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Vol. 6, Iss. 1
January 11, 2017

New Liquor Liability Exclusion: Did ISO Go Far Enough? [Underwriters Take Note]

ISO amended the Liquor Liability Exclusion in its 2013 workhorse commercial general liability form CG 00 01. But did the Jersey City Boys miss something with the effort. A recent Indiana federal court decision suggests maybe so.

In one significant way, ISO’s 2013 amendment expanded the Liquor Liability Exclusion from, essentially, an insured’s furnishing of alcohol to state that it also applies to an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others. Essentially, the point here is to expand the exclusion to include claims that the insured “failed to prevent” bodily injury.

But if ISO’s intent is for a CGL policy to have nothing whatsoever to do with liquor liability claims – and, instead, put them on its liquor liability policy – then Property Owners Ins. Co. v. Virk Boyz Liquor Stores, No. 15-87 (N.D. Ind. Nov. 9, 2016) (and the concept addressed in Skolnik v. Allied Property and Casualty Ins. Co. (App. Ct. Ill. 2015)) (see Top 10 Coverage Cases of 2016; December 7, 2016 CO) suggests that the expanded exclusion may not be last call for CGL insurers.

Virk Boyz involves coverage, under a commercial general liability policy, for damages arising out of a bar fight that occurred at Stein Tavern. Terry Woods, a patron, who admitted that he drank to intoxication, was seriously injured in an altercation. He was allegedly struck several times with a pool cue across his upper back and neck, punched in the face with a closed fist and body-slammed to the floor by a bartender. Woods filed suit against the bar owner. Property-Owners agreed to defend the bar, under a reservation of rights, and filed an action seeking a declaration of no duty to defend or indemnify.

Woods’s claims were as follows: Count I – the bartender failed to protect him and negligently failed to intervene to stop the assault; Count II -- negligently hiring the bartender; Count III - negligent failure to train the bartender; and Count IV - dram-shop.

The bar’s CGL policy contained a pre-2013 Liquor Liability Exclusion:

“Bodily injury” or “property damage” for which any insured may be held liable for 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.

First, it is easy to see why the court rejected the argument that the Liquor Liability exclusion applied to all of the claims. The claims included ones that were in the nature of “failure to prevent,” and the Liquor Liability exclusion at issue, being pre-2013, did not contain the added language that it applies to an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others. The court stated: “Count I alleges Stein Tavern was negligent for its failure to intervene or stop the assault, or call the police when Woods was assaulted. Count II alleges Stein Tavern breached its duty to Woods by hiring Russell when it should have known he was incompetent and unfit for employment as a bartender/bouncer. And Count III alleges that Stein Tavern was negligent in failing to train Russell to prevent the assault. These claims are not ‘inextricably intertwined’ with the negligent provision of alcohol. In fact, they have nothing to do with the sale of alcohol at all.”

However, even if the Liquor Liability exclusion contained the added language that it applies to an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others, would that have precluded coverage for all of the claims?

Count I alleged that Stein Tavern was negligent for its failure to intervene or stop the assault, or call the police when Woods was assaulted. The court seemed to characterize this as separate from the bar’s failure to train its employees. The court stated: “bar fights are a common occurrence, and sometimes they occur for reasons utterly unrelated to the sale of alcohol. Suppose Woods was hitting on another patron’s girlfriend which caused the fight (and his subsequent injuries). Or suppose he made a wise crack about another patron's bad breath. The ensuing bar fight and his resulting injuries would have nothing to do with the sale of alcohol. In such a situation, the bar owner could be liable for a failure to train its employees or failure to protect or intervene, and it would have nothing whatsoever to do with the sale of alcohol.” (emphasis added).

It is not difficult to imagine a court, especially in the context of a broad duty to defend standard, characterizing an insured’s failure to protect or intervene, or seek medical assistance, as being outside the scope of an exclusion for an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others.

Such a conclusion would be consistent with the decision in Skolnik v. Allied Property and Casualty Ins. Co. (App. Ct. Ill. 2015). In Skolnik, the court held that, at least for duty to defend purposes, an exclusion for bodily injury arising out of the use of controlled substances did not apply, despite an autopsy report that cause of death was “methadone intoxication.” The court noted that it was alleged that the insured and his parents negligently, carelessly, and improperly failed to request emergency medical assistance for [the victim] within a reasonable period of time after knowing she was physically incapacitated or unconscious or both.” The court concluded: “[D]espite the autopsy notation regarding cause of death [methadone intoxication], a genuine issue of material fact exists as to whether Johnson’s death was caused solely by her methadone ingestion. The four corners of the complaint contain details that, if true, describe a lengthy and protracted period of time during which Skolnik could have sought assistance.”

As I stated in the December 7, 2016 issue of Coverage Opinions when discussing Skolnick: “There are a host of exclusions that preclude coverage for injury arising out of some specified conduct on the part of an insured: assault and battery, furnishing alcohol, criminal acts, etc. These exclusions are often interpreted broadly on account of being expressed in “arising out of” language. Skolnik demonstrates that a plaintiff may be able to trigger a defense obligation, in a case that would otherwise be subject to a broad “specified conduct exclusion,” by simply alleging (provable or not) that, after the insured committed the excluded conduct, it failed to summon help for the victim. And such failure was also a cause of the plaintiff’s injuries.” I have seen some specified conduct exclusions that also include failure to provide aid along with the list of various failure to prevent-type conduct.

Property Owners Ins. Co. v. Virk Boyz Liquor Stores – with its allegation that the bar was negligent for its failure to intervene or stop the assault, or call the police when the patron was assaulted -- may have been another example of this, even with ISO’s 2013 Liquor Liability Exclusion.

In any event, if CGL insurers want no part of liquor liability claims – and I think that’s the case -- then they should consider the tonic of taking ISO’s 2013 expanded Liquor Liability Exclusion further.


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