For a long time, the Liquor Liability Exclusion contained in ISO’s commercial general liability policy applied to “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.

In its most recent edition – 2013 – the policy drafters amended the Liquor Liability Exclusion to add that it “applies even if the claims against any insured allege negligence or other wrongdoing in: (a) The supervision, hiring, employment, training, or monitoring of others by that insured; or (b) Providing or failing to provide transportation with respect to any person that may be under the influence of alcohol.”

Despite the expansive, and now more expansive, Liquor Liability Exclusion, it is not surprising that policyholders, armed with a broad duty to defend standard, try to thread a needle and find something – anything -- in the complaint that falls outside of its provisions and triggers a defense. 

That’s what was at issue before the Indiana Supreme Court in Ebert v. Illinois Casualty Company.  Granted, a policyholder attempting to navigate around the Liquor Liability Exclusion by dissecting the allegations in a complaint is hardly a novel scenario.  For this reason, I went back and forth on whether to include Ebert in this year’s annual coverage best-of.  Does it have what it takes to influence other courts nationally?  In the end, I included it because the issue has not been addressed by every state, Ebert is a supreme court decision – of which they are not an abundance -- and the claim involves the 2013 edition of the Liquor Liability Exclusion, for which there are fewer decisions. 

I also selected the decision because the court adopted the specific argument that insurers’ traditionally make when it comes to the Liquor Liability Exclusion.  Despite the umpteen reasons alleged in the complaint how the plaintiffs were injured – and there may be a lot; and some not within the specific terms of the exclusion – they could not have been injured but for the insured serving alcohol to a patron.     

Ebert examined whether a Liquor Liability Exclusion, contained in a commercial general liability policy issued to Big Daddy’s Show Club, precluded a defense to the club for claims alleging that a patron, William Spencer, was served alcohol, drove away and then collided with another vehicle, causing bodily injury to its occupants, the Eberts.

The Eberts filed suit against Big Daddy’s and others.  As the specific claims asserted against Big Daddy’s are the crux of the case, I set out the court’s description of them in full.  The Eberts claimed that “Big Daddy’s violated Indiana’s Dram Shop Act, Indiana Code section 7.1-5-10-15.5, by serving alcohol to Spence when it knew, or should have known, of his inebriation.  The Eberts also claimed the Parks defendants [which included Big Daddy’s]: (a) continued to serve Spence alcohol when they knew, or should have known, he was inebriated and impaired; (b) allowed Spence to drive his vehicle from Big Daddy’s when they knew, or should have known, he was inebriated and impaired; (c) failed to notify law enforcement that Spence left Big Daddy’s and operated his vehicle in an inebriated state; and (d) failed to obtain alternative transportation for Spence to prevent him from operating his vehicle.”

Big Daddy’s was insured under a commercial general liability policy and liquor liability policy issued by Illinois Casualty.  The insurer maintained that only the liquor liability policy was potentially applicable and filed an action seeking a determination that, on account of the Liquor Liability Exclusion, it did not owe a defense or indemnity to Big Daddy’s under the commercial general liability policy.

Putting aside the specifics, the trial court found in favor of Illinois Casualty and the Court of Appeals reversed.  The Indiana Supreme Court agreed to take the case.  The court first concluded that the Liquor Liability Exclusion was clear and unambiguous.  In reaching this decision, the court was unfazed by the fact that the exclusion is broad in scope and rejected the argument that it “cannot be twisted and contorted to include every possible allegation that could occur at a bar.”  

Next, the high court turned to whether the claims asserted against Big Daddy’s were precluded by the terms of the exclusion, which is the ISO 2013 version set out at the top.

The court, adopting the efficient and proximate cause analysis, concluded that the exclusion applied to all of the claims asserted by the Eberts against Big Daddy’s. 

First, the court made quick work of the claims that were expressly excluded by the Liquor Liability Exclusion, namely, that Big Daddy’s violated Indiana’s Dram Shop Act by continuing to serve Spence alcohol when it knew, or should have known, he was inebriated and continued to serve Spence alcohol and failed to obtain alternative transportation for him when they knew, or should have known, of his inebriation and impairment.

Then the court addressed Big Daddy’s argument that certain claims did not fall within the terms of the Liquor Liability Exclusion.  Specifically, the claims that the defendants were negligent in allowing Spence to leave Big Daddy’s in his vehicle and failing to call police.

However, even if these allegations are not specifically within the terms of the Liquor Liability Exclusion, the court concluded that they “are so inextricably intertwined with the underlying negligence, and could not have resulted in injury but for Spence’s driving while intoxicated after Big Daddy’s served him alcohol.  Plainly, the Eberts essentially claim the Parks defendants were negligent for failing to intervene. But we cannot ignore the circumstance necessitating intervention in the first place: the service of alcohol to an intoxicated Spence. Therefore, like the trial court, we find that Spence’s intoxication was the efficient and predominant cause of the Eberts’ injuries.”  (emphasis added).