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March 5, 2015  

 
 Q&A of the Week

Liquor Liability Issue

An Indiana subscriber recently asked the following question:

Our agency has an insured with a banquet hall and art museum where the insured holds special events and sells alcohol to the guests. Our insured does have a liquor license and liquor liability coverage on its commercial package policy. The insured hires bartenders/servers from a local vendor for these events. The vendor's insurance company has told the vendor that it does not have to carry liability insurance, nor do the bartenders since they are not selling the liquor; our insured is. Our insured is wondering now if it is protected under its liquor liability policy since it seems the vendor and the bartenders do not carry such coverage.


ANSWER: The standard liquor liability exclusion applies to any insured that is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. In our opinion a banquet hall that sells alcohol is definitely in the business of selling, distributing, serving, and furnishing alcohol. It may not be the main source of income for the hall but selling alcohol has to be a huge percentage of income for the insured and probably, if alcohol was not sold, the number of events scheduled for the hall would diminish. So, if your policy has the standard liquor liability exclusionary language, failure to carry liquor liability coverage would be a big mistake in our opinion. The fact that the insured does have liquor liability coverage is a very good risk management decision.

The liquor liability coverage that the insured has will provide it with the necessary liability coverage regardless of whether the vendor and/or the bartenders do not have such coverage. Your insured is an insured under the terms of its policy for injury imposed on it by reason of the selling, serving, or furnishing of any alcoholic beverage. The vendor and the bartenders are not going to be considered as insureds under your insured's policy since they do not meet the descriptions of insureds under the "who is an insured" clauses.
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Noncumulation Clause

The parents of infant tenants injured by exposure to lead paint sued the insurer of an apartment building, seeking a declaratory judgment that the noncumulation clause of the insurance policy did not limit the insurer's liability. This case is Nesmith v. Allstate Ins. Co., 958 N.Y.S. 2d 817 (2013).

The plaintiffs commenced this lawsuit seeking a declaration of the rights of the parties to an insurance policy. Allstate had issued a policy to the building owner (Wilson) with a $500,000 per occurrence limit of liability. In 1993, two children were exposed to lead paint while living in the building and one suffered injuries as a result. In 1994, two children of a subsequent tenant were also exposed to lead in the same apartment.

The first family filed a lawsuit and was paid $350,000. When the second family filed a lawsuit, Allstate took the position that the noncumulation clause in the policy limited its liability to a single policy limit of $500,000. Accordingly, the insurer offered the second family the remaining $150,000 of coverage to settle the second action. This resulted in a lawsuit and the Supreme Court, Monroe County granted summary judgment to the plaintiff. The insurer appealed.
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