Liquor Liability and the Business of Selling Alcoholic Beverages

 

The matter before the court pertained to a motion by the insurer for summary judgment based on the liquor liability exclusion in the commercial general liability policy. This case is Nationwide Mutual Fire Insurance Company v. Neetu, Inc., 2010 WL 3927568 (D.S.C.).

 

A claim was filed against Neetu and Mundrey based on allegations that employees of Family Mart (a convenience store owned by Neetu or Mundrey or both) sold alcohol to McLemore throughout the day on February 2, 2008. This included selling more alcohol at approximately 9:20 p.m. when McLemore was already visibly intoxicated. The complaint alleged that these sales contributed to the single vehicle motorcycle accident that occurred at about 9:30 p.m. and resulted in the deaths of McLemore, Christopher, and another passenger. All three were killed when the motorcycle driven by McLemore left the road and hit a tree.

 

At the time of the accident, Neetu and Mundrey were insured under policies issued by Nationwide. These policies did include the standard liquor liability exclusion. Based on this exclusion, the insurer denied coverage and south a summary judgment that it had no duty to defend or indemnify Neetu and Mundrey.

 

The argument against summary judgment was based on the allegation that the exclusionary wording was ambiguous. The insured claimed that the liquor liability exclusion is ambiguous because the exclusion only applies if the insured is in the “business of selling, serving, or furnishing alcoholic beverages”. The argument was that the Family Mart was not primarily in the business of selling alcohol, that the proportion of Family Mart's business attributable to the sale of alcohol was miniscule. However, the U.S. District Court said that any sales by Family Mart were clearly made for the purpose of generating profit as part of the regular business of that entity. Moreover, the court found that the liquor liability exclusion has been upheld in numerous jurisdictions.

 

The court ruled that the previous court decisions and the plain language of the policy demonstrated that there was no genuine issue of material fact requiring resolution as Family Mart was indisputably in the business of selling or furnishing alcoholic beverages at the time it sold alcohol to McLemore. The court granted the insurer's motion for summary judgment.

 

Editor's Note: The liquor liability exclusion in the general liability policy is fairly straightforward. A problem can arise, however, due to the qualification that the exclusion applies only if the insured is in the “business” of selling or serving or furnishing alcoholic beverages. What constitutes a “business”? The insureds in this case said that since the sale of alcohol was only a small part of the total business, it could not be said that the insured was in the business of selling or furnishing alcohol. The U.S. District Court disagreed and cited several court rulings on the subject in support of its decision.

 

An insured can use various arguments trying to prevent the application of the liquor liability exclusion, but claiming that its sale of alcohol is merely incidental or that it is not primarily in the business of selling alcohol is a claim that few courts accept. If the insured business makes a direct profit by selling alcohol, it is in the “business” of selling alcohol, and the liquor liability exclusion will be applicable.