Barring Coverage in Dram Shop Cases
When someone thinks of the classic dram shop case, they usually have in their head an injured party, possibly a third-party actor, and, of course, a bar. Always a bar. However, every so often when a dram shop suit has commenced, a pivotal question arises. Was the establishment where it is claimed a person was negligently over-served in the business of selling, serving or furnishing alcohol? For insurance companies and their relevant policies, this question can be the difference between a successful declaratory judgement or a seven-figure award to the plaintiff. This question concerning the selling and serving of alcohol in a dram shop case was recently highlighted in Transportation Ins. Co. v. Heathland Hospitality Group LLC, 2019 U.S. App. LEXIS 22318 (3d Cir. July 26, 2019).
In 2008, a fatal car accident occurred involving a drunk driver, Mr. Whittingham, and another driver, Mr. Serratore. Following the incident, Mr. Serratore’s widow sued Heathland Hospitality Group. Ms. Serratore alleged Mr. Whittingham was intoxicated at the time of the accident, having become drunk earlier that day at the Woodbury Country Club, which Heathland managed. In particular, Ms. Serratore alleged that the country club and/or Heathland sold or gave alcohol to Mr. Whittingham while he was visibly intoxicated.
Heathland sought coverage under a commercial general liability policy with Transportation Insurance and an umbrella policy with Continental Casualty. Both policies included liquor liability exclusions. Transportation’s policy included an exclusion that read: “This insurance does not apply to bodily injury 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.” Continental’s umbrella policy included a liquor liability limitation which stated: “This insurance does not apply to bodily injury 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.” Each policy stipulated that the liquor liability exclusion “applies only if you are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.”
Heathland argued that it was not in the business of selling, serving or furnishing alcoholic beverages. It contended that it merely managed the country club in order to be covered by their two insurance policies. The circuit court pointed out that Ms. Serratore alleged the country club was a business establishment that sold alcoholic beverages and Heathland managed the country club’s food and beverage sales and services. Further, Heathland trained and supervised the country club’s employees as to those sales and services. Lastly, the country club and/or Heathland sold or gave alcoholic beverages to Mr. Whittingham, who consumed the beverages on the premises of the country club.
The Third Circuit found that Ms. Serratore’s complaint clearly alleged that Heathland was in the business of selling, serving or furnishing alcohol at the country club. Based upon the allegations asserted by Ms. Serratore, the court disagreed with Heathland. Further, the court found the exclusion provisions in Transportation’s and Continental Casualty’s policies were unambiguous. The circuit court stated the provisions “intended to distinguish an insured who occasionally serves alcohol from an insured who is involved with the service of alcohol with such regularity that the insured represents a significantly greater insurance risk.”
Heathland also argued that the complaint included some allegations of negligence that did not fall within the liquor liability exclusion. The circuit court admitted that some of Ms. Serratore’s claims did not explicitly refer to the provision of alcohol, but found that those claims were “inextricably intertwined with or not sufficiently independent of the provision of alcohol.” It ruled that all of Heathland’s allegedly negligent conduct was so closely linked to the country club’s allegedly negligent conduct that no allegations against Heathland were sufficiently independent of its duty not to serve, sell or furnish alcoholic beverages to visibly intoxicated customers. Accordingly, the circuit court affirmed the lower court’s decision that the liquor liability exclusions in the insurance policies precluded Heathland’s coverage for claims brought by Ms. Serratore.
Despite not owning a liquor license, the property or any interest in the country club, Heathland was still found to have been in the business of selling and serving alcohol. This left Heathland uncovered and proprietarily on the hook for any damages awarded to the plaintiff. This decision is important for insurance companies in that they need to understand the nature of the businesses their insureds are participating in and make sure that their policies are appropriate for that industry. Additionally, this case could be a wake up call to certain business owners to consider the definition of their trade and be sure they are properly covered in their liability policies. As I stated earlier, it could make a seven-figure difference.
*Colin is an associate in our Doylestown, Pennsylvania office. He can be reached at 267.880.2022 or firstname.lastname@example.org.
Defense Digest, Vol. 25, No. 4, December 2019 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2019 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact email@example.com.