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Vol. 8 - Issue 11
December 18, 2019

Liquor Liability Exclusion Does Not Make Bar’s Policy Illusory
It is not unusual for a policyholder, denied coverage, to argue that it never had a chance, as its policy is illusory.  This usually happens when the claim at issue involves a risk that is fundamental to the insured’s business.  As the insured sees it, if the policy does not provide coverage for something at the heart of why the insured needs the policy, then it provides no coverage at all.  Hence, it is illusory.  These arguments are routinely rejected by courts on the basis that, while the policy may not provide coverage for an important risk, it provides coverage for other potential hazards.  So, since it provides some coverage, it is not illusory.

This is why the court rejected an insured-bar’s illusory coverage argument in AIX Specialty Ins. Co. v. Members Only Management [OMG – remember those jackets that everyone had], No. 19-12110 (11th Cir. Dec. 11, 2019), after its claim for coverage, for a dram shop action, was denied on account of an Absolute Liquor Liability exclusion in its general liability policy (broader than the standard ISO liquor liability exclusion). 

As Members Only saw it, since it is a club that permits patrons to bring in alcohol, “any claim for bodily injury could theoretically bear connection to alcohol, and thus be barred under the Absolute Liquor Liability Exclusion.”  But the court rejected the illusory coverage argument for the same reason other courts have – others risks could still be covered: “The exclusion here would not swallow every claim for bodily injury. Imagine, for instance, that a sober patron tripped in a dimly lit corridor and sued for negligence. That claim has nothing to do with alcohol. Or say a light fixture falls from the ceiling and hits a sober patron. That claim bears no connection to alcohol either. No doubt, the Absolute Liquor Liability Exclusion is a significant exclusion given Members Only’s business. But it does not swallow its coverage whole.”

An Oldie: Court Addresses “Occurrence” Defined As An “Event”
For a long time, the definition of “occurrence” in a commercial general liability policy has been “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  But back in the day, the definition of “occurrence” wasn’t always so standard.  In Superior Water v. Certain Underwriters at Lloyds, No. 2018AP1926 (Wis. Ct. App. Nov. 19, 2019), the Wisconsin appeals court addressed 1970 policies, in the context of a claim for environmental property damage, that defined “occurrence” to mean “one happening or series of happenings arising out of or caused by on event taking place during the term of this contract.”  If you have this issue you’ll want to check out Superior Water.  The court concluded that the term “occurrence” was ambiguous and applied the interpretation advanced by the insured.

Should Breach Of Contract And Bad Faith Claims Be Bifurcated?
For a fairly detailed look at whether breach of contract and bad faith claims should be bifurcated, at least under Pennsylvania law, check out Ferguson v. USAA Gen. Indemnity Co., 19-401 (M.D. Pa. Dec. 5, 2019).  The answer – no.  “Having found resolution of Plaintiffs’ breach of contract claim is not a pre-requisite to evaluating their bad faith claim, this begs the question of whether the distinctness of the claims supports severing them. The court finds it does not. While the two claims are conceptually distinct, they are ‘significantly intertwined’ from a practical perspective. [citation omitted] For example, one facet of Plaintiffs’ bad faith claim is that Defendant did not, in good faith, attempt to settle Plaintiffs’ claim because it conducted an inadequate investigation into the extent of the insured’s injury.  This requires discovery regarding two underlying facts: (1) what was the nature of Plaintiffs’ injuries; and (2) what efforts did the insurer make to investigate Plaintiffs’ injuries. To prove damages regarding their breach of contract claim, Plaintiffs will have to provide similar facts, and Defendant is likely to test them through discovery. As such, separating out the claims and staying discovery would potentially create a discovery mess, requiring truncated depositions, interrogatories, and requests for production, only to have them all re-started following the conclusion of the first leg. This risk of judicial inefficiency warrants denial of Defendant’s request.”




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