Beers at work after hours may be a 'function' for insurance purposes
Are casual drinks after work on the employer's premises the equivalent of a holiday party with similar liability issues? See what one court had to say.
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In high-pressure work environments, for example, places where people work on commission, it’s not unusual for employees to relax after work with adult beverages. But when the liquor is purchased at the direction of a manager and consumed on the employer’s premises, does that after-work gathering become an employer “function” for purposes of “host liquor liability”/? What coverage comes into play when one employee is struck by a car driven by another employee as she’s leaving work?
The case
Christian Ulises Ruiz, a salesperson for El Paso, Texas-based car dealer Rudolph Mazda, allegedly hit Irma Vanessa Villegas, a co-worker, with his vehicle on Rudolph’s premises.
Villegas sued Ruiz, Rudolph, and two managers, alleging that Rudolph had their salespeople, including Ruiz and Villegas, begin work at 9:00 a.m., provided lunch at the dealership’s premises to keep them there to sell its inventory, and had a policy that the salespeople would stay as long as needed, sometimes until 10:00 p.m.
According to Villegas, on Dec. 27, 2013, one of the managers sent Ruiz to a store during work hours to buy beer; the beer was placed in Rudolph’s refrigerator for consumption on its premises by salespeople that night. After Ruiz had consumed alcohol on Rudolph’s premises with the managers, he struck Villegas with his vehicle while she was crossing Rudolph’s parking lot.
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No duty to defend/?
After receiving notice of Villegas’ claim, Sentry Select Insurance Company, which had issued an insurance policy to Rudolph, asked the U.S. District Court for the Western District of Texas to declare that it had no duty to defend or indemnify Rudolph in the case.
Rudolph claimed that Sentry had a duty to defend and indemnify Rudolph based on the “Host Liquor Liability” endorsement to the garage liability coverage provision of the Sentry insurance policy. According to Rudolph, the Dec. 27, 2013, beer consumption event at Rudolph’s premises fell within the scope of the term “function” as used in the Host Liquor Liability coverage endorsement. Rudolph argued that any social gathering could be a “function” and, as such, the event as alleged in Villegas’ lawsuit was a “function” for purposes of the Host Liquor Liability provision.
Sentry responded that the Host Liquor Liability provision only applied to company functions “such as company Christmas parties, company picnics, etc.” It characterized the event as a gathering of “a few employees … [who] stayed after work to socialize” at Rudolph’s premises and that “no function took place.” It contended, the “Employer’s Liability” exclusion in its policy excluded coverage and it had no duty to defend or indemnify under the garage liability coverage.
Related: Did that accident cause those injuries/?
The Sentry policy
An “Employer’s Liability” exclusion in the commercial garage liability coverage part of Sentry’s policy provided:
This insurance does not apply to “Bodily injury” to an “employee” of the “insured arising out of and in the course of (1) Employment by the “insured”; or (2) Performing the duties related to the conduct of the “insured’s business.”
An endorsement regarding the “Host Liquor Liability” coverage to the Sentry policy provided that Sentry would:
Pay all sums the “insured” legally must pay as damages because of “bodily injury” … arising out of the giving or service of alcoholic beverages at functions incidental to your garage business provided you are not engaged in the business of manufacturing, distributing, selling or serving of alcoholic beverages. (Emphasis added.)
The district court’s decision
The district court decided that Sentry had a duty to defend Rudolph.
In its decision, the district court pointed out that the Sentry policy did not define the term “function.” The district court found nothing in the Sentry policy indicating that the parties intended the term “function” to exclude a particular type of social gathering, such as an after-work gathering of a few employees for beer consumption. According to the district court, if the parties had so intended, “it would have been simple to have said so.”
The district court then ruled that the alleged gathering of Rudolph’s employees for the consumption of beer on its premises constituted a “function” for purposes of the Host Liquor Liability coverage provisions of the Sentry policy and that Sentry had a duty to defend Rudolph, unless an exclusion applied.
The district court next decided that the Employer’s Liability exclusion did not preclude coverage, reasoning that Villegas had not been “performing work-related duties” when she allegedly was injured because she had ended her work on that day and was in the process of leaving Rudolph’s premises at that point.
Accordingly, the district court concluded, Sentry had a duty to defend Rudolph in Villegas’ lawsuit.
The case is Sentry Select Ins. Co. v. Ruiz.
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Editor’s Note: Sentry tried to rely on the worker’s compensation concept known as the “access doctrine” to argue that Villegas’ injuries had occurred in the course and scope of her employment, but the district court found that doctrine to be “inapplicable.” More significantly, the message from this case for employers – and insurers – is that a “function” covered by an insurance policy’s Host Liability provision may mean more than just holiday parties and company picnics.
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Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is director of FC&S Legal, editor-in-chief of Insurance Coverage Law Report, and founder and president of Meyerowitz Communications Inc.