Insurance Law

Broad Interpretation Given To Liquor Liability Exclusion: New ISO Exclusion Not Needed

The Liquor Liability Exclusion, contained in commercial general liability policies, has been under attack. In general, some courts have held that the exclusion does not apply to the failure to prevent the excluded conduct. In other words, say a bar patron is served alcohol, gets in his car and causes an accident that injures someone. This is conduct that is clearly excluded under the CGL policy’s Liquor Liability Exclusion. However, some courts have held that the exclusion does not apply to a claim that the insured’s negligent supervision or hiring or training of others caused the accident.

In an attempt to prevent such interpretation, the Liquor Liability Exclusion, contained in the 2013 version of ISO’s CG 00 01 form, was amended to state that it applies “even if the claims against any insured allege negligence or other wrongdoing in: The supervision, hiring, employment, training, or monitoring of others by that insured; or Providing or failing to provide transportation with respect to any person that may be under the influence of alcohol, if the ‘occurrence’ which caused the ‘bodily injury’ or ‘property damage’” is otherwise excluded.

[Of course, ISO having made this change, the door is now open to the policyholder argument that any Liquor Liability Exclusion, that does not contain this additional broadening language, provides coverage for “failure to prevent” claims. Otherwise, as the old policyholder saw goes, why was there a need to change the form?]

In Capitol Specialty Insurance Corporation v. PJD Entertainment of Worcester, No. 14-40086 (D. Mass. Sept. 1, 2015), [subscribers can access an enhanced version of this opinion: | Lexis Advance], a Massachusetts federal court did not need any new policy language to hold that a Liquor Liability Exclusion precluded coverage for a “failure to prevent” claim.

Kailee Higgins, age 20, was working as a dancer at Centerfolds. She was encouraged to consume excessive amounts of alcohol. While intoxicated and obviously impaired an employee of Centerfolds escorted her to her vehicle. Higgins was involved in an accident and suffered severe injuries, allegedly due to Centerfolds’s service of alcohol and failure to take reasonable precautions to prevent her from driving. Higgins and Centerfolds reached a settlement in the amount of $7.5 million. Higgins agreed to hold Centerfolds harmless for all but $50,000. Centerfolds assigned all rights it has against its insurer, Capitol Specialty, to Higgins.

A CGL policy issued by Capitol Specialty was subject to a $1 million limit. The Liquor Liability Policy, which Capitol Specialty acknowledged provided coverage, was subject to a $300,000 limit. At issue was the applicability of the Liquor Liability Exclusion contained in the CGL Policy.

The Liquor Liability Exclusion did not contain any specific language addressing an insured’s “failure to prevent.” Nonetheless, the court, calling the exclusion straightforward, held that it applied:

“Coverage does not apply to ‘bodily injury . . . for which any insured may be held liable by reason of: (1) [c]ausing or contributing to the intoxication of any person; (2) [t]he furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or (3) [a]ny statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.’ The phrase ‘by reason of’ is unambiguous; it ‘means ‘because of,’ and thus necessitates an analysis at least approximating a ‘but-for’ causation test.’ . . . Based on the allegations of the state court complaint, there is no question that Higgins’ injuries had their genesis in Centerfolds’ actions of serving and encouraging her to consume excessive amounts of alcohol. Without that conduct of Centerfolds’ management and staff, Higgins would not have become intoxicated, she would not have driven home impaired, and she would not have suffered bodily injuries for which Centerfolds is liable. Therefore, coverage is precluded because Centerfolds’ liability exists ‘by reason of causing or contributing to the intoxication of’ Higgins.”

The court was confronted with a “failure to prevent” argument but put a cork in it (at least under the facts before it; which is a significant point, as the court alluded to): “The Court rejects Defendants’ alternative interpretation. … Defendants claim that Higgins’ injuries were not caused by the service of alcohol, but by the negligent failure to prevent impaired driving. (citations omitted). Defendants assert that the words ‘by reason of’ must be construed narrowly, and require that the excluded conduct correspond with the precise theory of liability in the underlying action. Essentially, Defendants argue that because ‘negligent failure to prevent impaired driving’ is not specifically enumerated in the exclusion, coverage is not precluded. To be sure, this might be a different case if Higgins was intoxicated when she arrived at Centerfolds, did not drink while she was there, and Centerfolds allowed her to drive away while still obviously impaired. But those are not the facts of the underlying complaint, which alleges in unequivocal terms that Centerfolds is liable for its conduct in serving and encouraging Higgins to drink in excess.”

While the absence of “failure to prevent” language, in the Liquor Liability Exclusion, did not preclude its applicability in PJD Entertainment, the new version of ISO’s exclusion is undoubtedly going to have an impact in liquor liability claims, under CGL policies, going forward.

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.

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