through homeowners’ policies, and commercially, through CGL Social Host Liability and Homeowners’ Policies Page 4 policies. If “Ringing in the New Year” has led to liquor-related claims under personal or commercial liability policies, the articles This newsletter is a periodic publication of Steptoe & Johnson PLLC’s Insurance will help identify any issues. Company Team and should not be construed as legal advice or legal opinion ________________ on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own lawyer 1 Daniel R. Conrad, “Intoxicating Liquors – Persons Liable: North Dakota Extends concerning your own situation and any specific legal questions you may have. For further information, please contact a member of the Insurance Company Team. Statutory Dram Shop Liability To Social Hosts,” 71 N.D. L. Rev. 743 (1995). This is an advertisement. 2 Id. (footnotes omitted). 3 2A American Law of Torts § 9:87 (footnote omitted). 4 44A Am.Jur.2d Insurance § 1964 (footnotes omitted). 5 1 Law and Prac. of Ins. Coverage Litig. § 6:4 (footnotes omitted). 6 Id. Colorado, Kentucky, Ohio, Pennsylvania, Texas, and West Virginia www.steptoe-johnson.com Susan S. Brewer, CEO Page 2 • Winter 2017 RINGING IN THE NEW YEAR COMMERCIALLY Liquor Liability and CGL Policies By: Michelle E. Gaston and Mark Moses The National Conference of State Legislatures has indicated that the majority of states have “dram shop laws” which allow for licensed establishments that serve or sell alcohol to be found liable for injuries or death resulting from the intoxication of a patron.1 “‘Dram shops’ refers to establishments that serve alcohol by the dram, a unit of liquid measure used in the United States during the colonial period.”2 Some states that have enacted Dram Shop laws have limited liability for certain circumstances,3 while other states have no such limitations on liability.4 Notably, “[p]olicies of commercial general liability insurance typically exclude from coverage injuries arising out of the manufacture, distribution, and sale of alcoholic beverages.”5 However, as the Court noted in Kelly v. Painter, 202 W.Va. 344, 504 S.E.2d 171, 175 (1998 ), “[i]f Gatsby’s had desired an insurance policy that covered this type of liability [liquor], the bar could have obtained liquor liability insurance by paying the necessary additional premiums which are assessed as a percentage of the establishment’s total alcohol sales.” So the question is – what forms of liquor liability coverage are available? FC&S6 advises that “[t]he liquor liability exposure is not meant to be insured under the standard general liability policy.”7 Thus, a common provision is the liquor liability exclusion. “Several versions of this exclusion are in current use. Besides the 1973 comprehensive general liability form that is still applicable in a diminishing volume of disputes, there are the two optional variations adopted in 1989.”8 “[C]laims based upon the insured’s violation of state alcoholic beverages law, negligence in failing to ascertain minor driver’s age, failure to warn a driver of his or her intoxication, and prevent that person from driving while intoxicated fall within the exclusion.”9 Although the subject of “misunderstandings, arguments and litigation”, liquor liability exclusions are generally upheld.10 Examples of judicial treatment can be seen in various West Virginia cases. Indeed, in Kelly, supra, at 347 the Supreme Court of Appeals of West Virginia stated that “[t]he insurance policy that is questioned here contains no ambiguity. We previously quoted the policy language which clearly states the insurance does not apply to bodily injury for which the insured may be liable if the insured caused or contributed to the intoxication of the person involved and the insured is in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.”See also Berkhous v. Great American Assur. Co., 2013 WL 6152414 (W.Va. Nov. 22, 2013) (unpublished) (“The liquor liability exclusion expressly excludes coverage for lodges for ‘[a]ny liability of any ‘Insured’ by reason of: (1) causing or contributing to the intoxication of any person; or (2) the furnishing of alcoholic beverages to a person . under the influence of alcohol[.]’ We find nothing ambiguous in this language.”); Essex Ins. Co. v. Tri-Area Amusement Co., 2010 WL 148381 (N.D. W.Va. Jan. 12, 2010) (unpublished) (“The liquor liability exclusion language in the Essex policy is plain, simple, and easy to understand.”); Essex Ins. Co. v. Napples Bullpen, LLC, 33 F.Supp.3d 667, 674 (N.D. W.Va. 2014) (“The liquor liability exclusion is unambiguous . .”). FC&S further instructs us that “[t]he exclusion in the CGL policy eliminates coverage for insureds that are ‘in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.”11 The 2013 ISO-CGL form clarified the exclusion “to preclude coverage even when claims allege the insured was negligent in hiring, supervising or training employees or that the insured provided or failed to provide transportation to inebriated persons.”12 In some instances, the CGL liquor liability exclusion generated a problem in “deciding what is, and what is not, being ‘in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages’ because the exclusion applies only to insureds so engaged ‘in the business.’”13 Thus, ISO generated two endorsements to the exclusion. Endorsement CG 21 50 was written “to clarify that one does not have to engage in a licensed activity or be operating with a profit motive to fall under the exclusion.”14 Endorsement 21 51 excepts scheduled activities from the exclusion.15 Thus, “[a]ny business16 that has a connection to the alcoholic beverages industry has a need for specialized coverage for liquor-related incidents.”17 Indeed, it was recently noted that “one in four liquor liability claims Swiss Re Corporate Solutions receives involve death claims.”18 ISO offers a liquor liability coverage form “that is a liability policy specifically developed for covering the liquor related exposures of insureds in the alcoholic beverages industry, or whose businesses involve the sale or service of alcoholic beverages.”19 The occurrence-based form is CG 00 33 04 13 and the claims-made form is CG 00 34 04 13.20 Businesses that occasionally provide liquor for client or employee functions are in a “gray area” because they are not “in the business,” but may have concerns regarding traditional exclusions such as ones for intentional acts.21 Consequently, commercial insureds engaged in those entertaining activities may consider “social host liquor liability insurance.”22 Notably, however, language of this form of coverage may also be restrictive. In Zurich Ins. Co. v. Uptowner Inns, Inc., 740 F.Supp. 404, 406 (S.D.W.Va. 1990), at issue was “Host Liquor Law Liability Coverage” which specified: PagePage 2 3 • Winter 20132017 Exclusion (h) does not apply with respect to liability of the insured or his indemnitee arising out of the giving or serving of alcoholic beverages at functions incidental to the named insured’s business, provided the named insured is not engaged in the business of manufacturing, distributing, selling or serving of alcoholic beverages.