December, 1993
Commercial general liability policies usually contain a liquor liability exclusion, eliminating recovery under the policy for liability arising through the sale or furnishing of liquor. This exclusion frequently has been the subject of coverage misunderstandings, arguments and litigation. Who is affected by the exclusion and what activities it reaches depends upon the version of the exclusion included in a general liability policy, the laws of the jurisdiction, and how the courts of the jurisdiction have interpreted its scope.
There are different versions of the liquor liability exclusion in current use—the exclusion as it appears in the 1973 comprehensive general liability policy, the version that is a part of the basic 1986 commercial general liability policy, and the two optional variations, adopted in 1989, available for use with the 1986 general liability program.
The 1973 version is, of course, superseded by the 1986 version; however, many “long-tail” exposures are covered by the terms of that insuring contract and so a discussion of it's language remains relevant.
In 1989, ISO decided to replace the liquor liability exclusion in the 1986 liability form, but in compromise with a stand taken by the National Association of Insurance Commissioners instead provided two amendatory endorsements changing the basic policy's liquor exclusion.
Although the liquor exclusion in general liability policies has been attacked as ambiguous, almost no courts have agreed. Examples of recent cases in which the exclusion has been upheld are: Curbee, Ltd. v. Rhubart, Pa Super Ct, 1991, 1991-92 C.C.H. (Fire & Casualty) 3341 (“it is of no consequence, in interpreting the exclusion, that the alcohol provided was consumed away from the licensed premises or that it was not directly served by an owner or employee of the restaurant. When the restaurant provided the alcohol for consumption, the exclusion was triggered. Its effect was to relieve [the insurer] of the obligation to defend or indemnify”); and Thornhill v. Houston General Lloyds, 802 SW2d 127 (Tex. Ct. Apps., 1991) (insureds argued that the suit alleged the negligent training of employees, and not the providing of liquor, as the cause of liability and that the insurer could not rely on the liquor exclusion to deny coverage; the court stated, “the defendants ask this court to construe the language of the policy such that their liability could attach as a result of some separate, additional reckless or wanton conduct and not from the sale of alcoholic beverages. Such a construction would constitute a misconstruction of the clearly worded policy terms.
Another case making a similar argument (i.e., that a separate and independent cause of action exists for “negligent supervision” of employees which is not reached by the liquor exclusion) is Kelly v. Lee's Old Fashioned Hamburgers, 896 F.2d 923 (U.S. Ct. Apps, 5th Cir.) 1990. Again, the court refused the argument, holding the liquor exclusion valid to deny coverage for the incident.
Even where the insureds argued that they requested “full coverage,” and the insurance agent had knowledge that the insured's business involved the sale of liquor, the exclusion was given full force in denying coverage for damages arising out of the sale of alcoholic beverages. “All that the agent did was to take an order for insurance. Liability for the negligent sale of alcohol is a risk for which a commercial establishment would likely want to be insured. However, an insurance customer has the responsibility to make specific insurance needs known to the insurance company.” (DeJonge v. Mutual of Enumclaw, 104 Or. App. 296, 1991 C.C.H. (Fire & Casualty) 3051.
Similarly, in Sprangers v. Greatway Ins. Co. (Wis. Ct. Apps) 1993, 1993 C.C.H. (Fire & Casualty) 4171, the court held the exclusion valid against an argument that the insurance agent had a duty to point out the exclusion in a general liability policy. The court held the agent had no such duty to advise the insured about the exclusions in the absence of a request.
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