Appeals Court: Is A Non-Profit “In The Business Of” Selling Or Serving Alcohol For Purposes Of The Liquor Liability Exclusion? [Relevance To ISO’s New Liquor Liability Exclusion]

Appeals Court: Is A Non-Profit “In The Business Of” Selling Or Serving Alcohol For Purposes Of The Liquor Liability Exclusion? [Relevance To ISO’s New Liquor Liability Exclusion]

There are umpteen decisions addressing coverage under liability policies for incidents involving alcohol. They vary in what they are about and include such things as the scope of a liquor liability exclusion in a commercial general liability policy, e.g., whether it includes “failure to prevent”-type claims; the interplay between a CGL policy that excludes the furnishing of alcohol and a policy that provides coverage for the furnishing of alcohol; and the impact of assault and battery exclusions and sub-limits in these policies given the frequency in which liquor and fisticuffs somehow seem to mix.

The Court of Appeals of Ohio recently addressed a more novel issue concerning the applicability of a liquor liability exclusion contained in a commercial general liability policy. In Amanda Mustard v. Owners Ins. Co., No. 13CA3362 (Ohio Ct. App. Mar. 5, 2014), [enhanced version available to subscribers], the court confronted a coverage issue under the following circumstances.

Michael Hiles’s vehicle crossed a center lane on U.S. Route 50 in Ross County, Ohio, striking a vehicle head on that was occupied by the Whitley family. Prior to the accident, Hiles had been drinking alcohol at the Luther Giffin Post No. 14, American Legion, Inc. and was under the influence of alcohol at the time of the accident.

The Whitleys filed suit against the Post, Hiles and others for injuries they sustained. The Whitleys and the Post stipulated that the Post was liable under Ohio’s dram shop statute and common law negligence for serving alcohol to Hiles while he was noticeably intoxicated. They stipulated to a $500,000 judgment and the Whitleys agreed not to execute their judgment against the Post, but, instead, seek satisfaction against the Post’s insurer, Owners.

The Whitleys filed an action against Owners, seeking satisfaction of the stipulated judgment. Owners filed a motion for summary judgment -- asserting that the policy issued to the Post excluded liability because the Post was “in the business of” selling alcohol—as described in the CGL policy’s Liquor Liability Exclusion. The Whitleys responded that the Liquor Liability Exclusion did not apply because the Post, being a non-profit entity, was not “in the business of” selling alcohol as required by the exclusion. The trial court granted summary judgment for the insurer, holding that, although the Post is a non-profit organization, it was engaged in ongoing commercial alcohol sales and, therefore, was “in the business of” selling alcohol.

The Whitleys took a second shot with the Ohio Court of Appeals but did not fare any better there. The appeals court noted that both it and the parties failed to locate any Ohio case law addressing whether an insurance policy, excluding coverage to organizations “in the business of” serving alcohol is ambiguous, when applied to a non-profit organization, such as the Post. Without the benefit of Ohio case law the parties and the court looked to case law from other jurisdictions. There was some -- and it went both ways on the issue.

The court chose to follow the majority view and held that “to determine whether the liquor liability exclusion applies, the focus should be on the activities of the insured, rather than on its corporate status.” The court explained that “nonprofits engage in various profitable business activities to accomplish their permitted purposes; their corporate status does not act as an ipso facto declaration that the nonprofit cannot be ‘in the business of’ a specified profit oriented activity.”

Here, the “Post was licensed to sell alcohol under Ohio law and did so on a daily basis. The Post employed four full-time bartenders, whose wages were subject to federal and state withholdings. It routinely provided alcohol to its members and their guests for a charge and derived profits from these sales. Although the income was used to meet the Post’s operating expenses and to accomplish its civil [sic] goals, this does not mean that the Post sold alcoholic beverages without a profit motive. To the contrary, the Post admits that the profits realized from the sale of alcoholic beverages funded its other activities. In fact, in 2009 the Post realized $195,110 in gross profits from the sale of beer and liquor. All of these facts support a finding that the Post was in the business of selling or serving alcoholic beverages, even under the definition argued for by the appellants, regardless of how the profits were used by the Post.” Thus, the court held that, in the relevant context, the phrase “in the business of” was not susceptible to more than one interpretation. It “plainly excludes coverage for liability arising out of the activity of regularly selling alcoholic beverages for profit.”

What does this decision have to do with ISO’s recently amended Liquor Liability Exclusion in its standard commercial general liability policy? Perhaps nothing. But a brief comment is worthwhile. One of the new amendments to the Liquor Liability Exclusion (the less significant of the two) is the addition of a provision stating: “For the purposes of his exclusion, permitting a person to bring alcoholic beverages on your premises, for consumption on your premises, whether or not a fee is charged or a license is required for such activity, is not by itself considered the business of selling, serving or furnishing alcoholic beverages.”

Essentially, by this amendment, the Liquor Liability Exclusion expressly states that it does not apply to a BYOB. However, based on the reasoning of Mustard v. Owners Ins. Co., a BYOB could be considered to be in the business of selling, serving or furnishing alcoholic beverages. As the court stated in Mustard, “to determine whether the liquor liability exclusion applies, the focus should be on the activities of the insured, rather than on its corporate status.”

Even though a BYOB does not formally sell alcoholic beverages, it could, based on the nature of its activities, and not simply its BYOB “status” – i.e., the Mustard test -- qualify as being in the business of selling, serving or furnishing alcoholic beverages. A BYOB may charge a corkage fee, a nominal convenience fee to open a bottle of wine. This could be considered commercial for purposes of qualifying as “selling.” In addition, the BYOB option is likely offered as an inducement to prospective restaurant patrons – enjoy dinner without the need to pay restaurant prices for a bottle of wine. Again, this could be seen as using alcohol for a commercial purpose. Further, by providing glasses, and wait staff that pours wine, the restaurant could be considered to be serving or furnishing alcoholic beverages.

Given that arguments can be made, based on Mustard, that a BYOB qualifies as being in the business of selling, serving or furnishing alcoholic beverages, the case has relevance to ISO’s new Liquor Liability Exclusion, that states exactly the opposite.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

Read more from this issue of Coverage Opinions.

For more information about LexisNexis products and solutions connect with us through our corporate site