Missouri Court Holds Liquor Liability Applicable to Underlying Suit

In its recent decision in Nautilus Ins. Co. v. Roberts, 2013 U.S. Dist. LEXIS 50141 (E.D. Mo. Apr. 8, 2013), the United States District Court for the Eastern District of Missouri had occasion to consider the application of a liquor liability exclusion in a general liability policy.

The insured, American Legion, was named as a defendant in a dram shop liability suit, alleging that it allowed a patron to become intoxicated.  That patron was later involved in an auto accident while driving under the influence, resulting in the death of one individual and causing serious injuries to another.  Nautilus, as the American Legion’s general liability insurer, brought a coverage action against its insured and the underlying claimants, seeking a declaration that it owed no coverage obligation as a result of its policy exclusion applicable to:

Bodily injury" or "property damage" for which any insured or his indemnitee may be held liable by reason of:

1)   Causing or contributing to the intoxication of any person;

2)   The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

3)   Any statute, ordinance, or regulation to the sale, gift, distribution or use of alcoholic beverages.

Nautilus later moved for summary judgment on the basis of this exclusion.  American Legion defaulted in the suit, and for reasons not clear, the underlying claimants failed to oppose the motion.  The court nevertheless considered the merits of Nautilus’ motion, since as the insurer, Nautilus had the burden of proving the application of the exclusion.   Noting that claimants sought to hold American Legion liable as a result of it having caused the intoxication of the patron, the court agreed that the exclusion applied to all claims against Nautilus’ insured.  Further, at least one prior Missouri court had held the exclusion applicable on similar facts.  See, Auto Owners (Mut.) Ins. Co. v. Sugar Creek Memorial Post. No. 3976, 123 S.W.3d (Mo. Ct. App. 2003).   As such, and given the absence of any meaningful opposition, the court granted summary judgment in favor of Nautilus.

Illinois Court Addresses Liquor Liability Exclusion

In its recent decision in Netherlands Insurance Co. v. Phusion Projects, Inc., 2012 U.S. Dist. LEXIS 5222 (N.D. Ill. Jan. 17, 2012), the United States District Court for the Northern District of Illinois had occasion to consider the application of liquor liability exclusion.

The insured, Phusion Projects, produced and sold an alcoholic beverage that also contained significant quantities of “stimulants” such as caffeine, wormwood and taurine.  Phusion was named as a defendant in several product liability suits brought by individuals claiming injuries as a result of having consumed the beverage.  While the nature of plaintiffs’ injuries differed, all suits alleged, in pertinent part, that the combination of alcohol and stimulants in the Phusion beverage enabled plaintiffs to consume more alcohol without passing out, thus causing them to behave more erratically while intoxicated and/or causing them to suffer negative health effects.

Phusion’s primary and umbrella liability insurers denied coverage for the underlying suits on the basis of a liquor liability exclusion applicable to:

c. Liquor Liability

"Bodily injury" or "property damage" for which any insured may be held liable by reason of:

   (1) Causing or contributing to the intoxication of any person;

   (2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

    (3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

Phusion argued that the exclusion should not apply since the policies were purchased specifically to insure Phusion’s products, which the insurers knew were alcoholic, thus rendering coverage virtually nonexistent.  The court rejected this argument, explaining that the policies provided coverage for other risks arising from Phusion’s products, such as “if Phusion sold tainted products and injured its customers in a manner unrelated to intoxication.”  Phusion also argued that the exclusion applied only to “Dram shop” claims, i.e., liability against bars for their sale of alcohol to individuals who then cause injuries to others.  The court rejected this argument as well, citing to the express language of the exclusion that broadly applied to any insured in the business of manufacturing, distributing and selling alcoholic beverages, not just those in the business of serving or furnishing such beverages.

Thus, finding the exclusion clear and unambiguous, the court concluded that the exclusion applied to four of the underlying suits alleging injuries as a result of plaintiffs being intoxicated, including a DUI-related suit and a suit alleging that an individual accidentally killed himself after his consumption of the Phusion beverage caused him to be awake, in an intoxicated state, for over thirty hours.  The court did, however, conclude that the exclusion did not apply to an underlying suit alleging that plaintiff developed a heart condition as a result of consuming the Phusion product since the his claim was based on the dangerous nature of the product rather than its intoxicating nature.