Drunk Driving may be Covered under the CGL

 

May 31, 2017

 

Recently, a federal district court in New York ruled that lawsuits against an insured, alleging that it had served alcohol to a visibly intoxicated or impaired person who subsequently injured people while driving an automobile, are covered under a commercial general liability (CGL) insurance policy. The case is Philadelphia Indemnity Ins. Co. v. Central Terminal Restoration Corp., No. 16-cv-280 T (W.D.N.Y. May 7, 2017)

 

In the case at hand, the insurer, Philadelphia Indemnity Insurance Company (PIIC) had issued to the insured, Central Terminal Restoration Corporation (CTRC), the “primary policy” including a CGL coverage part, a fund-raising events endorsement, and a liquor liability coverage part. An excess policy was also issued providing higher aggregate and occurrence limits. The CGL coverage part of the policy provides coverage for “bodily injury caused by an occurrence defined as including: an accident. . . .”

 

CTRC is a not-for-profit organization tasked with finding a reuse for the Central Terminal Railway Station in Buffalo, New York. CTRC obtained a temporary liquor license for a fund-raising event where alcohol was served. Two lawsuits filed by two injured parties allege that Thomas Gilray was served alcohol at the fund-raising event despite being visibly intoxicated, and he subsequently injured the two parties, Sheehan and Serrano, while operating a motor vehicle. After the lawsuits were filed, CTRC provided timely notice of the claims to PIIC. PIIC has been providing CTRC with defense for the claims since the suits were filed in 2013. In January 2016, PIIC sent a letter to CTRC stating that they would provide coverage only under the liquor liability coverage part of the Primary Policy and not under the CGL coverage part or under the Excess Policy. PIIC subsequently commenced this action seeking a declaration that its obligation to defend and indemnify exists only under the liquor liability coverage part to the Primary Policy, and because the wrecks occurred after intentional actions, they are not “accidental results”.

 

Applying New York law, the district court ruled that the claims in the Sheehan and Serran lawsuits were covered under the CGL coverage part of the PIIC policy. The district court stated that under New York law it was well-established that in deciding whether a loss was the result of an accident the loss must be unexpected, unusual, and unforeseen from the viewpoint of the insured. They continued by stating that “accidental results” can “flow from “unintentional acts”. Since no one had alleged (and nothing in the record could support a finding) that CTRC intended to injure Sheehan and Serrano by overserving Mr. Gilray, the court determined that the injuries were a result of “a series of unforeseen automobile accidents”. Because of this, the argument that the Serrano and Sheehan suits did not involve claims for bodily injuries caused by an occurrence fails.

 

Editor's Note: The liquor liability coverage under the CGL is otherwise called “host liquor liability” coverage. It is an exception to the liquor liability exclusion to cover liquor liability when it is served by an insured who is not in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. Since the CTRC is not in the business of … alcoholic beverages, then the CGL would provide coverage for this fund-raising event. The court found that the CGL was primary coverage because under 4. Other Insurance, the fund-raising event did not meet any of the items listed in b. Excess Insurance; therefore, it was considered primary.

In reflection of this analysis, when would the court think the LL policy would apply for this insured who had both a CGL and a LL policy? In the court's analysis the only way the LL would have been considered as primary would be if there had been a total exclusion for LL on the CGL. This might cause ISO to have to look to their forms for a total LL exclusion to add to the CGL that would re-direct the exposure to the LL form.