Members Only tendered defense of the estate's claim to its commercial general liability insurance carrier, AIX Specialty Insurance Company, which agreed to defend under a reservation of rights.

AIX then filed a declaratory judgment action, seeking a declaration that coverage for the estate's claim was barred under the policy's absolute liquor liability exclusion and, therefore, that AIX had no duty to defend or indemnify.

The U.S. District Court for the Southern District of Florida granted summary judgment in favor of AIX. Members Only appealed to the Eleventh Circuit.

The AIX Insurance Policy

The absolute liquor liability exclusion in the AIX insurance policy stated:

[There is no coverage for] bodily injury . . . for which [Members Only] may be held liable by reason of:

(1) Causing or contributing to the intoxication of any person;

(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies to an insured or his indemnitee who:

(4) Manufactures, sells or distributes alcoholic beverages; or

(5) Serves or furnishes alcoholic beverages with or without a Charge;

(6) Permits others to bring alcoholic beverages on your premises, for consumption on your premises.

This exclusion applies even if the claims against any insured or his indemnitee allege negligence or other wrongdoing in:

(7) The supervision, hiring, employment, training or monitoring of others by that insured; or

(8) Providing or failing to provide transportation with respect to any person that may be under the influence of alcohol.

The Eleventh Circuit's Decision

The Eleventh Circuit affirmed, finding that the absolute liquor liability exclusion "unambiguously" barred coverage.

In its decision, the circuit court found the exclusion's language "clear" in excluding coverage for, among other things, a claim seeking recovery for bodily injury under "[a]ny statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages."

The circuit court noted that the only count alleged against Members Only was a negligence claim brought under Florida's Dram Shop Act. Because the Dram Shop Act was a statute relating to the "distribution or use of alcoholic beverages," the estate's claim "unambiguously" fell outside coverage, the circuit court ruled.

The circuit court added that the exclusion barred coverage for a bodily injury claim in which Members Only was claimed to have caused or contributed to the intoxication of any person or to have furnished alcoholic beverages to a person under the influence of alcohol. The circuit court reasoned that "the crux of the underlying complaint" was that Members Only "knowingly served alcohol to a club patron who was already drunk and was addicted to alcohol." That claim, the Eleventh Circuit ruled, fell within "either of those exclusionary clauses."

The circuit court was not persuaded by Members Only's contention that the exclusion was so broad that it rendered coverage illusory given that Members Only was a club that permitted patrons to bring in alcohol and any claim for bodily injury could theoretically have a connection to alcohol and thus be barred under the exclusion.

In the Eleventh Circuit's opinion, that argument failed because the exclusion did "not eclipse coverage" and "would not swallow every claim for bodily injury." As an example, the circuit court posed a situation where a sober patron tripped in a dimly lit corridor and sued for negligence, reasoning that that claim had "nothing to do with alcohol."

The Eleventh Circuit conceded that the absolute liquor liability exclusion was "a significant exclusion" given Members Only's business, but concluded that it was enforceable.

The case is AIX Specialty Ins. Co. v. Members Only Management, LLC, No. 19-12110 (11th Cir. Dec. 11, 2019).