Exclusion Requested by First Named Insured and Contained in the Prior Policy Is Binding on All Named Insureds, Even Those Unaware of the Exclusion

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In Berkhouse v. Great American Assurance Co., Case no. 13-0264, November 22, 2013, the West Virginia Supreme Court of Appeals rejected the argument by an injured party in a third-party declaratory judgment suit that an umbrella policy’s liquor liability exclusion unknown to a named insured was inapplicable, because to be enforceable in West Virginia, exclusions must be conspicuous, clear and brought to the attention of an insured.

The West Virginia high court was persuaded by the fact that notification of the first named insured, which purchased the policy and specifically requested the exclusion so as to reduce the premium, was sufficient to satisfy the notice requirement for all named insureds. The court also noted that the binder for the policy (as well as earlier policies) in question unequivocally indicated that the policy included the exclusion at issue. While the Berkhouse court noted in its analysis that there was no evidence presented either way as to notice to the other named insureds, the critical fact was that the first named insured was clearly aware of the existence of the exclusion.

Additionally, the court broadly applied the exclusion to a negligence count as to the training and supervision of employees regarding the sale of alcoholic beverages because it likewise pertained to the furnishing of alcohol, which was the focus of the exclusion. Finally, the court held that the reasonable expectations doctrine was inapplicable because the policy language was unambiguous and there was no evidence presented either way as to the expectations of the named insured.

Takeaway
Berkhouse teaches this practical lesson for insurers: At least in West Virginia, where, as here, the first named insured negotiates – and in fact specifically requests – a policy provision (such as a liquor liability exclusion), then such provision will likely be enforceable against any other insureds under the policy or potential third-party beneficiaries, even if such parties are unaware of the existence of the provision in question. This is particularly true where, as here, the relevant policy was a renewal of a policy that contained the disputed provision.

At this point, it is unclear whether Berkhouse will be considered a one-off decision that turned on a unique set of facts or will be seen to have broader precedential value. The Berkhouse court was clearly focused on the fact that the first named insured requested the specific exclusion. Additionally, the court noted with more than a passing reference that the appellant was not an insured and there was no evidence at all about the extent of notice to the other named insureds. The answer to this question will have to await future decisions.