Mr. Sheehan, Marcy A. Sheehan, and Mr. Serrano filed separate personal injury lawsuits against CTRC and others. Their claims against CTRC were based on New York's Dram Shop statutes, N.Y. General Obligations Law § 11-101 and N.Y. Alcoholic Beverage Control Law § 65. The complaints alleged that, sometime in the seven hours prior to the accident, Mr. Gilray had been served alcohol at CTRC's Dyngus Day fundraising event despite being visibly intoxicated, in violation of the laws.

CTRC notified Philadelphia Indemnity Insurance Company ("PIIC"), which had issued a primary and excess policy to CTRC, and PIIC began defending CTRC in both cases.

PIIC asked the U.S. District Court for the Western District of New York to determine that its obligation to defend and indemnify CTRC in the lawsuits existed only under the liquor liability part of the primary policy. PIIC argued that it had no obligation to defend or indemnify CTRC under the commercial general liability ("CGL") part of the primary policy or under its excess policy because those provisions covered "bodily injur[ies]" resulting from an "occurrence" – defined as "an accident" – and not injuries that had been "expected or intended from the standpoint of the insured."

PIIC specifically argued that the Gilray accident was not a covered "occurrence" because the claims arose from CTRC's intentional, non-accidental serving of alcohol. PIIC moved for summary judgment on the basis that no coverage existed under the CGL part of the primary policy or under the excess policy because the underlying lawsuits alleged intentional acts on the part of CTRC.

Mr. Serrano, the Sheehans, and CTRC separately moved for summary judgment on the basis that coverage existed under the plain language of the policies.

The district court, relying on Markevics v. Liberty Mutual Insurance Co., 278 A.D.2d 285 (2d Dep't 2000), aff'd on other grounds, 97 N.Y.2d 646 (2001), granted all three summary judgment motions against PIIC and denied PIIC's motion. The district court held that:

- Coverage existed under the CGL part of the primary policy because a violation of New York's Dram Shop statutes qualified as an "occurrence" under New York law;

- The plain language of the fundraising endorsement in the primary policy established coverage under the CGL part because the claims "indisputably" involved claims of bodily injury "arising out of the Dyngus Day" event; and

- Coverage existed under the excess policy for the same reasons coverage existed under the CGL part of the primary policy.

PIIC appealed to the Second Circuit, arguing that the district court had erred in determining that the "non-accidental action of serving alcohol" constituted a covered occurrence.

The PIIC Policies

The commercial general liability ("CGL") part of PIIC's primary policy provided coverage for any:

bodily injury 

resulting from an:

occurrence 

unless it was:

 expected or intended from the standpoint of the insured. 

It defined

occurrence 

as:

an accident, including continuous or repeated exposure to substantially the same general harmful conditions. 

A fundraising endorsement to the CGL part stated that it:

modifies 

the CGL part, specifically providing coverage for bodily injuries:

arising out of 

covered events. The liquor liability part for of the CGL policy provides $1 million in additional coverage for injury claims caused:

by reason of the selling, serving or furnishing of any alcoholic beverage.  

PIIC's excess policy provided a separate layer of coverage in the amount of $1 million in addition to the coverage under the primary policy for bodily injuries caused by an:

occurrence 

, defined as above. 

New York's Dram Shop Laws

New York law provides:

Any person who shall be injured . . . by any intoxicated person, or by reason of the intoxication of any person, . . . shall have a right of action against any person who shall, by unlawful selling to or unlawfully assisting in procuring liquor for such intoxicated person, have caused or contributed to such intoxication. . . .

N.Y. Gen. Oblig. Law § 11-101.

It also provides:

No person shall sell, deliver or give away or cause or permit or procure to be sold, delivered or given away any alcoholic beverages to

1. Any person, actually or apparently, under the age of twenty-one years;

2. Any visibly intoxicated person;

3. Any habitual drunkard known to be such to the person authorized to dispense any alcoholic beverages.

4. Neither such person so refusing to sell or deliver under this section nor his or her employer shall be liable in any civil or criminal action or for any fine or penalty based upon such refusal, except that such sale or delivery shall not be refused, withheld from or denied to any person on account of race, creed, color or national origin.

Alcoholic Beverage Control Law Section 65.

The Second Circuit's Decision

The circuit court affirmed.

In its decision, the circuit court agreed with the district court that a violation of the Dram Shop statutes that resulted in a car accident qualified as "an occurrence" under New York law. Certainly, it said, "CTRC did not intend or expect the accident that followed the fundraising event."

Moreover, the Second Circuit continued, that CTRC intended to sell alcohol to Mr. Gilray also did not render the subsequent injuries "intended" by CTRC for purposes of excluding coverage, "even if those injuries were arguably foreseeable to CTRC."

The circuit court rejected PIIC's contention that the district court had incorrectly relied on dictum in Markevics, and that this was an issue of first impression that required the court to predict how the New York Court of Appeals would rule.

According to the Second Circuit, a number of New York courts, in a line of cases reaching back to then-Judge Cardozo's opinion in Messersmith v. American Fidelity Co., 232 N.Y. 161 (1921), also have found that CGL policies covered injuries where an accident was the unintended result of an intentional act. See, e.g., Salimbene v. Merchants Mut. Ins. Co., 217 A.D.2d 991 (4th Dep't 1995) ("Accidental results can flow from intentional acts. The damage in question may be unintended even though the original act or acts leading to the damage were intentional."); Allegany Co-op Ins. Co. v. Kohorst, 254 A.D.2d 744 (4th Dep't 1998) (holding that "[t]here is coverage if the damages alleged in the complaint arise out of a chain of unintended though foreseeable events that occurred after the intentional act" (internal quotation marks omitted).

In addition, the circuit court was not persuaded by PIIC's assertion that CTRC's sale of alcohol to Mr. Gilray, not the accident, was the operative event giving rise to the legal claims against CTRC because the Dram Shop statutes imposed strict liability for such a sale. It explained that a Dram Shop claim not only required an unlawful sale – meaning that the person selling or otherwise providing an intoxicated person with alcohol knew the person already was intoxicated – but also required an underlying injury. In the circuit court's opinion it made "little sense to characterize the claims at issue as arising solely from the sale of alcohol, separate and distinct from the accident causing the requisite injury."

The Second Circuit added that the car accident in this case was a "fortuitous event from the perspective of CTRC," and as a result the fortuity doctrine did not preclude coverage under the policy's fundraising endorsement. Indeed, the circuit court said, coverage under the CGL part also existed by virtue of the fundraising endorsement in the primary policy.

Finally, the Second Circuit was not persuaded by PIIC's contention that because CTRC had purchased liquor liability coverage under the primary policy, that provision was more "specific" than the general CGL coverage as applied to the facts of this case, and thus controlled. According to the Second Cicuit, the CGL fundraising endorsement "clearly" conferred insurance coverage for bodily injuries – without limitation – arising from the Dyngus Day event. The liquor liability part did not expressly limit the amount of coverage provided to CTRC but instead provided "an additional $1 million for claims arising from the sale of alcohol, for which CTRC paid a $1,000 premium." To the extent there was ambiguity as to whether the liquor liability part limited the coverage provided under the CGL part, the circuit court construed the terms "in the light most favorable to CTRC."

It concluded that for the same reasons that coverage existed under the CGL part of the primary policy on the basis that a car accident resulting from a purported violation of the Dram Shop statutes was a covered "occurrence," coverage existed under the excess policy.

The case is Philadelphia Indemnity Ins. Co. v. Central Terminal Restoration Corp., No. 17-1636-cv (2d Cir. Feb. 21, 2018). Attorneys involved include: Counsel: FOR PLAINTIFF-COUNTER-DEFENDANT-APPELLANT: CHRISTOPHER T. BRADLEY, Marshall Conway & Bradley, P.C., New York, New York. FOR DEFENDANT-COUNTER-CLAIMANT-APPELLEE CENTRAL TERMINAL RESTORATION CORPORATION: KENNETH W. AFRICANO (Patrick M. Tomovic, on the brief), Harter Secrest & Emery, LLP, Buffalo, New York. FOR DEFENDANTS-COUNTER-CLAIMANTS-APPELLEES WILLIAM SHEEHAN AND MARCY A. SHEEHAN: R. CHARLES MINER, Smith Miner O'Shea & Smith, LLP, Buffalo, New York. FOR DEFENDANT-COUNTER-CLAIMANT-APPELLEE MICHAEL A. SERRANO: JOSEPH A. MATTELIANO, Auguello & Matteliano, LLP, Buffalo, New York.