An Illinois appellate court affirmed the dismissal of an insured's case against an insurer based on the liquor liability exclusion. The case is Phusion Projects, Inc. v. Selective Ins. Co., 46 N.E.3d 1190 (Ill. App. Ct. 2015).
Phusion Projects, Inc. (Phusion) was the manufacturer of an alcoholic energy drink called "Four Loko." From September 2008 to November 2010, six separate lawsuits were filed against Phusion for causing or contributing to the intoxication of a person who had consumed Four Loko beverages and thereafter caused either severe injury or death to themselves or another person. Each individual suit levied multiple counts against Phusion related to Four Loko, ranging from negligence and products liability to negligent failure to warn, strict liability, and negligent advertising and marketing practices.
Phusion had commercial liability coverage under a policy issued by Selective Insurance Company (Selective). When Phusion sought coverage for the underlying lawsuits, Selective denied them all. Phusion filed for declaratory judgment that Selective owed both indemnity and defense for the underlying suits. Selective filed a motion to dismiss, claiming it was not obligated to provide defense or indemnity for any of the underlying suits because the liquor liability exclusion expressly precluded coverage for suits that alleged Phusion had caused or contributed to the intoxication of any person who had consumed Four Loko. The trial court found in favor of Selective and dismissed Phusion's claim with prejudice.
On appeal, Phusion argued it was exempt from the liquor liability exclusion because it was a manufacturer, and the exclusion didn't apply to manufacturers of alcoholic beverages because manufacturing was only part of a person's intoxication. The court disagreed, pointing to the policy language in the exclusion that stated "This [liquor liability] exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages." (emphasis added).
Phusion argued it was owed coverage based on the "sole and proximate cause rule" outlined in United States Fidelity & Guaranty Co. v. State Farm Mutual Automobile Insurance Co., 504 N.E.2d 123 (Ill. App. Ct. 1987). This rule stated that, regardless of whether an excluded peril contributes to an injury, "in order for an injury to be excluded from coverage under an insurance policy, the injury must have been caused solely by a proximate cause which is excluded under the policy." (emphasis added). In that case, the insurer failed to prove the injuries in the underlying case had been caused solely by an excluded peril and was therefore required to provide coverage. Based on United States Fidelity & Guaranty and other Illinois cases like it, the appellate judges in the instant case stated the underlying claims against Phusion would be covered if they asserted a cause or causes of action that were separate and distinct from causing or contributing to the intoxication of the tortfeasors.
Phusion argued the suits were based not on liquor liability, but on "stimulant liability," because the underlying complaints had made specific allegations that the caffeine, taurine, and guarana stimulants in the Four Loko beverages had played a part in causing the intoxication of the tortfeasors. Since stimulant liability is a separate cause of action from liquor liability, Phusion claimed, the liquor liability exclusion was inapplicable.
The court was not persuaded. Phusion had made identical arguments in another liquor liability case, Netherlands Insurance Company v. Phusion Projects, Inc., 737 F.3d 1174 (7th Cir. 2012). In that case, Phusion sought coverage from its insurer, Netherlands, for multiple lawsuits related to individuals who became intoxicated and caused injuries after consuming Four Loko beverages. Though Phusion argued the cases alleged stimulant liability and not liquor liability, the Seventh Circuit affirmed an award of summary judgment in favor of Netherlands. The court said the presence of stimulants in Four Loko was irrelevant because it was the amount of alcohol in Four Loko beverages that determined whether Phusion did or did not cause or contribute to the intoxication of a person, not the addition of stimulants.
Phusion claimed the Seventh Circuit in Netherlands had been wrong to dismiss the presence of stimulants as irrelevant. Some of the underlying suits in the present case contained allegations that specifically referenced the presence of stimulants in Four Loko. However, the appellate judges found that, similar to the Seventh Circuit in Netherlands, "the addition of caffeine, guarana, and taurine to an alcoholic beverage does not have a legal effect on the applicability of the liquor liability exclusion." Though several of the underlying suits claimed the added stimulants had "masked" the signs of intoxication from the individuals who had consumed Four Loko, the common thread to all of the underlying suits was how the alcohol, not the stimulants, in Four Loko beverages had caused or contributed to the tortfeasors' intoxication.
The dismissal of Phusion's action against Selective with prejudice was affirmed.
Editor's Note: The present court agreed with the Netherlands court that, "because of the very nature of the Four Loko product, the stimulants and alcohol cannot be separated." The addition of the stimulants to Four Loko beverages might have changed the drink's formula, but it did not change the fact that Four Loko would be an alcoholic beverage whether or not it included stimulants.
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